CFPB Report - July 31, 2015

Inspector General Study on CFPB Complaint Portal Finds Inadequacies
On Thursday, July 23, 2015, the Office of the Inspector General (OIG) for the CFPB and Federal Reserve Board finalized the Security Control Review of the CFPB’s Data Team Complaint Database. The OIG it will not release the full report due to the sensitive nature of the information, but instead published a summary of conclusions. According to the summary, the OIG found the CFPB has taken steps to comply with Federal Information Security Modernization Act (FISMA), including deploying network-level firewalls and intrusion detection systems.
 
In terms of insufficiencies, the OIG “identified several control deficiencies related to configuration management access control, and audit logging and review.” Specifically, the OIG made seven recommendations, including making improvements to:

  • The timely installation of database level patches;
  • Enforcement of password expiration and user access requirements; and
  • Logging and review of security events.

In response, the CFPB Chief Information Officer agreed with the recommendations and identified actions that will be taken to address the concerns.
 
CFPB Constitutionality Challenge is Reignited
The D.C. Circuit Court (Circuit Court) revived a challenge to the constitutionality of the CFPB in State National Bank of Big Spring, Texas, et al. v. Lew, et al. Previously, the lower court held State National Bank did not have standing to challenge the CFPB’s constitutionality due to lack of injury and ripeness. On Friday, July 24, 2015, the Circuit Court unanimously overturned the decision and held the bank does, in fact, have standing to challenge the CFPB’s constitutionality and recess appointment of Director Cordray. The Circuit Court reasoned State National Bank has standing because it is regulated by the Bureau. The Circuit Court, however, agreed with the lower court when it confirmed the bank does not have standing to challenge the Financial Stability Oversight Council (FSOC) or liquidation authority. While the Circuit Court did not rule on whether the CFPB is constitutional, the decision confirmed State Bank can bring the claim and sent the case back to the lower court to consider the issue.
 
House Financial Services Committee Passes Several Bipartisan Bills
Earlier this week, the House Financial Services Committee passed several bipartisan bills designed to help grow the economy, create jobs, and bring accountability and transparency to the Federal Reserve. One bill in particular, H.R. 3192 - the “Homebuyers Assistance Act,” addresses the need for a hold harmless period after the effective date of the TILA/RESPA Integrated Disclosure (TRID) implementation on October 3, 2015. CBA sent a letter with 19 other trade associations supporting this bill. This markup also included, H.R. 1737, the “Reforming CFPB Indirect Auto Financing Guidance Act”, that would repeal the CFPB’s Indirect Auto Lending Bulletin from March 2013 and require them to follow a transparent process when issuing auto finance guidance.
 
CFPB Penalizes Mortgage Payments Company and Servicer for Deceptive Ads
The CFPB took action on Tuesday, July 28, 2015 against Paymap Inc. and LoanCare, LLC for allegedly using deceptive advertisements to promote a mortgage payment program. The payment processing company Paymap Inc. will pay a $5 million civil penalty to the CFPB and $33.4 million in fees to consumers. LoanCare, a residential mortgage servicer that partnered with Paymap to market the program, will pay a $100,000 civil penalty. The CFPB indicated Paymap’s “Equity Accelerator Program” promised significant interest savings by making more frequent mortgage payments. The Bureau considered these assertions to be false as the program did not make more frequent payments and there was no evidence to support the claims of savings. Consumers who signed up for the program were charged an enrollment fee of $295 and a transaction fee of $2.50 for each automatic debit made by Paymap.
 
“Deceptive advertising has no place in the financial marketplace,” said Director Cordray. “Today’s action is delivering relief for consumers deceived by Paymap and LoanCare, and sending a clear message that these practices will not be tolerated.”
 
Pew Releases Research on Payday Lending
On Wednesday, July 29, 2015, the Pew Charitable Trusts released new research on payday lending. The report showed, three-out-of-four Americans believe the payday loan industry needs to be more tightly regulated and there is broad support for the kinds of reforms being proposed by the CFPB. 
 
Pew noted that approximately 12 million Americans use payday loans annually, spending an average of $520 in fees to repeatedly borrow $375.
Pew found that:

  • Seventy-five percent of respondents believe payday loans should be more regulated; similarly, in a 2013 Pew survey, 72% of payday loan borrowers said they wanted more regulation.
  • By large margins, the public favors each of the major components of the CFPB framework, including requiring loans to be repayable in affordable installments.
  • Respondents overwhelmingly see as unfair the prices charged for loans currently offered by payday lenders, some of which probably would still be available under the proposed CFPB framework.
  • By a ratio of more than 5-to-1, respondents favor allowing banks to offer small loans at lower prices than those charged by payday lenders.
  • Respondents believe the types of small loans that would probably be offered by banks have fair prices, even though the rates are higher than those for mainstream credit, such as credit cards.

CBA continues to work with the CFPB as it moves forward on the issue of small-dollar lending. An official proposed rule is expected later this year.

CFPB Files Consent Order Against Mortgage Company for Blocking Consumers’ Attempts to avoid Foreclosure
The CFPB on Thursday, July 30, 2015 filed a consent order against Residential Credit Solutions, Inc. for allegedly blocking consumers’ attempts to save their homes from foreclosure. The order alleges that the he mortgage servicer failed to honor modifications for loans transferred from other servicers, treated consumers as if they were in default when they weren’t, sent consumers escrow statements falsely claiming they were due a refund, and forced consumers to waive their rights in order to get a repayment plan. Residential Credit Solutions has agreed to pay $1.5 million in restitution to victims and a $100,000 civil money penalty for its illegal actions.
 
“By failing to honor loan modifications already in place, Residential Credit Solutions put consumers through more headaches but in some cases cost consumers their homes,” said Director Cordray. “Residential Credit Solutions must now compensate its victims $1.5 million as a result of our action.”

Three-month Highway Bill Sent to President’s Desk
On Thursday, July 30, 2015, the Senate approved H.R. 3236, the House-passed three-month reauthorization of the Highway Trust Fund, by a vote of 91 to 4. The President is expected to sign the legislation. Earlier in the day, the Senate approved H.R. 22, a longer-term solution to reauthorize the highway programs for six years, by a vote of 65 to 34. This legislation included numerous non-transportation related payfors, such as a decrease in the dividend paid to Federal Reserve member banks with assets over $1 billion from 6 percent to 1.5 percent. However, due to House opposition to H.R. 22 and the July 31st expiration of the current authorization, the Senate was forced to take up and pass H.R. 3236. While the Fed dividend proposal is not headed for the President’s desk, it’s likely it will continue to be discussed as a payfor for future legislation.

House Committee Examines Dodd-Frank 5 Years Later
The House Financial Services Committee held a hearing entitled “The Dodd-Frank Act Five Years Later: Are We More Prosperous?” with witnesses including former Senator Phil Gramm, former Congressman Brad Miller, and Peter Wallison from the American Enterprise Institute. The hearing examined the effect of the Dodd-Frank Act five years later on the financial services industry, consumers, American competitiveness, and economic prosperity.
 
Chairman Jeb Hensarling (R-TX) stated, “Dodd-Frank’s 2,300 pages launched a salvo of consequences that have crippled growth. It was advertised to target Wall Street but has instead clearly hit Main Street. It has had pernicious effects on small businesses and community financial institutions which are the lifeblood of the Main Street economy.” Ranking Member Maxine Waters (D-CA) stated, “It’s important to remember that the 2008 financial crisis was not a natural disaster. Instead, it was the result of deliberate choices – choices on the part of some on Wall Street, who put their own short-term interests ahead of the long-term economic health of our nation’s investors and consumers. It’s the result of choices on the part of some of our regulators, who failed to respond as both vulnerabilities and illegalities in our financial system emerged.”

Congress Increases Cap for SBA 7(a) Loans
This week, the House passed a Senate bill raising the authorization levels for Small Business Administration (SBA) 7(a) loans to $23.5 billion annually, ensuring such loans will continue through the remainder of the year. The SBA had reached its $18.75 billion cap last Thursday, forcing the SBA to shut down its flagship small business lending program. This measure will not cost the federal government any money with the cost of the loan program being paid for by fees from borrowers and lenders.

CBA Comments on FDIC’s Expedited Deposits ANPR
CBA, on Monday, July 27, 2015, along with the American Bankers Association and the Clearing House, submitted a comment letter in response to the Federal Deposit Insurance Corporation’s (FDIC) request for advanced notice of proposed rulemaking (ANPR) which seeks to enhance processes to expedite depositors’ access to their funds in accordance with FDIC insurance coverage in the event of failure of a covered bank.
 
The new recordkeeping standards contemplated by the FDIC for banks with more than 2 million deposit accounts -- intended to help the agency determine promptly whether deposits are insured or not after a bank fails -- would require major upgrades to bank IT systems. The standards, estimated to apply to about three dozen of the country’s largest banks, would shift the burden of making determinations from the FDIC to the insured institutions, using the systems, data and staff of the failed bank to calculate the insured and uninsured amounts for each deposit account at the end of any business day. The Associations wrote that the banks “believe they can ultimately be prepared to satisfy the FDIC’s intent,” provided they have sufficient time -- at least four years -- to implement the new systems and that the FDIC provides the information and support needed to implement the new standards.

FCC Testifies on TCPA
On Tuesday, July 28, 2015, the House Energy and Commerce held a hearing on the “Continued Oversight of the Federal Communications Commission” where Chairman Tom Wheeler and Commissioner Ajit Pai testified. Among other topics, the Committee addressed the recent Telephone Consumer Protection Act (TCPA) order. Notably, a bipartisan tone was struck at the end of the hearing when concerns arose after Chairman Wheeler acknowledged the order would potentially subject lawmakers to liability for notifying constituents about upcoming “tele-townhalls.” Further, Ranking Member Eshoo argued the TCPA needs to be updated because it was passed in 1991 and “mirrored” the technologies available at that time.

Prudential Regulators Finalize Revisions to Capital Rule
The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation on Tuesday, July 28, 2015, finalized revisions to clarify, correct, and update certain provisions of the regulatory capital rule adopted by the agencies in 2013. The revisions clarify some aspects of the qualification requirements for advanced approaches systems and are intended to better align the advanced approaches subpart of the regulatory capital rule with the Basel framework and thereby enhance consistency with international capital standards. The revisions: 

  • Clarify the qualification criteria and calculation requirements for risk-weighted assets to assist reviews of advanced approaches banking organizations seeking to exit parallel run.
  • Clarify that all advanced approaches banking organizations are subject to the supplementary leverage ratio and the disclosure requirements for that ratio.
  • Correct typographical and technical errors in the advanced approaches sections of the regulatory capital rule.

The revisions apply only to banking organizations subject to the agencies’ advanced approaches risk-based capital framework.

Agencies Provide Additional Guidance for Certain Resolution Plans
The Federal Reserve Board and the Federal Deposit Insurance Corporation on Tuesday, July 28, 2015, provided guidance to 119 firms who will be filing updated resolution plans in December. Based on a review of their plans submitted late last year, the agencies are tailoring the requirements for the submissions. Some firms will receive individual feedback on areas for improvement.
 
 One hundred and fifteen U.S. bank holding companies with less than $100 billion in total nonbank assets and foreign-based firms with less than $100 billion in U.S. nonbank assets were required to file their second resolution plans with the agencies in December 2014, and four foreign-based firms were required to file their initial resolution plan. Following review of the resolution plans, the agencies are providing each firm with guidance, clarification, and direction for their upcoming resolution plans based on the relative size and scope of each firm's U.S. operations.
 
The new plans are due to the agencies on or before December 31, 2015.