CFPB Report - May 8, 2015

TRID Bill
On Friday, May 1, 2015, Steve Pearce (R-NM) and Brad Sherman (D-CA) introduced legislation, H.R. 2213, which will provide a hold-harmless period through the end of the year following the August 1, 2015 effective date of the CFPB's TILA/RESPA Integrated Disclosures (TRID) regulation. CBA and other trade associations sent a letter supporting the legislation and outlining the challenges stakeholders will face to meet the deadline. A formal hold-harmless period through December 31, 2015, will allow institutions and vendors to make a good-faith effort to comply with the TRID regulation without fear of potential enforcement actions or lawsuits. It also would allow the Bureau to work with the industry to gather data about implementation and provide written guidance to address common industry implementation hurdles which may emerge.
 
CFPB to Congress: No Delay on TILA/RESPA Integrated Disclosures
On Wednesday, April 22, 2015, CFPB Director Richard Cordray responded to an inquiry from Republican Members of the House Financial Services Committee about providing a delay or hold harmless period following the August 1, 2015 implementation deadline for the TILA/RESPA Integrated Disclosures for mortgage applications. In its response, the Bureau does not offer any flexibility for the deadline but does not explicitly deny it. Instead, the letter describes efforts to work with the industry on a smooth transition and compliance. "As you may know, the Bureau has taken a number of steps to support industry implementation of the Integrated Disclosure Rule and to help creditors, vendors, and others affected by the new rule understand, operationalize, and prepare to comply with the Integrated Disclosure Rule's new consumer protections," Director Cordray says. The letter describes efforts the Bureau made with industry to ease the compliance burden, such as publishing plain-language guides, amending the rule due to industry requests, unofficial staff guidance and webinars.
 
CFPB Holds Annual Academic Research Council Meeting
On Thursday, May 7, 2015, the CFPB held its fourth annual meeting of its Academic Research Council, the first to be made accessible to the public. Council members offered comments on consumer markets and areas in need of further study. Harvard University's David Laibson discussed the dire state of consumer retirement savings. Justine Hastings of Brown University called for more research in markets where consumers engage in very few, but large, transactions such as student loans. Christine Jolls of Yale Law School called on researchers to conduct randomized studies to get a better understanding of consumer behavior, and John Campbell of Harvard University explored what could be learned from other countries about regulating consumer markets.
 
In response to comments made by the Council, CFPB Director Cordray said the Bureau was working with the U.S. Department of the Treasury to improve the MyRA program – a new form of retirement savings account developed by the Obama administration. Director Cordray offered Project Catalyst as the CFPB's attempt to promote randomized studies and, in a pitch to all interested researchers, he noted the Bureau is interested in sharing access to its vast data collection, within the limits of the law.
 
CFPB Advises Borrowers on School Closings
On Wednesday, May 6, 2015, Rohit Chopra, the CFPB's Private Education Loan Ombudsman and the Assistant Director for the Office of Students, reminded student loan borrowers of their options in the event their school is closed. The Bureau released a similar blog post when an enforcement action was announced against Corinthian schools on February 3, 2015. Borrowers of federal student loans may apply for a "closed school discharge," but if the school is acquired by a different operator this may not be possible. Options for private student loans vary by lender and are typically treated on a case-by-case basis. Some schools offer a "teach out" arrangement to complete the academic program and receive recognition for it.
 
CFPB Released Report on "Credit Invisible" Americans
On Tuesday, May 5, 2015, the CFPB released a report concluding 26 million Americans are "credit invisible," indicating one in every 10 adults do not have credit history with a nationwide consumer reporting agency. The report divided consumers with limited credit into two groups: "credit invisibles," those consumers without a credit report, and "unscored," individuals who do not have enough credit history to produce a credit report or who have credit reports with "stale" information. The Bureau found: 

  • While 26 million Americans are credit invisible, about 189 million Americans have credit records which can be scored;
  • 19 million Americans – 8 percent of the population – have unscored credit records, which is evenly divided between people who have insufficient credit history and lack of recent credit history;
  • Consumers in low-income neighborhoods are more likely to have limited credit records, with 30 percent credit invisible and 15 percent unscored. This is compared to higher-income neighborhoods where 4 percent are credit invisible and 5 percent are unscorable; and
  • African Americans and Hispanic Americans are more likely to have limited credit records than Caucasian or Asian Americans.

The report was conducted by comparing 2010 data from the CFPB's Consumer Credit Panel, a de-identified sample of credit reports from a credit agency, with 2010 U.S. Census data.
 
Court Case Challenging CFPB Constitutionality Dismissed
Last week, the D.C. Circuit Court of Appeals affirmed the dismissal of a case challenging the constitutionality of the CFPB, Morgan Drexen, Inc. v. Consumer Financial Protection Bureau, for lack of standing and failure to show the requested relief was proper.
 
As a background, the CFPB notified Morgan Drexen – a firm providing legal support for debt collection attorneys – that it was considering an enforcement action against the company. Prior to the enforcement action, Morgan Drexen and an attorney who used their services filed a complaint against the CFPB with the D.C. District Court challenging the CFPB's constitutional authority and seeking injunctive and declaratory relief. Subsequently, the CFPB filed an enforcement action against Morgan Drexen in California, but did not name the associated attorney.
 
The D.C. District Court dismissed Morgan Drexen's complaint on the grounds it had an adequate remedy in the California action and the attorney did not have standing because she was not named in the enforcement action. The D.C. Circuit Court affirmed the ruling under the same reasoning.
 
With regards to the California enforcement action, the court denied Morgan Drexen's motion to dismiss and entered a default judgment against the company for allegedly falsifying evidence. Last week, the court froze Morgan Drexen's assets and the company filed for bankruptcy on the same day.

Yellen Remarks on Financial Institutions and Society
On Wednesday, May 6, 2015, Federal Reserve Chair Janet Yellen spoke at the Institute for New Economic Thinking regarding banks, regulation, and the economy. She defended new powers granted to federal banking regulators by the 2010 Dodd-Frank Act as safeguards for the greater society at large.
 
Chair Yellen discussed how the Fed has created ways to examine the financial sector and is monitoring for new risks. While noting banks are vital to promoting economic growth, she also blamed them for encouraging borrowers to take on excessive debt leading to the 2008 financial crisis.
 
"When the incentives facing financial firms are distorted, these firms may act in ways that can harm society," Yellen said.
 
Chair Yellen also declared how the shift in political winds will not deter the Federal Reserve's interest in regulation. In her opening remarks, she reiterated her commitment to shrinking the biggest banks and enforcing capital requirements to reduce the possibility of future government bailouts of irresponsible financial institutions.

Sanders, Sherman Introduce "Too Big to Fail, Too Big to Exist" Act
On Wednesday, May 6, 2015, Sen. Bernie Sanders (I-VT) and Rep. Brad Sherman (D-CA) introduced legislation designed to break up the largest financial institutions. The bill would require the U.S. Department of the Treasury to dismantle institutions deemed "Too Big to Fail" by the Treasury Secretary. The move would follow the Financial Stability Oversight Council's (FSOC) submission of a list of banks it deems "Too Big to Fail," which would include those designated as systemically important financial institutions. Those organizations designated by the FSOC would be prohibited access to any Federal Reserve credit facilities and may not use its insured deposits for "derivatives for speculative purposes" and a number of related restrictions.
 
"No single financial institution should have holdings so extensive that its failure could send the world economy into crisis," Sanders said. "Never again should a financial institution be able to demand a federal bailout," said Rep. Sherman.