CFPB Report - May 22, 2015

CFPB Enters Into Consent Order with PayPal
On Wednesday, May 20, 2015, the CFPB filed a complaint and proposed consent order in federal court against PayPal for allegedly enrolling consumers in its online credit product, PayPal Credit, illegally. The CFPB alleges PayPal deceptively advertised promotional benefits which it failed to honor, signed consumers up for credit without their permission, made them use PayPal Credit instead of their preferred payment method, and then mishandled billing disputes. Under the proposed order, PayPal would pay $15 million in consumer redress and a $10 million civil penalty, and it would be required to improve its disclosures and procedures.
 
"PayPal illegally signed up consumers for its online credit product without their permission and failed to address disputes when they complained," said CFPB Director Richard Cordray in a press release. "Online shopping has become a way of life for many Americans and it's important that they are treated fairly. The CFPB's action should send a signal that consumers are protected whether they are opening their wallets or clicking online to make a purchase."
 
CFPB Launches Financial Coaching Initiative
On Wednesday, May 20, 2015, the CFPB launched its Financial Coaching Initiative, targeting recently-transitioned veterans and economically vulnerable consumers to help them with their financial goals. The program placed 60 certified financial coaches at organizations around the country to provide individualized educational services.
 
"Having a trusted, well-informed financial coach can increase your odds of financial success," said Director Cordray. "Our project aims to provide financial coaching services at critical points in consumers' lives, especially as they transition from military service or from being unemployed."
 
Sixty partner organizations selected by the CFPB in partnership with the U.S. Department of Labor were selected to host the coaches. The nationwide sites include various nonprofits, as well as Labor Department American Job Centers, which provide resources to help individuals find employment, identify training programs, and gain skills in growing industries. All of the organizations also provide services which complement financial coaching such as job training and education, social, and housing services.
 
CBA Comments on CFPB CARD Act RFI
On Monday, May 18, 2015, CBA and the Financial Services Roundtable submitted a joint comment letter to the CFPB on its Request for Information (RFI) regarding the credit card market. Under Section 502(a) of the Credit Card Accountability and Responsibility Act of 2009 (CARD Act), the CFPB is required to conduct a biennial review of the consumer credit card market and issue a report; the Bureau issued its first report in 2013. In its letter, CBA outlined the significant steps taken by the industry to enhance consumer protections, which is reflected in higher customer satisfaction ratings. Given such trends, CBA argued additional restrictions on the issuance of credit cards to consumers were not necessary. The letter requested the CFPB to provide guidance on the use of income and assets, as well as modeled income, to meet the CARD Act's ability-to-pay provisions. It also suggested the CFPB work with the Federal Communications Commission to exempt fraud alert calls and text messages to mobile phones from the Telephone Consumer Protection Act's rules on prior written consent requirements.

House Small Business Committee Holds Hearing on SBA Lending
On Tuesday, May 19, 2015, the House Small Business Subcommittee on Economic Growth, Tax, and Capital Access held a hearing, entitled: "Improving Capital Access Programs within the SBA," evaluating whether improvements were necessary to bolster U.S. Small Business Administration (SBA) programs' effectiveness in helping smaller firms obtain capital. Witnesses included representatives from the National Association of Development Companies (NADCO), the Small Business Investor Alliance, the National Association of Government Guaranteed Lenders (NAGGL), and the Valley Economic Development Center.
 
"We cannot have a strong country without a strong economy, and for small businesses, access to capital is often the deciding factor if it will expand or close its doors," said Subcommittee Chairman Tom Rice (R-SC). "We must continue to make sure these programs are efficient and effective so that they are able to help small businesses do what they do best: create jobs," said Committee Chairman Steve Chabot (R-OH).
 
The Committee reviewed changes to SBA's Standard Operating Procedures for its 7(a) loan guarantee program, which have been changed without public comment in accordance with the Administrative Procedure Act. The hearing also evaluated policy changes for SBA Certified Development Companies in its 504 Loan Program including some loan guarantee programs authorized by the American Recovery and Reinvestment Act of 2009 which have since expired.

House Subcommittee Examines Cyber Threats to Financial Infrastructure
On Tuesday, May 19, 2015, the House Financial Services Committee's Subcommittee on Financial Institutions and Consumer Credit held a hearing entitled: "Protecting Critical Infrastructure: How the Financial Sector Addresses Cyber Threats." The Subcommittee examined the current cyber threat environment and the tools financial institutions use to protect themselves. Witnesses included Kenneth Bentsen, Jr., President and CEO of SIFMA, Greg Garcia, Executive Director of the Financial Services Sector Coordinating Council, Rob Nichols, President and CEO of the Financial Services Forum, and Russell Fitzgibbons, Executive Vice President and Chief Risk Officer of The Clearing House.
 
Subcommittee Chairman Randy Neugebauer (R-TX) lauded the efforts of the financial services industry, "given the importance of this threat, the financial services sector has responded very well. The sector has been the leader on setting up an information sharing framework. It has been an active and constructive participant working with U.S. regulatory agencies and law enforcement."
 
According to Greg Garcia, "[the financial services industry has] learned that a strong risk management strategy for cyber and physical protection involves participating in communities of trust that share information about threats, vulnerabilities, and incidents affecting those communities. That strategy is based on the simple concepts of strength in numbers, the neighborhood watch, and shared situational awareness."
 
The hearing followed last week's full committee cybersecurity hearing, entitled: "Protecting Consumers: Financial Data Security in the Age of Computer Hackers." Both hearings were intended to build the legislative record on cybersecurity and ultimately develop support for H.R. 2205, the Data Security Act of 2015, which CBA has publicly supported.

Senate Banking Committee Approves Regulatory Relief Bill
On Thursday, May 21, 2015, the Senate Banking Committee met to mark-up Chairman Richard Shelby's (R-AL) financial regulatory relief bill, entitled: "The Financial Regulatory Improvement Act of 2015." The 200+ page bill includes several small bank regulatory relief provisions, many of which have garnered bipartisan support in both the Senate and House. Additionally, the bill includes reforms to the Financial Stability Oversight Council's processes and the Federal Reserve's structure and reporting. Most significantly, the bill would increase the automatic systemically important designation threshold for bank holding companies from $50 billion to $500 billion and grant regulators the authority to make designations based on the activities of those between $50 billion and $500 billion.
 
Ranking Member Sherrod Brown (D-OH) offered a slimmed-down alternative focusing on a select few bipartisan community banking regulatory relief provisions and expanded consumer protections for service members and renters. The Shelby bill and the Brown alternative, which were widely expected to split Senators along-party lines, received votes of 12-10 and 10-12, respectively. The Financial Regulatory Improvement Act of 2015 may now proceed to the full Senate for consideration; however, an agreement to do so is unlikely without significant modifications to the legislation.
 
"As I have said many times, I view this as just one step in a very long process. Even if we report this bill on a partisan vote, I do not in any way see this as the end of the road. In fact, I believe it presents another opportunity to explore areas of potential agreement before this bill goes to the Senate floor which I fully expect that it will," Chairman Shelby said in his opening statement.
 
"There is strong bipartisan consensus to help Main Street financial institutions, but it won't happen at the expense of rolling back Wall Street reform," Ranking Member Brown remarked in a written statement.
 
"We should act now to provide regulatory relief for community banks and credit unions. And then we should consider how this Committee can find bipartisan consensus on proposals to increase consumer protections, tackle 'too-big-to-fail,' and even restore the SEC's authority to pursue insider trading. We should also continue to work to find agreement on some of the other issues contained in Chairman Shelby's bill. For example, while I disagree with the approach taken in the bill, I do agree that some banks above $50 billion shouldn't be regulated like Wall Street megabanks," stated Ranking Member Brown.
 
Prior to passage of the bill, the Committee approved an amendment by Sen. Mike Crapo (R-ID) to prohibit banking regulators from participating in the U.S. Department of Justice's "Operation Choke Point," by a vote of 13-9. Sen. Joe Donnelly (D-IN) was the only Democrat to vote for the amendment. Additionally, the Committee voted 13-9 in favor of an amendment by Sen. Pat Toomey (R-PA) to increase the asset threshold for CFPB bank examinations and reporting from $10 billion to $50 billion. Sen. Donnelly, who is a co-sponsor of Sen. Toomey's legislation, again was the sole Democrat to join Republicans in support.