CFPB Report - April 3, 2015

CBA Comments on Prepaid Proposed Rule
On Friday, March 20, 2015, CBA and the Financial Services Roundtable submitted a comment letter to the CFPB regarding proposed rulemaking on prepaid products. The groups stressed the importance of avoiding regulation that increases costs and decreases availability because such impacts are likely to be felt most acutely by consumers who are least able to obtain alternative financial services.

CBA stated: "as written, the Proposal would make comprehensive changes to the regulatory landscape for prepaid accounts that may impose significant cost on issuers. This could impose additional costs for consumers, thus reducing accessibility of prepaid products. In so doing, it could limit the value of prepaid products as a lower-cost alternative to checking accounts, particularly for unbanked and underbanked populations. As such, we believe the Proposal will stifle the industry's ability to innovate to meet these needs, as it will be prohibitively expensive and complex to offer these products at a competitive and low price."


CBA Warns Against Standardized Campus Accounts
On Monday, March 30, 2015, CBA and the American Bankers Association submitted a comment letter to the CFPB concerning the agency's proposed campus product scorecard stating colleges should be able to work with banks to offer a flexible array of deposit products to their students.

"The proposed scorecard appears singularly focused on driving colleges and universities into limiting insured depository institutions to offering a particular type of deposit program with restricted features to students," CBA said. "We simply do not believe this one-size-fits-all approach will achieve the stated objectives of the Bureau to enable colleges and universities across the nation to evaluate fairly and adequately the variety of deposit products and services that prospective insured depository institutions could offer students."


CFPB Adds Narratives Complaint Portal, Considers Publishing Compliments
On Thursday, March 19, 2015, the CFPB released a final policy statement providing a mechanism for consumers to opt in to sharing their narratives on the CFPB complaint portal. While the opt-in option was effective immediately, the Bureau will start posting the narratives 90 days after publication in the Federal Register. Among other provisions, the final policy statement provided:

  • Consumers must opt-in;
  • The CFPB will remove personal information from narratives;
  • Companies can choose to respond using one of nine structured responses provided by the CFPB;
  • Consumers can opt-out at any time; and
  • Complaints must meet certain criteria to qualify for publication.

If a company chooses to respond, it must select from a list of nine structured responses provided by the CFPB. There is no option for an institution to author its own response. Companies choosing to respond must do so within 180 days after the consumer complaint is sent to their business. Institutions may select a structured response for all consumer complaints submitted after the policy statement was released, regardless whether a narrative is included. The CFPB will publish the consumer narrative either when the company provides its response, or after the company has had the complaint for 60 calendar days, whichever comes first.

In the same press release, the CFPB issued a request for information, due 60 days from publication in the Federal Register, seeking feedback about publishing positive comments for consumers' positive experiences with a company's complaint handling process and compliments independent of the complaint handling process.


CFPB Outlines Path for Payday Lending
On Thursday, March 26, 2015, the CFPB released an outline of restrictions the Agency is considering for payday loans and other short-term liquidity products. The restrictions being considered would apply not only to payday loans, but would also include vehicle title loans, deposit advance products, and certain "high-cost" installment loans and open-end loans.

"Today we are taking an important step toward ending the debt traps that plague millions of consumers across the country," said CFPB Director Richard Cordray. "Too many short-term and longer-term loans are made based on a lender's ability to collect and not on a borrower's ability to repay. The proposals we are considering would require lenders to take steps to make sure consumers can pay back their loans. These common sense protections are aimed at ensuring that consumers have access to credit that helps, not harms them."

The outline contemplates two alternative approaches lenders could choose from for what the Bureau considers short-term and long-term loans. According to the CFPB, these approaches focus on preventing or protecting consumers from getting caught in "debt traps" through sustained use. Under the prevention requirements, lenders would have to determine at the outset of each loan that the consumer is not taking on unaffordable debt. Under the protection requirements, lenders would have to comply with various restrictions designed to ensure that consumers can affordably repay their debt.

Short-term loans (consumers pay back the loan within 45 days):

  • Prevention: Verify ability to repay (including interest, principal, and fees or add-ons) and lenders would generally have to adhere to a 60-day cooling off period between loans unless they are able to document improvement in the borrower's financial circumstances and their ability to repay a new loan without re-borrowing (no exemption from 60-day cooling off period after three loans in a row). A loan cannot be made to a borrower with any outstanding loans subject to the rules that came from another lender.
  • Protection: Provide affordable repayment options and limit the number of loans a borrower could take out over the course of the year and require lenders to provide affordable repayment options. Rollovers would be capped at two (three loans total) followed by a mandatory 60-day cooling off period. Rollovers would be allowed only if "the lender offers an affordable way out of debt" - either requiring a principal reduction over the course of the three loans, or the lender providing a no-cost "off-ramp" if the borrower is unable to repay after the third loan to avoid additional fees. Loans lasting no more than 45 days could not exceed $500, exceed one finance charge or force the borrower to use their vehicle as collateral. Again, borrowers could not have other outstanding loans that were provided by another institution.

Long-term loans (loans with more than a 45-day term that can be collected through a deposit account or paycheck and have an "all-in" APR greater than 36 percent, including fees):

  • Prevention: Ability to repay requirement including each time the borrower seeks to refinance or re-borrow. A lender could not refinance a borrower into another loan if the borrower had been delinquent on a payment and the lender had not shown that the borrower's financial situation had improved.
  • Protection: The CFPB is considering two approaches:
  1. Modeled after the National Credit Union Administration's "payday alternative loans," a loan would be subject to a 28 percent interest rate cap and application fees of no more than $20. A borrower could only take out two loans within a six-month period.
  2. The amount the consumer is required to repay each month cannot exceed 5% of the borrower's gross monthly income. The borrower could not take out more than two loans within a 12-month period. Restricting payment collection practices (both short-term and long-term lenders) requires three businesses days borrower notification before accessing deposit accounts, and a limit of two unsuccessful withdrawal attempts that lead to deposit account fees unless the consumer provides a new authorization.

The announcement focuses on the agency's SBREFA panel process and is not a notice of proposed rulemaking. The SBREFA process, a small business impact review required under Dodd-Frank, is expected to take two to three months after which we are likely to see an official proposal.

CFPB Releases 2014 Consumer Response Annual Report
On Monday, March 30, 2015, the CFPB released its Consumer Response Annual Report for the previous calendar year, detailing statistics of consumer complaints received for debt collection, mortgages, credit reporting, student loans, credit cards, payday loans, and prepaid cards. Each section identified consumer complaint trends the Bureau observed within these markets.

The report highlights a case study on credit reporting complaints, which increased 85 percent year-over-year – approximately 24,200 complaints in 2013 to 44,700 in 2014. The Bureau attributed the increase to a number of factors including increased awareness by consumers about their credit records due to high profile data breaches, and increased awareness for the Bureau's complaint portal. Thirty-four percent of credit reporting complaints were closed with relief compared to 16 percent for all other products. The CFPB indicated credit reporting agencies frequently provide free copies of a consumer's credit reports in response to complaints, which also may have contributed to the increase.


House Votes on Financial Institution Regulatory Relief, CFPB Bills
On Wednesday, March 25, 2015, the House Financial Services Committee began considering several bills which could affect the CFPB and depository institutions. All of the bills previously had bipartisan support and were favorably reported, some by a unanimous vote. In his opening statement, Committee Chairman Jeb Hensarling (R-TX) underscored his bipartisan approach and the goal of providing regulatory relief to community financial institutions. Ranking Member Maxine Waters (D-CA) remained skeptical of changes to the CFPB and legislation benefiting larger financial institutions.

"Every time a community bank or credit union dies, so too the dreams of tens of millions of our fellow citizens, hardworking taxpayers who rely upon their hometown banks and credit unions," said Chairman Hensarling. "The biggest banks continue using community banks as a true journalist to dismantle critical consumer protection and financial stability laws and acted in the aftermath of the worst financial crisis in a generation."

A brief summary of each of the following bills may be found here:
H.R. 299, the Capital Access for Small Community Financial Institutions Act of 2015
H.R. 601, the Eliminate Privacy Notice Confusion Act
H.R. 650, the Preserving Access to Manufactured Housing Act of 2015
H.R. 685, the Mortgage Choice Act of 2015
H.R. 1195, the Bureau of Consumer Financial Protection Advisory Boards Act
H.R. 1259, the Helping Expand Lending Practices in Rural Communities Act
H.R. 1265, the Bureau Advisory Commission Transparency Act
H.R. 1367, to amend the Expedited Funds Availability Act to clarify the application of that Act to American Samoa and the Northern Mariana Islands
H.R. 1408, the Mortgage Servicing Asset Capital Requirements Act of 2015
H.R. 1480, the SAFE Act Confidentiality and Privilege Enhancement Act
H.R. 1529, the Community Institution Mortgage Relief Act of 2015
Resolution to establish the Task Force to Investigate Terrorism Financing

The U.S. House of Representatives could vote on these bills as soon April 2015.

House Committee Approves Cyber Threat Info Sharing Bill
On Thursday, March 26, 2015, the House Permanent Select Committee on Intelligence approved by voice vote the Protecting Cyber Networks Act (S. 1560), which would enable companies to voluntarily share cyber threat information with each other and the federal government, and provides liability protections for those sharing such information in good faith. The bill also attempts to address the privacy concerns of previous iterations of this legislation by including a prohibition on the direct sharing of information with the U.S. Department of Defense and the U.S. National Security Agency, and requiring companies remove personally identifiable information from the data they share. On passage of the legislation, Committee Chairman Devin Nunes (R-CA) stated: "This bill will help defend U.S. networks against a wide array of cybercriminals who are becoming more active and more threatening every day. It's a bipartisan approach with strong privacy protections that will have a deep impact on this growing problem. In light of the urgency of the situation, I encourage House members to support this bill." Last month, the Senate Intelligence Committee approved similar legislation by a 14-1 vote.


House Subcommittee Considers Data Breach Legislation
On Tuesday, March 24, 2015 the House Energy & Commerce Subcommittee on Commerce, Manufacturing, and Trade held a markup to consider the Data Security and Breach Notification Act of 2015. The bill, introduced by Reps. Marsha Blackburn (R-TN) and Peter Welch (D-VT), was approved as amended by voice vote. There was push back from some Democrats regarding the level of data security and concerns regarding preemption of stronger state laws.

Specifically, four amendments were accepted by the subcommittee, including a more clearly defined carve out for "financial institutions;" an amendment requiring breached third-party entities to provide notification directly to affected consumers and give a non-breached company with whom the third-party does business the option to provide the notification in place of the breached third-party; an amendment requiring education and outreach for small businesses; and an amendment requiring the Federal Trade Commission to provide a website including best practices for securing data. The bill is expected to be considered by the full Energy and Commerce Committee in the coming weeks.


Senate Banking Committee Continues Consideration of Regulatory Relief for Regional Banks
On Tuesday, March 24, 2015 the Senate Banking Committee held a second hearing entitled: "Examining the Regulatory Regime for Regional Banks," after hearing from regulators about this topic on March 19, 2015. Witnesses included regulatory experts, academics, and Regions Financial Corporation on behalf of the Regional Bank Group. The designation of financial institutions as systemic continued to be the primary topic of debate as Senators weighed the value of using an asset threshold (which is currently $50 billion) or factors that do more to account for riskiness of the institutions business.

In his opening statement, Committee Chairman Richard Shelby (R-AL) said, "Instead of giving our regulators the flexibility to properly direct resources by focusing on the institutions that present the most risk, the law creates a clear line of demarcation based purely on the institution's size. Therefore, the regulators are unable to scale regulation in a manner that reflects a bank's risk profile and activities." Ranking Member Sherrod Brown (D-OH) said, "It is important that we advance the conversation – to ensure that prudential regulations for regional banks are crafted appropriately."

During his testimony, Deron Smithy from Regions Bank referenced a recent report from the U.S. Department of Treasury's Office of Financial Research which found the top six banks had an average systemic score of 319 –more than 25 times higher than the average of the regional banks. A witness representing the Bipartisan Policy Center indicated the $50 billion asset threshold "clearly includes the institutions that are not systemically important." Simon Johnson, a Professor of Entrepreneurship at the MIT Sloan School of Management, was open to increasing the asset threshold for SIFI designations but also urged the Committee to consider risks associated with assets not held on the balance sheet.


House Members Request Delay on TILA/RESPA Disclosures
On Friday, March 27, 2016 the two subcommittee chairmen with jurisdiction over the housing and consumer financial markets wrote Director Cordray about the implementation timeframe for the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) Integrated Disclosures (TRID). Chairman of the Financial Institutions and Consumer Credit Subcommittee Randy Neugebauer (R-TX), and Chairman of the Housing and Insurance Subcommittee Blaine Luetkemeyer (R-MO), requested the CFPB provide flexibility on the August 1, 2015 implementation deadline. "We strongly encourage you to make the August 1, 2015 to December 31, 2015 timeframe a 'hold harmless' period of restrained enforcement and liability. This would allow all parties to better understand the changes associated with TRID and help ensure consumer confidence and stability in the nation's housing market," the chairmen said.

The letter notes the U.S. Department of Housing and Urban Development had a similar policy when it made changes to RESPA in 2015, and also flags August as one of the busiest times for home closings, offering statistics on this point.


House and Senate Budgets Approved, Readied for Conference Committee
Last week, the House and Senate approved their versions of the Fiscal Year 2016 (FY16) budget. On Wednesday, March 25, 2015, the House passed its budget by a vote of 228 to 199 – with 17 Republicans and 182 Democrats in opposition. The $3.8 trillion budget, which aims to reduce spending by $5.5 trillion and ultimately achieve balance within 10 years, was amended to include an increase in war spending which secured the support of a faction of defense hawks thereby allowing its passage.

After a week of consideration and dozens of amendment votes, the Senate approved its budget, which contains many similarities to the House version, by a vote of 52 to 46 – with Sens. Rand Paul (R-KY) and Ted Cruz (R-TX) joining Democrats in opposition. Notably, both budgets include provisions to subject the CFPB to Congressional appropriations and to allow the use of fair value accounting to more accurately measure the impact of changes to federal credit programs.

Prior to final passage, the Senate voted on dozens of amendments, ultimately concluding its unrestricted amendment process after 3 a.m. on Friday, March 27, 2015. Earlier in the week, the Senate considered two amendments related to student loans: an amendment offered by Sen. Elizabeth Warren (D-MA), which failed by a vote of 46 to 53, and an amendment offered by Sen. Richard Burr (R-NC), which was accepted by voice vote. The Warren amendment would have provided a path for legislation to permit borrowers with outstanding Federal and private student loans to refinance using the 2013 Federal student loan interest rates. Senator Burr offered an alternative amendment to allow for legislation to establish manageable Federal student loan repayment options, to include reducing overlapping student loan repayment programs and creating a simplified income-driven student loan repayment option.

The Senate also considered an amendment offered by Sen. Jeff Merkley (D-OR), which would have allowed for consideration of legislation "relating to consumer financial protection, which may include measures ensuring that the CFPB has authority and autonomy to continue to protect consumers from predatory lending, misleading behavior, or abusive behavior in the financial marketplace, or other unscrupulous practices." After comments from Budget Chairman Mike Enzi (R-WY) on the CFPB's lack of accountability to Congress, the amendment failed by a vote of 46 to 54.

Sens. Sherrod Brown (D-OH) and David Vitter (R-LA) joined forces again to build off of their successful 2013 "too-big-to-fail" budget amendment. The new amendment would allow for legislation to place restrictions on banks with over $500 billion in assets that lack "credible" resolution plans. The legislation could allow modifications to capital or leverage requirements, restrictions on activities, or divestiture of assets or operations. The amendment was approved by voice vote.

A conference committee is expected to convene after the two-week recess to reconcile the differences between the House and Senate budgets. A conferenced budget would serve as Congress's framework for the FY16 appropriations process.


CBA Submits Comment on Death Master File Utilization
On Monday, March 30, 2015, CBA submitted a comment letter to the National Institute of Standards and Technology's National Technical Information Service (NTIS) concerning its proposal for a certification program for accessing the Death Master File (DMF). CBA expressed support for the NTIS's efforts to implement the requirements of the Balanced Budget Act, and protect DMF data from misuse, while balancing the need to preserve access and availability of the DMF data for important fraud detection and legitimate business purposes.

CBA wrote, "Imposing significant costs and burdens on users of DMF data could have significant adverse consequences on consumers and businesses, including financial institutions. Instead of seeking to establish a new, expensive and unproven DMF certification program, CBA strongly urges the NTIS to instead utilize the system that was set up by the Interim Rule."