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CFPB Report March 22, 2013
Cordray Nomination Moves to Full Senate
On Tuesday, March 19, 2013, the Senate Banking Committee advanced President Obama’s nominees for the CFPB and the SEC. As expected, current CFPB Director Richard Cordray - who was recessed appointed by the President in January 2012 - was approved by a party line vote of 12 to 10. These nominations will now go to the full Senate for consideration.
Republicans have expressed their opposition to supporting any nominee to the CFPB until structural changes are made to the Bureau, including moving from a sole director to a commission or Board structure and other changes to provide oversight, transparency and accountability to the CFPB. The Committee also approved the nomination of Mary Jo White to the SEC. While it is expected Ms. White's nomination will pass in the near future, the nomination of Director Cordray will be more difficult as Republicans will continue to object to the structure of the CFPB and the questions around the validity of Cordray’s recess appointment.
Exact timing for full Senate votes remains unclear - likely after Easter recess. CBA will continue to update you as this issue progresses.
CFPB Releases Bulletin on Discriminatory Pricing in Auto Lending
On Thursday, March 21, 2013, the CFPB released a bulletin explaining certain lenders that offer auto loans through dealerships are responsible for unlawful, discriminatory pricing. Potentially discriminatory markups in auto lending may result in tens of millions of dollars in consumer harm each year. The bulletin provides guidance to indirect auto lenders within the CFPB’s jurisdiction on how to address fair lending risk. An analysis of this bulletin from CBA was sent to our membership Thursday evening and is available here.
“Consumers should not have to pay more for a car loan simply based on their race,” said CFPB Director Richard Cordray. “Today’s bulletin clarifies our authority to pursue auto lenders whose policies harm consumers through unlawful discrimination.”
When consumers finance automobile purchases from an auto dealership, the dealer often facilitates indirect financing through a third party lender. The dealer plays a valuable role by originating the loan and finding financing sources. In this indirect auto financing process, the lender usually provides the dealer with an interest rate that the lender will accept for a given consumer.
Indirect auto lenders often allow the dealer to charge the consumer an interest rate that is costlier for the consumer than the rate the lender gave the dealer. This increase in rate is typically called “dealer markup.” The lender shares part of the revenue from the increased interest rate with the dealer. As a result, markups generate compensation for dealers while frequently giving them the discretion to charge consumers different rates regardless of consumer creditworthiness. Lender policies that provide dealers with this type of discretion increase the risk of pricing disparities among consumers based on race, national origin, and potentially other prohibited bases. Research indicates markup practices may lead to African Americans and Hispanics being charged higher markups than other, similarly situated, white consumers.
The bulletin explains how the Equal Credit Opportunity Act (ECOA) applies to indirect auto lending. The bulletin also provides guidance for indirect auto lenders on ways to limit fair lending risk. The ECOA makes it illegal for a creditor to discriminate in any aspect of a credit transaction on prohibited bases including race, color, religion, national origin, sex, marital status and age. The CFPB recommends indirect auto lenders within its jurisdiction take steps to ensure they are operating in compliance with fair lending laws as applied to dealer markup and compensation policies. These steps may include, but are not limited to:
- Imposing controls on dealer markup, or otherwise revising dealer markup policies;
- Monitoring and addressing the effects of markup policies as part of a robust fair lending compliance program; and
- Eliminating dealer discretion to markup buy rates, and fairly compensating dealers using a different mechanism that does not result in discrimination, such as flat fees per transaction.
CBA will continue to monitor and address the issue through our Auto and Fair Lending Committees.
CBA Submits Comment on Student Financial Products
On Monday, March 18, 2013, CBA, along with the American Bankers Association submitted a comment letter in response to the CFPB’s Request for Information Regarding Financial Products Marketed to Students Enrolled in Institutions of Higher Education (RFI). Pursuant to the RFI, the Bureau seeks information to develop a clearer picture of the financial products and services being offered to college students, as well as consumers’ experiences using those products and services. The Bureau also seeks information about “how current and future partnerships between institutions of higher education and financial institutions could be structured to promote positive financial decision-making among young consumers.”
In our comment letter, we outline the wide range of financial products available to customers attending universities and colleges. We also underscore that students are often afforded low-cost, high-convenience financial products designed with their needs in mind and in many cases receive convenient financial education to better prepare them for life-long financial relationships. On the school side, Universities and colleges can benefit from the savings and revenue and the assistance in providing services they are not otherwise equipped to handle.
CFPB Issues Second Annual FDCPA Report
On Wednesday, March 20, 2013, the CFPB issued its second annual Fair Debt Collections Practices Act (FDCPA) Report. This report covers actions taken by the CFPB with respect to regulating the debt collection industry, as well as enforcement actions taken by the FTC. Notably, the CFPB states it will extend its consumer complaint response system to cover debt collection, and is currently investigating companies for possible FDCPA or Dodd-Frank violations.
Under the larger participant rule recently adopted by the CFPB, any firm with more than $10 million in annual receipts from consumer debt collection activities is now subject to the agency’s supervisory authority. This authority extends to about 175 debt collectors, which accounts for over 60% of the industry’s annual receipts in the consumer debt collection market.
In the report, Director Cordray wrote, “as we continue to emerge from the devastating fiscal crisis of 2007-2008, we find that debt collection constitutes one of today’s most important consumer financial concerns. Currently, about 30 million consumers, nearly one out of every 10 Americans, are subject to debt collection activities, for amounts that average about $1,500 apiece.”