CFPB Report July 26, 2013

CBA Files Comment Letter on Mortgage Rules

On Monday, July 22, 2013, CBA filed a comment letter with the CFPB concerning the agency’s proposed clarifications and revisions of the mortgage rules issued in January. Specifically, the CFPB’s proposed changes and clarifications address: (1) the loss mitigation and error resolution procedures under the servicing rules; (2) amounts counted as mortgage loan originator (MLO) compensation to retailers and employees of manufactured homes for purposes of the points and fees thresholds; (3) various exemptions available to lenders operating predominantly in “rural or underserved” areas; (4) application of the MLO rules to bank tellers and similar staff; and 5) the prohibition on lender-financed credit insurance. The CFPB is also proposing advancing the effective date to January 1, 2014 for many of the provisions of the MLO rules.

CFPB Brings Suit Against Lender

On Tuesday, July 23, 2013, the CFPB announced the filing of a lawsuit against a Utah-based lender for allegedly paying bonuses to lending officers for steering consumers into high-priced mortgages. The CFPB asked the court to impose a civil money penalty, require them to end the unlawful practices and order them to pay restitution to consumers who were upsold on their mortgages.

“Today we are taking action against the type of practices that precipitated the financial crisis,” Director Cordray said in a press release. “Consumers should be able to get a mortgage without worrying about how the financial incentives of their loan officers may cause them to pay higher rates than they actually qualify for.”

Attorney Brings Suit Against CFPB

Connecticut attorney Kimberly Pisinski filed a lawsuit in the U.S. District Court for the District of Columbia against the CFPB claiming the agency’s structure is unconstitutional. Pisinski and the software company she contracts with, Morgan Drexen, filed suit after the CFPB issued a civil investigative demand (CID) alleging violations of the Telemarketing Sales Rule. The CID ordered Pisinski and Morgan Drexen to produce communications with bankruptcy clients. Pisinski and Morgan Drexen are seeking declaratory relief on the ground that the CFPB doesn't have constitutional authority to regulate legal services provided by an attorney to a client.

Senator Brown Introduces Overdraft Bill

On Monday, July 22, 2013, Senator Sherrod Brown (D-OH) announced he would introduce the “Fair Overdraft Disclosure Act” to prevent banks from “predatory overdraft” practices on consumer’s accounts. At a press conference in Ohio, Senator Brown stated, “Banks should play by the rules instead of purposefully ‘reordering’ their customers’ debit card transactions so that they profit while consumers rack up costly penalties.” The bill would instruct the CFPB to finish their overdraft study of banks within nine (9) months of the bill’s date of passage. This instruction would rush the CFPB to a conclusion on their study, potentially missing key information around complex bank systems. Furthermore, the legislation would require institutions to “clearly disclose” a summary of posting order of debits and credits while posting transitions in an “objective and neutral” manner. CBA met with Senator Brown’s office about the legislation, and does not expect any movement at this time.

CBA Testifies Before Senate Aging Committee Regarding Deposit Advance

On Wednesday, July 24, 2013, the U.S. Senate Special Committee on Aging held a hearing entitled, “Payday Loans: Short-term Solution or Long-term Problem?” to address the use of short-term, small-dollar liquidity products by senior citizens and the entire population of consumers. Richard Hunt, CBA’s President and CEO, testified on behalf of the banking industry as part of two panels of witnesses. Committee Members present included Chairman Bill Nelson (D-FL), Ranking Member Susan Collins (R-ME), Elizabeth Warren (D-MA), Joe Donnelly (D-IN), Dean Heller (R-NV), and Ron Wyden (D-OR). Questions from Committee Members and witness testimony focused on cycles of debt, differences between products, challenges in regulating online payday lenders, demand for short-term liquidity, and the high costs of these products. 

Hunt’s testimony on behalf of CBA focused on distinguishing deposit advance products from other short-term liquidity options, such as storefront and online payday lenders. He also highlighted the consumer demand for short-term liquidity, and if banks are no longer able to provide DAP, consumers are likely to turn to more expensive alternatives. Hunt worked to distinguish deposit advance products from payday loans by highlighting customer satisfaction with the product, its features (eligibility requirements, cooling off periods, etc.), terms, and the clear and transparent costs of the products, stating it might be the most transparent product a bank offers. He noted bank products are a more affordable alternative than storefront payday lenders, online lenders, and others. Senator Warren was not happy with bank consumer protections, was very critical of bank deposit advance products and expressed concerns with banks using social security benefits as payments. 

Senators Warren and Donnelly insisted the annual percentage rate on deposit advances could work out to be as high as 200% and were not convinced by arguments that the customers pay fees, rather than interest, on a product that is a line of credit, not a loan. Chairman Nelson associated himself with their questioning, telling the industry witnesses, “you’ve got some unhappy customers and some unhappy Senators that represent those customers.” Senator Donnelly also expressed concerns with the APR of payday products and pushed for banks to accept a 36% APR usury cap on these products. 

The practice of emergency lending received heavy criticism because it does not necessarily help consumers reduce their debt. Annette Smith, a bank DAP customer, discussed how a $500 deposit advance product put her into a cycle of debt that culminated with $3,000 in fees over five years before she was able to work with a consumer advocate and the financial institution.

House Financial Services Committee Passes GSE Reform Bill

On Wednesday, July 24, 2013, the House Financial Services Committee passed, 30-27, the Protecting American Taxpayers and Homeowners (PATH) Act of 2013 (H.R. 2767). A number of Republican sponsored amendments were agreed to, while amendments sponsored by Democrats did not receive sufficient support. Rep. Scott Garrett (R-NJ), lead sponsor of the PATH Act and Chairman of the Capital Markets and Government Sponsored Enterprises Subcommittee, said, "The passage of this legislation today is a critical step in reforming our nation's housing finance system and ensuring the American taxpayers no longer have to fund $200 billion bailouts.” The PATH will not likely be considered for a vote by the House of Representatives until after the August recess.

Hearing on FHA Solvency Act

On Wednesday, July 24, 2013, the Senate Banking Committee held a hearing entitled, “The FHA Solvency Act of 2013.” Ms. Carol J. Galante, Assistant Secretary, U.S. Department of Housing and Urban Development testified. In his opening statement, Chairman Johnson (D-SD) stated the need for the FHA’s counter-cyclical tools, and explained how the legislation under consideration would ensure the viability of these programs by improving underwriting standards. Ranking Member Crapo (R-ID) echoed the Chairman’s statement and also added broader housing market reform, beyond The FHA Solvency Act, is necessary. 

A section-by-section summary of the bill, provided by the Senate Banking Committee, may be foundhere.

Trades host “Lunch & Learn” on Prepaid Cards

On Friday, July 26, 2013, CBA, in conjunction with the Financial Services Roundtable and the American Bankers Association, hosted a “Lunch and Learn” event on Capitol Hill to discuss the importance of prepaid cards in a changing financial services environment. Tom Brooks, EVP of Cards and Payments at Regions Financial Corporation, discussed how the underbanked or unbanked use prepaid cards to access mainstream financial products. Other presenters included Visa and MasterCard, who addressed cost reductions associated with the Government’s switch to prepaid. This transition not only helped consumers receiving benefits, but also reduced government costs for fund distribution. The briefing was well attended by staff and others from Capitol Hill. CBA thanks Tom, Visa and MasterCard for the informative presentations and continues to monitor the prepaid space.