CFPB Report May 9, 2014

CBA Issues Comment Letter on CFPB’s Debt Collection Survey Proposal

On Tuesday, May 6, 2014, CBA issued a comment letter to the CFPB in response to its proposed consumer debt collection survey. The Bureau requested public comment on a proposal to mail a survey to consumers in an effort to learn about their experiences interacting with the debt collection industry. While CBA strongly supports the CFPB’s effort to gather data on consumer debt collection experiences and on communication preferences, the current survey is not likely to provide the Bureau with accurate information to support future rulemaking.


CBA offered recommendations to aid the CFPB in its efforts to gather debt collection information, to be more reflective of consumer debt collection experiences, including: distinguishing between first-party creditors collecting on their own behalf and third-party debt collectors; utilizing random consumer survey populations, rather than “oversample” consumers with debt placed in collections or low credit scores; and accuracy and ways to improve validity verification of survey respondents.


CFPB Proposes Rule on Privacy Notices

On Tuesday, May 6, 2014, the CFPB proposed a rule intended to promote more effective privacy disclosures from financial institutions to their customers. The Gramm-Leach-Bliley Act (GLBA) requires financial institutions to send annual privacy notices to customers, describing whether the financial institution shares consumers’ non-public personal information and how the information is shared. If the institution shares this information with an unaffiliated third party, it must notify consumers of their right to opt out of sharing, and inform them of how to do so. The CFPB proposal would allow institutions to post privacy notices online instead of distributing a paper copy annually, if the institutions satisfy certain conditions.


“Consumers need clear information about how their personal information is being used by financial institutions,” said CFPB Director Richard Cordray in a press statement. “This proposal would make it easier for consumers to find and access privacy policies, while also making it cheaper for industry to provide disclosures.”


In response, CBA President and CEO Richard Hunt stated: “Many consumers already access account notices and documents via the internet. Today’s announced proposal would allow banks the ability to continue to serve customers in a 21st century manner, while reducing waste and carbon impacts associated with snail mail.”


CFPB Issues Advisory about Managing Mortgage Debt in Retirement

On Wednesday, May 7, 2014, the CFPB released a report spotlighting the mortgage debt challenges faced by Americans 65 and older, including more mortgage debt, less affordable housing, and greater risk of foreclosure. The CFPB is also issuing a consumer advisory reminding consumers approaching retirement to think about their mortgage pay-off date and consider their retirement income and expenses.


In its report, the CFPB highlighted:

  • More senior homeowners with mortgages: Older consumers are carrying more mortgage debt into their retirement years than in previous decades. Median mortgage debt for seniors increased by 82 percent: From 2001 to 2011, the median amount older homeowners owed on mortgages increased 82 percent from about $43,300 to $79,000.
  • Less affordable housing: More than half of the 4.4 million retired homeowners with mortgage debt spend 30 percent or more of their household income in housing related costs. Senior delinquency and foreclosure rates increased five-fold after financial crisis: From 2007 to 2011, the percentage of homeowners age 65 to 74 who were seriously delinquent in paying their mortgage, meaning they were more than 90 days late or in foreclosure, increased from 0.85 percent to 4.96 percent. For those over 75, it increased from 1.01 percent to 5.87 percent.

“A home can be a place of security for older Americans in their retirement years – a roof over their heads as well as a valuable asset,” said Director Cordray in a statement. “But as more seniors carry significant mortgages into retirement, they put themselves at risk of losing their nest eggs and their homes.” 

Protecting Students from Automatic Default Act of 2014 Introduced

On April 29, 2014, Rep. Tim Bishop (D-NY) introduced The Protecting Students from Automatic Default Act of 2014 (H.R. 4511). The CFPB recently released a report claiming lenders place loans in accelerated default when a cosigner passes away or files for bankruptcy. While boiler plate language may be included in some credit agreements, the practice is virtually nonexistent among lenders. Rep. Bishop’s bill would allow borrowers 90 days to find a new cosigner. It also would require lenders to notify borrowers when a loan is placed in default and when there are changes in loan terms due to the death or bankruptcy of a cosigner.


“The practice of automatically defaulting on student loans without notice to the student or an opportunity for the student to find a new co-signer is deplorable,” said Congressman Bishop, whose bill currently has 20 Democratic co-sponsors. “Access to higher education has been shown to be the lynchpin of success in our society. We need to make it easier for students to pay for college or technical school, not pull the rug out from under them when their circumstances change through no fault of their own.” 

Emergency Loan Refinancing Act Introduced by Senator Warren

On Tuesday, May 6, 2014 Senator Elizabeth Warren (D-MA) introduced legislation which would allow borrowers to refinance both federal and private student loans. The Bank on Students Emergency Loan Refinancing Act would allow eligible individuals with student loan debt to refinance at rates currently offered to new borrowers under The Bipartisan Student Loan Certainty Act which became law in 2013.


"Exploding student loan debt is crushing young people and dragging down our economy," said Senator Warren in a statement. "Allowing students to refinance their loans would put money back in the pockets of people who invested in their education. These students didn't go to the mall and run up charges on a credit card. They worked hard and learned new skills that will benefit this country and help us build a stronger middle class and a stronger America."


Representatives John Tierney (D-MA) and George Miller (D-CA) are expected to introduce companion legislation in the U.S. House of Representatives.

Financial Stability Oversight Council Releases Annual Report

On Wednesday, May 7, 2014, the Financial Stability Oversight Council (FSOC) released its 2014 Annual Report to Congress, covering issues such as significant financial market and regulatory developments, potential emerging threats to financial stability, and the activities of the FSOC.


“One of the critical lessons from the financial crisis was recognizing the importance of detecting systemic risks and ways to mitigate them,” said Treasury Secretary Jacob J. Lew in a news release. “The Council’s annual report is an important part of that ongoing work.”


The report makes a number of recommendations related to structural vulnerabilities, and calls for heightened risk management and supervisory attention. Recommendations include comprehensive housing finance reform to decrease the role of the federal government. The report also draws attention to dependence of liquidity in wholesale funding markets, and heightened cybersecurity risks.

House Financial Services Committee Passes Bill Amending QM Points and Fees

On Wednesday, May 7, 2014, the House Financial Services Committee passed the Mortgage Choice Act of 2013 (H.R. 3211), which amends the definition of a Qualified Mortgage to exclude affiliated title fees from the rule’s 3 percent cap on points and fees. While the bill has long held bipartisan support, many Democrats may have been apprehensive, believing the change to the QM definition would reduce consumer protections.


Rep. Bill Huizenga (R-MI), the bill’s sponsor, stated after the vote: “This legislation is narrowly focused to promote access to affordable mortgage credit without overturning the important consumer protections and sound underwriting required under Dodd-Frank's 'ability to repay' provisions.”


Several additional bills were considered by the Committee, but did not receive a vote prior to Chairman Hensarling (R-TX) calling the markup into recess for votes on the House floor. Bills likely to receive a vote by the Committee in the coming weeks include:


H.R. 4200:  "SBIC Advisers Relief Act of 2014"

H.R. 4554:  "Restricted Securities Relief Act of 2014"

H.R. 4568:  "Small Business Freedom to Grow Act of 2014"

H.R. 4571:  "a bill to direct the Securities and Exchange Commission to revise its rules so as to increase the threshold amount for requiring issuers to provide certain disclosures relating to compensatory benefit plans"

H.R. 4569:  "Disclosure Modernization and Simplification Act of 2014"

H.R. 4570:  "Private Placement Improvement Act of 2014"

H.R. 4565:  "Startup Capital Modernization Act of 2014"

H.R. 1779:  "Preserving Access to Manufactured Housing Act of 2013"

H.R. 4521:  "Community Institution Mortgage Relief Act of 2014"

H.R. 4466:  "Financial Regulatory Clarity Act of 2014"

H.R. 2673:  "Portfolio Lending and Mortgage Access Act"

Fed Chair Testifies Before Joint Economic Committee

On Wednesday May 7, Janet Yellen, Chair of the Federal Reserve Board (Fed), testified before Congress’s Joint Economic Committee in a hearing entitled: “The Economic Outlook.” In an opening statement, Committee Chairman Kevin Brady (R-TX), asked Yellen to speak on a number of points:

  • What is the Federal Open Markets Committee’s (FMOC) assessment of the strength of the labor market?
  • Can an overly accommodative monetary policy create asset price inflation that may not be fully captured by the consumer price index or the personal consumption expenditures index?
  • Has the FOMC’s failure to abide by its own “communications channel” prescriptions created more uncertainty and undermined FMOC credibility?
  • Is the Federal Reserve Bank of San Francisco correct that higher federal taxes—including higher marginal rates on individual income, capital gains, and dividends—are presently the main cause of “fiscal drag” on the economy?
  • Is there a better way for Congress to address the spending side of fiscal imbalances than the present sequester enacted as part of the Budget Control Act of 2011?
  • Is the Fed willing to make its balance sheet more transparent?

Key focuses of the hearing included ending quantitative easing, tax extenders, and future inflation. Chair Yellen stated the Fed plans to end asset purchases by this fall, and does not plan to sell any MBS in its portfolio as part of the exit. She informed Senator Amy Klobuchar (D-MN) section 179 of the depreciation deduction was created during a time of weak investment spending, but did not speak to its extension. Republican members criticized the Fed’s monetary for fueling income inequality and future inflation.

Secretary Lew Testifies Before House Financial Services Committee

On Thursday, May 8, 2014, the House Financial Services Committee (HFSC) held a hearing entitled: “The Annual Testimony of the Secretary of the Treasury on the State of the International Finance System.” Treasury Secretary Jack Lew’s testimony before the Committee included remarks on the International Monetary Fund (IMF) and Ukraine, quota reforms, national security, multilateral development banks, and macro global challenges. The Secretary reiterated the Administration’s position on the Terrorism Risk Insurance Act (TRIA), urging reauthorization as the private market is not capable of replacing the government’s program set to expire at the end of 2014.

“Economic conditions continue to improve in most advanced economies, led by the United States. We have now experienced nearly five years of growth. A stronger private sector is helping grow the economy and drive deficits lower,” Secretary Lew said in his testimony. “Over the past 50 months, the private sector has created 9.2 million jobs . . . Yet there is more to be done to create jobs and accelerate growth. While corporate profits have been hitting all-time highs and the stock market has been vibrant, too many in the middle class and those striving to get into the middle class, are struggling to make ends meet.”

Republicans, led by HFSC Chairman Jeb Hensarling (R-TX), pressured Secretary Lew on a number of issues including the lack of transparency at the FSOC, IMF reforms, and Russia sanctions. Republicans were critical of FSOC designating insurance firms and other nonbank companies as systemically important financial institutions. Additionally, Rep. John Campbell (R-CA), Chairman of the Monetary Policy and Trade Subcommittee, requested reassurance the IMF was protecting American taxpayer dollars.

Rep. Messer Named to House Financial Services Committee

On Thursday, May 8, 2014, Congressman Luke Messer (R-IN) was named to the HFSC, filling a seat recently vacated by Congressman Michael Grimm (R-NY). Rep. Messer will relinquish his seat on either the House Budget Committee, the House Foreign Affairs Committee, or the House Committee on Education & the Workforce, to assume his responsibilities on the HFSC.