CFPB Report - December 4, 2015

Bureau Releases CARD Act Report
On Thursday, December 3, 2015, the CFPB released its biyearly report on the effects of Credit Card, Accountability, Responsibility and Disclosure (CARD) Act on consumer credit. Signed into law in May of 2009, the Bureau assumed authority for the Act in July 2011. The law directs the CFPB to regularly review the credit card market and the impact of the law's rules. The report, the second of its kind from the CFPB, asserts consumers are paying less for their credit cards than they did before the Act, and those costs are easier to predict before they are incurred. The CFPB further indicates in the report that credit availability has continued to expand for consumers and credit card users have saved more than $16 billion under the reforms. Specifically, the report found: 

  • Consumers have avoided more than $9 billion in over-limit fees;
  • Consumers have saved more than $7 billion in late fees;
  • Total cost of credit is roughly 2 percentage points lower than before the Act;
  • Available credit has increased 10 percent since 2012;
  • More than 100 million credit card accounts were opened in 2014; and
  • More than 100 million credit card accounts offer consumers free access to their credit scores.

The CFPB also indicated several problems with the card market remain, including:

Deferred interest promotions: Deals offering zero percent interest for a set period are "the most glaring exception to the general post-CARD Act trend toward upfront credit card pricing," according to the report. About three-quarters of consumers who opted for six- and 12-month promotions that began in 2013 failed to pay off their purchase by the deadline, triggering built-up interest charges. Interest charges are typically 25 percent, and most of the costs hit people with subprime credit scores.
Rewards programs: The highly popular programs for points, miles or cash back come with an array of ins and outs, but consumers may not receive key terms of the programs until after they enroll. Problems collecting sign-up bonuses were the biggest source of complaints about rewards.
Debt collection practices: Complaints about debt collection agencies often involve credit card debt. The CFPB found numerous problems with conduct of third-party collectors, "including the accuracy and completeness of their information."
"The CARD Act has helped people avoid more than $16 billion in gotcha credit card fees," said Director Cordray. "The law made it easier for consumers to evaluate costs and risks by eliminating the worst back-end pricing practices in the market. There is more work to do. But with commonsense rules in place, credit cards are safer and more affordable, credit is more available, and companies remain profitable with improved customer satisfaction."
CFPB Takes Action Against Subprime
On Thursday, December 3, 2015, the CFPB issued an order against a nationwide credit reporting company, Clarity Services, Inc., and its owner, Tim Ranney, for allegedly illegally obtaining consumer credit reports. The company was also cited for possible violations of law by failing to appropriately investigate consumer disputes. The Bureau is ordering the company and its owner to halt their illegal practices and improve the way they investigate consumer disputes and obtain, sell, and resell consumer credit reports. The company and Ranney must also pay an $8 million penalty to the Bureau.
Ombudsman's Annual Report to Director Cordray
On Wednesday, December 2, 2015, CFPB Ombudsman Wendy Kamenshine submitted the CFPB Ombudsman's Office FY2015 Annual Report to agency Director Richard Cordray. The accompanying blog post indicated the report addresses "CFPB field hearings, language used in CFPB consent orders and their corresponding press releases, and defining company response options in conjunction with the CFPB's public Consumer Complaint Database." Notably, the report has an extensive section on the Consumer Complaint Database, which included discussion on the definition of a "duplicate" complaint. The Ombudsman recommended the Bureau's Office of Consumer Response update the definition of a duplicate that is not a verbatim copy, noting participants in the Ombudsman Forum suggested the definition include "the same person, same transaction, and same issue." She also recommended the CFPB publish the existing verbatim definition on the Consumer Complaint Database webpage so consumers can adjust their analyses accordingly.
Further addressing complaints, the Ombudsman recommended Consumer Response study the use of administrative and substantive response categories, as well as optional public response options, due to the disproportionately high use of "closed with explanation."
CFPB Launches HMDA Implementation Website
On Wednesday, December 2, 2015, the CFPB launched a website to assist lenders with implantation of the Home Mortgage Disclosure Act (HMDA) final rule released October 15, 2015. The website contains various tools to explain the rule, including a Small Entity Compliance Guide, guidance on when lenders list is "not applicable," institutional coverage chart for 2017 and 2018.

CFPB Publishes October Monthly Complaint Report
On Wednesday, November 24, 2015, the CFPB released its Monthly Complaint Report for complaints received in October, which highlighted the geographic location of Connecticut and bank account or service complaints. Notable findings in the Monthly Report include: 

  • Student loans are down 2 percent year over year;
  • Payday loans are down 20 percent year over year;
  • Greatest increase: prepaid cards up 193 percent;
  • Debt collection, credit reporting, mortgage complaints again received the most complaints at 66 percent; and
  • For the first time, the top three complained about companies are credit agencies, not banks.

House Passes Highway Bill with Partial Funding from a "Bank Tax"
On Thursday, December 3, 2015, the House and Senate overwhelmingly passed the Conference Report to accompany H.R. 22, the Surface Transportation Reauthorization and Reform Act of 2015, also known as, the Highway Bill with partial funding from a bank tax. The Conference Report authorizes $302 billion to fund highway and infrastructure projects over the next five years.
The Senate passed its version of the highway bill in July, which was partially funded from a reduction in the Federal Reserve dividend banks receive from 6 percent to 1.5 percent. The House version struck this funding option and instead pulled from the Federal Reserve Surplus Fund, which currently stands at $27 billion. The two bodies went to conference to hash out the differences in the underlying bill and funding measures, which resulted in a hybrid approach between the House and Senate funding sources.
Specifically, the final conference report includes a controversial funding option that caps the Federal Reserve dividend banks over $10 billion in assets receive at six percent and instead ties future rates banks in the Federal Reserve System receive to the average 10-year Treasury note, which currently stands at 2.2 percent. The last time the 10-year Treasury note reached 6 percent was in 2000. The bill also pulls from the Federal Reserve Surplus Fund, but ensures the fund does not fall below $10 billion.

Yellen Testifies at Joint Economic Committee Hearing
On Thursday, December 3, 2015, Federal Reserve Chair Janet Yellen testified before the House and Senate Joint Economic Committee in a hearing entitled: "The Economic Outlook." Chair Yellen touted substantial improvements to the economy, with a lowering unemployment rate, increase in jobs, moderate GDP growth, and increase in consumer spending. With respect to monetary policy, Chair Yellen said officials will look at several conditions beyond the Friday's jobs numbers in determining whether the economy has improved enough to raise interest rates this month.
Specifically, Chair Yellen stated, "[T]here has been considerable focus on the first increase in the federal funds rate after nearly seven years... We have tried to be as clear as possible about the considerations that will affect that decision. Of course, even after the initial increase in the federal funds rate, monetary policy will remain accommodative." She continued, "[T]he Committee anticipates that even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."
In response to several questions from members of the Committee, Chair Yellen criticized a payfor included in the highway bill that taps the Federal Reserve Surplus Fund stating financing fiscal spending from the Fed sets a bad precedent, weakens fiscal discipline, and does not actually create more funding. She also said the interest earned on surplus will be diminished over several years, ultimately leading to less money coming into the Treasury.
Further, Chair Yellen said she believes community banks are suffering from regulatory overload, adding rules must be tailored to make life better for them. Moreover, Chair Yellen expressed concern over a bill that would subject the Fed to Government Accountability Office review, more commonly known as "Audit the Fed." Chair Yellen stated this would force the Fed to tie monetary policy to a simplistic, tailored rule and that deeper analysis is needed in setting monetary policy. She also said that it encumbers the Fed and undermines its ability to act as an independent agency that can make decisions free from political pressures.

Target Agrees to $39.4 Million Settlement
On Wednesday, December 2, 2015, the Target Corporation agreed to pay $39.4 million to settle claims of losses by banks and credit unions resulting from the company's 2013 data breach. The settlement would resolve class-action claims by lenders seeking to hold Target responsible for their costs to reimburse fraudulent charges and issue new credit and debit cards. The proposed settlement calls for Target to pay as much as $20.25 million to banks and credit unions, and $19.11 million to reimburse MasterCard card issuers. A hearing for final approval has been scheduled for May 10, 2016.

Fed Releases Final Rule on Emergency Lending
On Monday, November 30, 2015, the Federal Reserve Board approved a final rule specifying its procedures for emergency lending under Section 13(3) of the Federal Reserve Act. Since the passage of the Dodd-Frank Act in 2010, the Board's authority to engage in emergency lending has been limited to programs and facilities with "broad-based eligibility" that have been established with the approval of the Secretary of the Treasury. The Dodd-Frank Act also prohibits lending to entities that are insolvent and imposes certain other limitations. The rule provides greater clarity regarding the Board's implementation of these and other statutory requirements

CBA Files Joint Brief in TCPA Litigation
On Wednesday, November 25, 2015, CBA and ten other petitioners filed a joint brief in the Telephone Consumer Protection Act (TCPA) lawsuit against the Federal Communications Commission arguing the agency overstepped its statutory authority when enacting the summer 2015 TCPA Order.

FDIC Releases Quarterly Banking Profile for Third Quarter of 2015
On Tuesday, November 24, 2015, the FDIC released the Quarterly Banking Profile (QBP) for the third quarter of 2015, which provides an overview of the health of the banking industry.
In his prepared remarks, FDIC Chairman Martin Gruenberg indicated the banking industry continued to improve, but voiced concern with respect to interest-rate and credit risk.
After conducting an analysis of the QBP, CBA concluded, while the banking industry continued to improve, stagnant revenue coupled with increased regulatory costs and a low interest rate environment has forced banks to cut expenses. For this reason, overall mergers are up, the number of banks are down, and the workforce is shrinking. CBA believes credit risk is not as concerning as Chairman Gruenberg indicated because banks are well capitalized and have accurately predicted the loss potential by setting aside more than enough loan loss provisions. In fact, approximately 99 percent of institutions met or exceeded capital requirements for Prompt Corrective Action purposes.

Committee Releases Indirect Auto Report, Posts Related CFPB Memoranda
On Tuesday, November 24, 2015, the House Financial Services Committee released a report entitled: "Unsafe at Any Bureaucracy: CFPB Junk Science and Indirect Auto Lending" disputing the CFPB's use of disparate impact under the Equal Credit Opportunity Act (ECOA). In the report, the Committee argues disparate impact does not apply under ECOA, but if it did, the CFPB could not prove a case in court. Specifically, the report asserts the Bureau would not be able to prove dealer discretion is a specific "policy or practice," disparate impact is present based on a prohibited basis or that there is a causal relationship between the policy and discrimination.
Even if the CFPB could make the case for disparate impact, the report suggested lenders would have a sufficient business justification defense because the auto financing market is highly competitive, with no lender controlling more than 5 perent of the market.
The report also investigated the Bureau's efforts to reach a "global solution" of moving the auto industry to flat fees; the Ally settlement and potential influence from Ally's then-pending application of financial holding company charter; and potential conflict of interest of experts being used both by the CFPB and lenders.
Accompanying the report, the Committee published internal CFPB memos and drafts – some with redline edits and comments included – offering insight into the CFPB's decision-making process.