CFPB Report February 22, 2013

CFPB Consumer Advisory Board Meeting

On Wednesday, February 20, 2013, the CFPB held a public meeting of the Consumer Advisory Board (CAB). The CAB is mandated by Section 1014 of the Dodd-Frank Act to advise and consult with the Bureau in the exercise of its function, and is required to meet at least twice a year. A list of the members can be found on the CFPB website.  

Though most of the business of the CAB takes place in committee meetings that are not public, this meeting was open to the public and streamed live. 

Director Richard Cordray kicked off the session with prepared remarks in which he divided the CFPB’s focus into four broad categories, "the Four D's," where consumers are in need of protection. 

1. Deceptive and misleading marketing practices;
2. Debt traps, where the product depends on consumers getting into cycles of debt;
3. “Dead Ends” -Structural road blocks, where the consumer cannot shop for the service provider (e.g. debt collection, mortgage servicing, private student loan servicing, and credit reporting); and
4. Discrimination, including the application of disparate impact.

In the short CAB discussion that followed, payday lending and bank short term loan products were mentioned several times as an area the CFPB should regulate. Other issues mentioned were deceptive advertising of quick fix settlement of debt, overdraft, regulation of products off-shore and on tribal lands. During the audience Q&A portion, two audience members, both litigators, spoke out against mandatory arbitration.

CFPB Releases Request for Information on Student Loans

On Thursday, February 21, 2013, the CFPB announced a Notice of Request for Information (RFI) on making private student loans more manageable for struggling borrowers. The CFPB has found private student loan borrowers who wish to pay their loans but face high payments, lack alternative repayment and refinance options. 

Through the RFI, the CFPB plans to explore detailed recommendations to policymakers in order to facilitate greater repayment affordability of private student loans. The agency lists the following questions for examination:

• How student loan burdens might impact the broader economy and hinder access to mortgage credit and automobile loans;
• How distressed borrowers manage their student loan obligations;
• What options currently exist for borrowers to lower their monthly payments on private student loans;
• Examples of successful alternate payment programs in other markets and which features could apply to this market; and
• The most effective mechanisms for communicating with distressed borrowers.

“Too many private student loan borrowers are struggling with unwieldy debt that prevents them from climbing the economic ladder,” said Director Cordray. “We will be analyzing plans for policymakers to consider that might help avoid a repeat of the mortgage meltdown for today’s student loan borrowers.”

CBA Submits Comment on CARD Act Request for Information

On Tuesday, February 19, 2013, CBA submitted comments in response to the CFPB’s request for information (RFI) to study the effect of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) on the credit card market. The CFPB will use the information collected under this request to produce a report to Congress on the state of the consumer credit card market, as required under the CARD Act, and to inform its policy decisions going forward. 

A summary of our comments follows:

• The CARD Act has been successful in that it accomplished what was intended, which is to establish fair and transparent practices with regard to credit card extensions of credit. As a result, further restrictions are unnecessary.
• The CARD Act restrictions, such as the prohibition on rate increases for existing balances and the limitations on penalties and over-the-limit fees, severely hamper the ability to manage customer risks. Not only does this result in higher rates than would otherwise apply without the CARD Act, but those customers who might otherwise pay lower rates are subsidizing those who should pay higher rates, and credit availability may be constrained.
• Under the CARD Act, when there is an increase in rates, the increase must be reviewed every six months for the life of the account. We believe there should be limitations with regard to this review process as this will reduce burdens for the industry, without sacrificing significant benefits for consumers.
• The industry remains concerned with the CFPB’s new authority to address unfair, deceptive or abusive acts and practices (UDAAP) and encourages the CFPB to continue to provide the industry with guidance in this area.
• The CARD Act requirements have caused the industry to shift to variable interest rates. Currently, rates are low due to the extremely low interest rate environment. However, our concern is that when rates do rise as a result of an improving economy, the result may be a surge of complaints to the banks and the CFPB, even though the rate increases are not due to specific bank practices.
• As the CFPB collects specific information from card issuers in connection with the RFI, we urge the Bureau to apply safeguards to protect the privacy of the information collected as part of this process. We also request the CFPB publicly announce it would welcome additional input about the credit card market, even if it is submitted after the comment period for this RFI.

CBA will continue to monitor the issue and will keep you updated on further progress.

CFPB Issues Final Rule on Disclosure of Records and Information

On Friday, February 15, 2013, the CFPB final rule on the agency’s procedures for disclosing information to the public pursuant to the Freedom of Information Act, the Privacy Act of 1974, and in legal proceedings was published in the Federal Register. The final rule also sets forth the CFPB’s rule on the protection and disclosure of confidential information collected during the course of the Bureau’s activities. 

Although the rule generally prohibits CFPB employees, former employees, and others who possess the Bureaus’ confidential information from sharing this with the public, it does permit the Bureau to make discretionary disclosures of this information to federal and state agencies in order to carry out its statutory mission. While the Bureau acknowledges the sharing of confidential information poses significant concerns for financial institutions, particularly with respect to privilege waivers, the CFPB states it will “exercise its discretion carefully.”