CFPB Report February 14, 2014

February 14, 2014

On Tuesday, February 11, 2014, the House passed a package of CFPB related bills by a vote of 223-193, including several measures intended to increase transparency and accountability of the Bureau. The package included: 

  • H.R. 2385- CFPB Pay Fairness Act, Rep. Sean Duffy (R-WI)
  • H.R. 2446- The Responsible Consumer Financial Protection Regulations Act, Rep. Spencer Bachus (R-AL)
  • H.R. 2571- Consumer Right to Financial Privacy Act, Rep. Duffy
  • H.R. 3193- Consumer Financial Protection Safety and Soundness Improvement Act, Rep. Duffy
  • H.R. 3519- Bureau of Consumer Financial Protection Accountability and Transparency Act, Rep. Randy Neugebauer (R-TX)

Given the party-line vote, these bills are not expected to be taken up by the Senate.



GAO Report Examines Campus Debit Cards

On Thursday, February 13, 2014, the Government Accountability Office (GAO) released its reportentitled: “COLLEGE DEBIT CARDS: Actions Needed to Address ATM Access, Student Choice, and Transparency,” in which it found: 

  • Eleven percent of U.S. colleges and universities had agreements to provide debit or prepaid card services to students as of July 2013, with most offering students the ability to receive federal student aid and other payments on a card. These schools represented enrollments of about 40 percent of all postsecondary students.
  • The dominant provider of campus products was Higher One, a nonbank financial firm with 57 percent market share in 2013.
  • Benefits of college cards can include convenience for students, as well as cost savings and efficiencies for schools:
    • Most of the college card fees reviewed were not higher, or in some cases were lower, than those associated with a selection of basic or student checking accounts at national banks. In particular, many college card accounts did not have monthly maintenance fees.
    • College card fees for out-of-network ATM use, wire transfers, and overdrafts also were comparable with those of banks’ basic and student checking accounts.
    • Fees charged by credit unions were the same or lower than those charged by college cards.
    • College card fees are likely lower than those of alternative non-depository services, such as check cashing entities.

The GAO listed several concerns: 

  • Fees – two large providers, including Higher One, charged a fee for card purchases using a personal identification number (PIN) rather than a signature.
  • ATM access - U.S. Department of Education (DOE) regulations for college cards require schools ensure “convenient access” to fee-free ATMs or bank branches for students receiving federal student aid payments, although the agency has not specified what constitutes this level of access. The GAO noted the lack of a more specific definition may make avoiding unnecessary fees difficult for students when making cash withdrawals of federal aid.
  • Neutrality –
    • The GAO reportedly found some instances in which schools or card providers appeared to encourage students to enroll in a college card rather than present neutral information about payment options and noted that schools may have incentives to influence student choice because some receive payments from card providers based on the number of card accounts or transactions.
    • The GAO noted contracts between schools and card providers are not publicly available and data on these cards are limited when contrasted with other college-related products, such as affinity credit cards. The agency called for more transparent contract terms.

The report noted the GAO has already shared its findings with the DOE, which agrees with recommendations to better define what constitutes “convenient access” to ATMs and to develop requirements to help ensure students know their options. These issues will be addressed in the DOE’s upcoming negotiated rulemaking process.

 

The GAO also announced it will soon issue a report on college affinity credit cards and student credit cards.

 

CBA President and CEO, Richard Hunt, issued the following statement:

 

“The GAO’s report confirms campus-related products offered by depository institutions are better deals for students than non-campus-related accounts, especially those products offered by non-banks. Arrangements with banks often benefit students and schools by offering reduced costs, convenience of use and valuable financial education. CBA member banks that have relationships with colleges and universities offer students products with transparent terms and the freedom to choose the products and services they use.”



Fed Issues Proposal on Identity Theft Prevention Programs

On Wednesday, February 12, 2014, the Federal Reserve Board issued a proposal implementing language from Dodd-Frank to clarify which companies must adopt identity theft prevention programs. The proposal seeks comment on an amendment the Fed's Regulation V, requiring financial institutions and creditors to implement identity theft prevention programs. The proposal would revise the rule to reflect legislation which amended the Fair Credit Reporting Act (FCRA) to clarify that these provisions apply only to creditors that regularly extend credit or obtain consumer reports in the ordinary course of their business. The amendments to the FCRA were intended to narrow the scope of the law so that it would not be applied to professionals, such as doctors or lawyers, who sometimes allow consumers to delay payment.

 

The Fed also issued two other proposals to repeal regulations implementing consumer laws since transferred to the CFPB, largely as a result of Dodd-Frank, which transferred much of the Fed’s consumer protection responsibilities to the Bureau. The CFPB has since issued rules that substantially duplicate the Fed’s Regulation DD, related to deposit account disclosures, and Regulation P, which limits when banks can release private information about consumers to third parties.

 

Comments on the proposals must be submitted within 60 days of publication in the Federal Register, which is expected shortly.



White House Releases Cybersecurity Framework

On Wednesday, February 12, 2014, the Obama administration released a voluntary framework for all aspects of critical infrastructure from the top financial institutions down to power and water filtration plants. “While I believe today’s framework marks a turning point, it’s clear that much more work needs to be done to enhance our Cybersecurity,” the President said in a statement. Obama suggested key legislation must pass through congress for better protections across all businesses, with the directive being a necessary starting point. The National Institute of Standards and Technology (NIST) worked closely with the industry participants in drafting the framework. CBA will support changes to better enhance protections and strengthen critical infrastructure.



Yellen Testifies Before House Financial Services

On Tuesday, February 11, 2014, the newly installed Federal Reserve (Fed) Chair, Janet Yellen, testifiedbefore the House Financial Services Committee. Chairman Jeb Hensarling (R-TX) emphasized the Fed’s independence and accountability are not mutually exclusive concepts. Yellen answered questions from all 60 members of the committee resulting in a hearing lasting more than five hours. Yellen’s opening testimony outlined current economic situations, plans for monetary policy, and the Fed’s hope for strengthening the financial system through regulatory reform. As expected, Yellen said she will wind down the Fed’s quantitative easing program and continue tapering the central banks’ purchases of long-term securities by $10 billion a month. According to the Chair, a “notable change” in the economic outlook would be needed for the Fed to pause its tapering and a “significant deterioration” before it would ramp bond-buying back up.

 

She highlighted a rise in gross domestic product of 3.5 percent, attributing progress in the labor market to a pickup in the economy. Since the previous Monetary Policy Report in July 2013, about 1.25 million jobs have been added. Yet, members were concerned about high unemployment rates, primarily for individuals 18-29 year old (22 percent), as well as the high rates for African Americans (12 percent) and Hispanics (8 percent). Yellen said student loan debt, primarily those federally funded, had grown “very, very large.” Concerned student borrowers are not getting their money’s worth, she emphasized consumer understanding of the debt burden. Yellen acknowledged the Fed is also cognizant of inflation fears, and is running well below its two percent objective.



Warren, Cummings Urge Fed to Reconsider Enforcement

On Tuesday, February 11, 2014, Senator Elizabeth Warren (D-MA) and Congressman Elijah Cummings (D-MD) wrote a letter to Fed Chair Janet Yellen urging the Fed to reconsider how its Board of Governors votes on enforcement actions. The lawmakers expressed concern that the Fed’s board, consisting of seven officials, routinely delegates voting on significant enforcement actions to an in-house team. Both members urged Yellen to hold stronger penalties on systemically important financial institutions and levy appropriate fines when necessary.



Warner, Kirk Ask for Shared Information Center

On Tuesday, February 11, 2014, Senators Mark Warner (D-VA) and Mark Kirk (R-IL) wrote Federal Trade Commission (FTC) Chair Edith Ramirez to recommend the creation of a shared coordinating council similar to the Financial Services Information Sharing and Analysis Center (FS-ISAC). The letter followed a Senate Banking Subcommittee hearing entitled: “Safeguarding Consumers’ Financial Data,” in which a lack of coordination between merchants and industry when protecting consumer data was addressed. The proposed resolution, called the “Merchant and Retail Industry Information Sharing Analysis Center,” is intended for the FTC to better coordinate a response for businesses and merchants to thwart potential cyber threats.