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CFPB Report - November 20, 2015
CFPB Releases Updates to Rulemaking Agenda
On Friday, November 20, 2015, the CFPB released its semiannual rulemaking agenda as part of the federal government's Unified Agenda of Regulatory and Deregulatory Actions. Part of the CFPB's mandate from Congress is to make rules governing consumer finance markets more effective and to create new rules when warranted. The agenda includes rulemaking actions in pre-rule, proposed rule, final rule, long-term, and completed stages.
Below is an overview of some of the Bureau's major current initiatives:
- Arbitration - The CFPB is beginning a rulemaking process to address concerns related to the use of arbitration agreements. In particular, the agency is considering whether to propose rules that would prevent companies from using these agreements to foreclose consumers' ability to bring class action lawsuits.
- Payday, auto title, and similar lending products - The Bureau is developing a Notice of Proposed Rulemaking to address concerns in markets for payday, auto title, and similar lending products. The Bureau is particularly concerned lenders are offering these products without assessing the consumer's ability to repay, thereby forcing consumers to choose between reborrowing, defaulting, or falling behind on other obligations. They expect to release the rulemaking proposal in first quarter 2016.
- Prepaid accounts - The Bureau is finalizing a proposed rule that it published in the Federal Register in December 2014. At that time, the Bureau proposed prepaid accounts receive certain protections similar to those of debit and payroll cards. They also proposed general credit card protections to prepaid accounts that access overdraft services or offer certain credit features. A final rule is expected in spring 2016.
- Overdraft - The Bureau is preparing for a rulemaking concerning overdraft programs on checking accounts. A prior white paper and report by the Bureau highlighted a number of possible consumer protection concerns, including how consumers consent (or "opt in") to overdraft coverage for certain electronic transactions, overdraft coverage limits, transaction posting order practices, overdraft and insufficient funds fee structures, and involuntary account closures. In preparation for the rulemaking, the Bureau is conducting additional consumer-based research and has begun consumer testing initiatives related to the "opt in" process. CBA does not expect a proposed rule until Q3 of 2016 at the earliest.
- Debt collection - The Bureau is conducting research for a rulemaking on debt collection activities. Building on a previous Advance Notice of Proposed Rulemaking, the Bureau now is analyzing the results of nationwide survey related to consumers' experiences with debt collection. They also are engaged in consumer testing initiatives to determine what information would be useful for consumers to have about debt collection and their debts and how that information should be provided to them. CBA does not expect a proposed rule until mid-2016 at the earliest.
- Women-owned, minority-owned, and small businesses data collection - The Dodd-Frank Act requires the Bureau to develop rules to implement a requirement that financial institutions report information about lending to women-owned, minority-owned, and small businesses. The first stage of work will focus on outreach and research. They then plan to begin developing proposed rules concerning the data to be collected and appropriate procedures, information safeguards, and privacy protections for information-gathering. CBA does not expect a proposed rule until late 2016 at the earliest.
- Implementation of the Home Mortgage Disclosure Act, Know Before You Owe disclosures, and other mortgage rules - The Bureau is working to support implementation of multiple mortgage rules required by the Dodd-Frank Act. The Bureau also is preparing a compliance guide and other support materials and programs to prepare for implementation of various parts of the rule starting in 2017 and 2018.
- Larger participants and non-depository lender registration - The Dodd-Frank Act allows the Bureau to supervise nonbank financial services providers that are designated as "larger participants" in their particular markets for consumer financial products and services. The Bureau expects next to develop rules to define larger participants in markets for consumer installment loans and vehicle title loans.
For a full list of initiatives and long term objectives, view the agenda here.
CFPB Files Suit against Online Lender
On Wednesday, November 18, 2015, the CFPB filed an administrative lawsuit against online lender Integrity Advance, LLC and its CEO, James Carnes, for allegedly deceiving consumers about the cost of short-term loans. The Bureau alleges Integrity Advance violated the Truth in Lending Act (TILA) and the Electronic Fund Transfer Act (EFTA), and that the company and its CEO violated the Dodd-Frank Act's prohibition against unfair and deceptive acts and practices.
The specific practices alleged by the CFPB include:
- Hiding the total cost of loans: Consumers were allegedly given contracts with disclosures based on repaying the loan in a single payment, even though the default terms of the contract called for multiple rollovers and additional finance charges, a violation of the TILA.
- Requiring repayment by pre-authorized electronic funds transfers: The company allegedly requiring consumers to agree to repay their loans via pre-authorized Automated Clearing House (ACH) payments, a violation of the EFTA.
- Continuing to debit borrowers' accounts after consumers canceled the authorization: Integrity Advance's contracts with consumers allegedly included a provision allowing the company to use remotely created checks if a consumer successfully canceled his or her authorization for ACH withdrawals.
Director Cordray Lauds Government Efforts to Promote Financial Security for Consumers
On Wednesday, November 18, 2015, the Financial Literacy and Education Commission (FLEC) met to discuss ways the federal government can promote financial security through long-term savings and retirement planning. Composed of 22 federal agencies, FLEC is chaired by the Treasury Secretary and Vice-Chaired by the CFPB Director. In prepared remarks, CFPB Director Richard Cordray recounted steps the Bureau has taken to promote savings and financial literacy among its employees. He also touted the Bureau's recently released interactive tool "Planning for Retirement," which allows consumers to decide when it is most beneficial to draw on their social security benefits. Lastly, the Director applauded the U.S. Department of Treasury's work on developing myRA, a new retirement account that allows consumers to save money with a principal guarantee, premium interest rates and no fees.
House Passes Bill to Repeal CFPB Indirect Auto Financing Guidance
On Wednesday, November 18, 2015, the House passed H.R. 1737, a bipartisan bill introduced by Rep. Frank Guinta (R-NH) reforming the CFPB's 2013 Bulletin regarding Indirect Auto Lending and Compliance with Equal Credit Opportunity Act. The bill, which passed out of the House with a vote of 332-96, would repeal the CFPB 2013 bulletin on indirect auto lending and ensure any future guidance receive public notice and a comment process.
Speaking in support of the bill, House Financial Services Committee Chairman Jeb Hensarling (R-TX) said, the CFPB's Indirect Auto Bulletin "attempts to regulate compensation paid to auto dealers, despite auto dealers being specifically exempted in the Dodd-Frank Act from CFPB's rulemaking. By issuing this bulletin, the Bureau went far beyond clarifying existing law and instead is attempting to make new policy through this guidance, and doing so without going through the normal rulemaking process and without public input. This is an affront to due process, an affront to the rule of law and an affront to basic fairness."
CFPB Provides Five Tips on Retirement Benefits
On Tuesday, November 17, 2015, the CFPB posted on its blog "Five things to consider before you collect your Social Security benefits," offering advice to help individuals plan ahead to meet their retirement needs and goals. The tips include knowing your full retirement age, do not claim benefits early, know your retirement budget, keep working if possible, and consider your spouse's long-term needs.
The CFPB also directed individuals to its retirement tool, "Planning for Retirement," for more information on Social Security pertaining to specific consumers' situations.
House Approves Change to Dodd-Frank Mortgage Rules
On Wednesday, November 18, 2015, the House passed by a vote of 255 to 174 Rep. Andy Barr's (R-KY) Portfolio Lending and Mortgage Access Act (H.R. 1210). The bill would expand the CFPB's qualified mortgage safe harbor to all loans held in portfolio by banks and credit unions. Currently, the Bureau regulations prompted by the Dodd-Frank Act provide an exemption to allow small and rural banks to achieve qualified mortgage status for protection from liability without following the ability-to-repay rule, which requires a borrower's debt-to-income ratio be 43 percent or less. Supporters of the legislation believe H.R. 1210 will expand access to mortgage credit, while opponents warn against opening the door to the reckless lending practices that led to the financial crisis. The White House has issued a veto threat against the bill.
"The bill undermines the anti-predatory lending provisions of the Dodd-Frank Act and virtually eliminates one of the most significant consumer protection rules implemented by the CFPB," House Financial Services Committee Ranking Member Maxine Waters (D-CA) said in response to the bill. According to House Financial Services Committee Chairman Jeb Hensarling (R-TX), "The aim of H.R. 1210 is simple: Banks and credit unions should be free to originate mortgages as long as they keep them on their books. As long as they keep the risk. This is responsible lending."
Prudential Regulators Post Notice of Final EGRPA Meeting
On Friday, November 13, 2015, the Federal Reserve Board, OCC, and the FDIC, announced the final outreach meeting under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). The meeting will take place on Wednesday, December 2, 2015, at the FDIC in Arlington, VA and will be webcast. Under EGRPRA, the agencies must conduct a review at least every 10 years to identify outdated or otherwise unnecessary regulations. The agencies have previously requested comment on nine of the 12 categories and are soliciting comment on the final three categories listed in the federal register notice, which are rules of procedure, safety and soundness, and securities.