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CFPB Report December 13, 2013
CFPB Releases First Phase of Arbitration Study
In conjunction with a field hearing in Dallas, TX on Thursday, December 12, 2013, the CFPB releasedphase one of its study on consumer use of mandatory arbitration clauses in connection with consumer financial products and services. The Dodd-Frank Act requires the CFPB to conduct a study of the use of pre-dispute arbitration clauses in consumer markets. The Act also provides the CFPB with authority to issue regulations on the use of arbitration clauses if it believes doing so is in the public interest for the protection of consumers.
According to the CFPB’s press release, “The research indicates that arbitration clauses are commonly used by large banks in credit card and checking account agreements and roughly 9 out of 10 clauses allow banks to prevent consumers from participating in class actions. The research also shows that while tens of millions of consumers are subject to arbitration clauses in the markets the CFPB studied, on average, consumers filed 300 disputes in these markets each year between 2010 and 2012 with the leading arbitration association.”
The CFPB’s field hearing included testimony from consumer groups, industry representatives, and members of the public.
CFPB Issues Enforcement Action Against CareCredit
On Tuesday, December 10, 2013, the CFPB ordered GE Capital Retail Bank and its subsidiary, CareCredit, to refund up to $34.1 million to potentially more than one million consumers who paid exessive interest rates for credit cards to cover health care procedures. The CFPB said the company engaged in deceptive enrollment tactics when consumers signed up for credit cards medical and dental offices.
The Bureau claims that CareCredit utilized:
- Deceptive enrollment processes: The CFPB found that service providers misled some consumers during the enrollment process by not providing adequate guidance clearly laying out the terms of the deferred-interest loan. CareCredit’s limited involvement during the enrollment process and lack of oversight and monitoring allowed this deception to continue.
- Inadequate disclosures: Many consumers did not receive copies of the actual CareCredit agreements and instead had to rely only on the oral explanations given by the service provider or office staff. Many consumers were enrolled on the belief that it was an interest-free card, and did not understand that they were actually agreeing to a deferred-interest product with a 26.99 percent interest rate.
- Poorly trained staff: Many staff members in the health-care offices, who were responsible for explaining the CareCredit agreement to borrowers, had received little or no training by CareCredit, and relied only on pamphlets. In interviews with CFPB investigators, some providers admitted that they were themselves confused by the deferred-interest card.
During a press call regarding the enforcement action, CFPB Director Richard Cordray said, "When people seek medical care, they are in a particularly vulnerable situation. They are sick or injured, or maybe a loved one is in pain. They are not thinking carefully about the terms of a financial contract—fees, penalties, interest rates. Their focus is on getting physically better."
FDIC Releases SIFI Resolution Plan for Comment
On Tuesday, December 10, 2013, the FDIC released its detailed plan for utilizing the Single Point of Entry (SPOE) strategy to resolve systemically important financial institutions (SIFIs) to implement the FDIC's Orderly Liquidation Authority under Title II of the Dodd-Frank Act.
Under its plan, the FDIC would create a “bridge company” to take the place of the holding company, assuming control over all of its subsidiaries and affiliates, which would continue operations to preventing widespread market disruptions. The bridge company would capitalize from the assets of the failing institution or, if available capital was insufficient, from loans from the private sector or the government.
In a statement on Tuesday, FDIC Chairman Martin Gruenberg said, “The FDIC must resolve systemically important financial institutions in a manner that holds their shareholders, creditors and culpable management accountable for their failure while maintaining the stability of the U.S. financial system.” In separate remarks, FDIC Board Vice Chairman, OCC Comptroller Thomas Hoeing, said, “the statement...outlines one strategy for resolving these firms, called the Single Point of Entry. However, in outlining this strategy, the FDIC also recognizes that there are many challenges to its implementation and is appropriately seeking public comment on its viability.”
The FDIC is seeking public comment on the strategy. Comments are due 60 days after publication in the Federal Register.
HUD Finalizes FHA QM Guidelines
On Wednesday, December 11, 2013, the U.S. Department of Housing and Urban Development released its final rule on protections for lenders writing Federal Housing Administration (FHA) backed loans. The rule includes safe harbor qualified mortgages (QM) and a rebuttable presumption QM.
The FHA standards build on guidelines similar to those issued by the CFPB, giving lenders a “safe harbor” from borrowers facing foreclosure and challenging whether the lender determined their ability to afford the loan.
Senate Banking Committee Holds Hearing on Transferring Credit Risk in Housing Finance
On Tuesday, December 10, 2013, the Senate Banking Committee held a hearing entitled: “Housing Finance Reform: Fundamentals of Transferring Credit Risk in a Future Housing Finance System.” The hearing examined ways in which to attract private capital to take on credit risk in front of a government guarantee. Freddie Mac, Fannie Mae, the Mortgage Guaranty Insurance Corporation, and Barclays Capital participated in the hearing. In his opening statement, Committee Chairman Tim Johnson (D-SD) said, “I’m also concerned that in a system with multiple private capital structures as options, not all forms of private capital will provide equal protection for taxpayers.” He indicated the Committee has a number of important considerations to address before it releases a final bill.