CFPB Report May 10, 2013

CFPB Student Debt Report

On Wednesday, May 8, 2013, the CFPB issued a report on “Student Loan Affordability: Analysis of Public Input on Impact and Solutions.” The report summarized input from the public about the challenges student loan debt presents and the wide-ranging impact it has on the financial lives of consumers including housing, small business development, retirement savings and rural communities. Three possible solutions were derived from public input:

  1. “Refi relief” for borrowers who pay on time;
  2. A “road to recovery” for borrowers in distress; and,
  3. A “credit clean slate” for borrowers in default.

A factsheet summarizing the report is available here.

CFPB Student Debt Field Hearing

On Wednesday, May 8, 2013, the CFPB held a field hearing in Miami on student loan borrowers. In his opening remarks, Director Cordray recognized new originations have high underwriting standards, but many borrowers who were issued subprime loans are now trapped in a cycle of debt driven by high interest rates on their loans and underemployment. The CFPB recently proposed a rule to supervise student loan servicers with the objective of helping borrowers “navigate issues through their loan servicers.” Cordray then highlighted the macroeconomic effects of student loan debt as it restricts consumers’ ability to access credit in other markets. 

Rohit Chopra, CFPB's Student Loan Ombudsman moderated the panel discussions and asked about how student loan debt is effecting other consumer lending markets. Panelists talked about the impacts on the medical profession and mortgage industry and made recommendations about steps regulators can take to address student debt. Four audience members identified themselves as undocumented and talked about the difficulties in obtaining student loans. In closing, Zixta Martinez, CFPB's Associate Director for External Affairs, said this was “one of the most inspiring and most touching field hearings the bureau has held."

CFPB Proposes Delays to Loan Origination Rule

On Tuesday, May 7, 2013, the CFPB issued a proposal to delay the June 1, 2013 effective date of the provision in the Mortgage Loan Origination (MLO) final rule that prohibits lenders from financing credit insurance premiums in connection with mortgage loans by way of a lump-sum added to the loan amount at closing. The CFPB has proposed the delay to clarify the applicability of this provision to additional transactions. Comments on the proposal are due 15 days after publication in the Federal Register, which we anticipate will occur Friday, May 10, 2013.  

The prohibition on financing of credit insurance is required under the Dodd-Frank Act and applies to credit life, credit disability, credit unemployment, credit property insurance and similar products. It does not apply to insurance in which premiums are calculated and paid on a monthly basis. The preamble to the final MLO rule provided some explanation as to how this applies to credit insurance premiums charged on a monthly/periodic basis, as opposed to a lump-sum that is financed at closing. The CFPB has recognized industry concerns, primarily the apparent prohibition in the preamble of level premiums for these insurance products. 

This proposal is only requesting comment on the delay of the effective date, as well as what this new date should be. The CFPB intends to issue an additional proposal, with a separate comment period, sometime next month to address the industry’s substantive concerns as well as the new proposed effective date.

FHFA Directs GSEs on QM Rule

On Monday, May 6, 2013, the Federal Housing Finance Agency (FHFA) announced it is directing Fannie Mae and Freddie Mac (GSEs) to limit their future mortgage acquisitions to loans that meet the requirements of the CFPB’s ability-to-repay or QM rule. Earlier this year, the agency issued the final QM rule pursuant to the provisions of Dodd-Frank, which includes criteria for loans to qualify under QM. 

Beginning January 10, 2014, the GSEs will not be permitted to purchase loans that are subject to the QM rule if the loan: 

(i) is not fully amortizing,
(ii) has a term longer than 30 years, or
(iii) includes points and fees in excess of three percent of the total loan amount, or such other limits as set forth in the rule.

Letter to CFPB on Proposed RESPA/TILA 3-Day Waiting Period

On Monday, May 6, 2013, Cong. Steve Stivers (R-OH) and Cong. Ed Perlmutter (D-CO) circulated a "Dear Colleague" asking Members to sign onto the bipartisan letter urging CFPB to make the three-day waiting period in the proposed RESPA/TILA rule more flexible to prevent a “restart” of the three-day waiting period if charges change within three days of closing.

CFPB Announces Action Against Debt Relief Companies

On Tuesday, May 7, 2013, the CFPB announced it has filed a complaint in federal district court in New York against two debt relief companies that allegedly took advantage of consumers. The CFPB claims the Mission Settlement Agency in New York and Premier Consultant Group in New Jersey charged customers illegal up-front fees to settle their debt, but failed to provide effective debt relief services, causing consumers to fall farther into debt and harming their credit history. 

“Today’s action takes aim at two operations we believe are designed to profit through unscrupulous and illegal business practices,” said Director Cordray. “Consumers deserve better and we are proud of this coordinated effort with the Department of Justice and U.S. Attorney Preet Bharara to crack down on harmful behavior.” 

In related action, the Justice Department (DOJ) filed charges against Mission Settlement Agency, its owner and three employees. This marks the first time the DOJ has filed criminal charges based on a CFPB investigation.