CFPB Report November 22, 2013

November 22, 2013

CFPB Issues Final Rule on TILA/RESPA Disclosures

On Wednesday, November, 20, 2013, the CFPB issued final rules to simplify and consolidate certain Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) disclosures, including those provided to consumers within three days of receiving the mortgage application and those currently provided at the loan closing. The CFPB provided the final version of these forms, as well as a factsheet, developed as part of its “Know Before You Owe” project for mortgage forms, a process CBA has participated in since its inception. 

The rules also incorporate other changes to TILA and RESPA included in the 2012 proposal, such as restricting circumstances in which consumers can be required to pay more for settlement services than the amount previously disclosed, absent a legitimate reason. However, one proposed change, the “all-in APR,” in which additional closing costs were to be included in the annual percentage rate, was not included in the final rules. The CFPB indicated it will continue to study consumer understanding of the APR. The forms and other provisions of these rules will be effective August 1, 2015.

The “Loan Estimate,” the new disclosure provided at the time of application, is the summary of key loan terms and estimated loan and closing costs.  It replaces the current “early” disclosure required under TILA and the “good faith estimate” required under RESPA. The new disclosure provided at closing (“Closing Disclosure”) will replace the current “final” Truth in Lending statement and the HUD-1 settlement statement. There will now be a general requirement that the Closing Disclosure be provided at least three days before a loan closing, although more flexibility is provided, as compared to the 2012 proposal. 

In addition to unveiling these new rules and disclosures, the CFPB announced the next step in its campaign, titled “Know Before You Owe – Transforming the Closing Process.” The goal is to make the road to closing less intimidating for consumers and to streamline the other disclosures received during this process. The project is expected to include electronic documents and disclosures to make the system easier for both lenders and consumers. 

The new forms are available in both English and Spanish. 

CFPB Issues First Enforcement Action Against Payday Lender

On Wednesday, November 20, 2013, the CFPB issued its first enforcement action against a payday lender, requiring Cash America to refund up to $14 million for robo-signing and illegal overcharging servicemembers. The Bureau found that Cash America violated the Military Lending Act by overcharging servicemembers and their families. Additionally, the Bureau claimed that Cash America destroyed records, instructed employees to limit information, and withheld other information to impede a CFPB examination. 

In accordance with the enforcement action, Cash America has committed to refund consumers up to $14 million, dismiss pending collections lawsuits, pay a $5 million punitive fine, and improve internal compliance systems. 

CFPB Report Finds Marketing Dollars Exceed Financial Education Spending

On Monday, November 18, 2013, the CFPB issued a report comparing spending on financial education and marketing of financial products and services. The Bureau highlighted the report’s findings, citing for every dollar spent on financial education, $25 is spent on financial marketing. The report found approximately $17 billion is spent annually marketing financial products and services to consumers, and $670 million is spent annual on financial education.

In its findings, the CFPB noted about three-quarters of financial education spending comes from private sources, including approximately $31 million spent yearly by financial institutions.  

Lawmakers Reiterate Concerns about CFPB Indirect Auto Lending Actions

On Friday, November 15, 2013, Congressman Luetkemeyer (R-MO) sent a letter to Director Cordray regarding the Bureau’s actions on indirect auto lending. The letter echoes concerns raised by members of both parties in previous communications sent earlier this year. The Congressman highlighted concerns over the Bureau’s treatment of The Administrative Procedure Act and the cost of credit to consumers should dealers be compelled to switch to a flat fee compensation structure. He writes: “Disparate impact is not an appropriate way to enforce consumer protection laws against indirect auto lenders who, in many cases, never see a customer or have knowledge of a customer’s race.”

Additionally, Sen. Jeff Merkley (D-OR), a member of the Senate Banking Committee, sent a letter to the Bureau on Tuesday, November 19, 2013. The senator requested the Bureau conduct a study of discrimination in the auto marketplace “to identify the real problem,” and urges the CFPB to “not practice mandating flat fees that could potentially hurt both dealers and customers.” 

House Financial Services Committee Considers CFPB Legislation

On Wednesday, November 20, 2013, the House Financial Services Committee approved six bills aimed at reforming the CFPB. The bills would make several changes to the CFPB’s structure, including replacing the single Director with a bipartisan commission, bringing its funding under the Congressional appropriations process, and modifying CFPB employee pay. The bills also require the Bureau to consider safety and soundness of financial institutions in its rulemaking, prohibit the CFPB from collecting personally identifiable information from consumers without their knowledge or consent, and provide consumers with free annual disclosure of what information the CFPB maintains on them.

In his opening statement, Chairman Jeb Hensarling (R-TX) said, “These are modest, common-sense bills that bring a modicum of accountability and transparency to the CFPB. We know that this is an agency that was designed to be unique, if not perhaps rogue; it is an agency like no other. Arguably it is the single most powerful and least accountable Federal agency in the history of our nation.”

OCC and FDIC Finalize Guidance for Deposit Advance Products

On Thursday, November 21, 2013, the OCC and FDIC announced guidance on supervisory concerns and expectations regarding deposit advance products (DAP). While both agencies received comments on the original proposal released earlier this year, the final guidance remains largely unchanged, with the agencies dismissing many, if not all, of the industry’s comments.

The agencies note the analysis of recurring deposits and withdrawls via checks/credits/customer over at least a six-month period is an appropriate standard because it would afford a bank the opportunity to use readily available information to determine whether the customer has the ability to repay an advance. The agencies clarified banks offering DAP are not required to look outside of their institution (e.g. credit reports) to determine a customer’s ability to repay. The agencies also clarified the guidance applies to all DAP regardless of the structure of the extension of credit (e.g. line of credit, loan, etc.).

As outlined in the final guidance, the agencies encourage banks to provide small-dollar credit options, but caution DAP can pose risks to safety and soundness, compliance, and consumer protection. The guidance is aimed at ensuring banks offer these products in a manner that would not increase credit compliance, legal, and reputational risks. The agencies also note several banks offering products currently meeting the standards of guidance, although they do not identify the banks. 

For further details on the OCC and FDIC final guidance, see CBA's detailed summary on DAP.

Senate Banking Committee Approves Fed Chair Nomination

On Thursday, November 21, 2013, the Senate Banking Committee approved Janet Yellen’s nomination as Chairman of the Federal Reserve Board of Governors in a 14-8 affirmative vote. Sen. Joe Manchin (D-WV) was the only Democrat to oppose, and two Republicans voted in favor. Yellen still needs an affirmative vote from the full Senate, but now will not face the challenge of a 60-vote threshold from a filibuster. In addition, a number of Republican Senators have voiced support for her confirmation.

Senate Finance Committee Considers Deputy Treasury Secretary Nomination

On Wednesday, November 20, 2013, the Senate Finance Committee considered the nomination of Sarah Bloom Raskin to be Deputy Secretary of the Treasury. Ranking Member, Orrin Hatch (R-UT), announced his support of Raskin’s nomination. The primary, bipartisan topic of discussion was currency manipulation by foreign countries. The role of the Financial Stability Oversight Council, capital standards, and tax reform were also addressed.

Senate Commerce Committee Addresses Lending Practices in the Military Community

On Wednesday, November 20, 2013, the Senate Committee on Commerce, Science, and Transportation held a hearing entitled, “Soldiers as Consumers: Predatory and Unfair Business Practices Harming the Military Community.” In his opening statement, Chairman John Rockefeller (D-WV) stated: “steady paychecks and relative job security make our servicemen and women appealing targets for unscrupulous businesses pitching predatory loan products. That’s not something any of us should be proud of.” Witnesses included representatives from the CFPB, the Federal Trade Commission, the New York and Tennessee Attorneys General offices, and a naval station. 

The hearing addressed the types of loans considered predatory, debt collection practices, recent enforcement actions, and the need for new resources in preventing such behavior, including broadening the definition of “consumer finance” in The Military Lending Act (MLA). Chairman Rockefeller highlighted payday loans, installment loans, and auto title loans as the primary sources of difficulty for servicemembers. He and Ranking Member John Thune (R-SD) discussed potentially illegal debt collection practices, including threats to disclose servicemembers debts to their commanding officers, which could compromise security clearances. Witnesses focused on recent enforcement actions, including the CFPB’s consent orders, announced Wednesday, against Cash America for robo-signing violations (see above).  Charles Harwood of the FTC disclosed, that the Commission is working with the CFPB and Department of Defense to create a narrower definition of consumer credit.

House Financial Services Subcommittee Holds Hearing on Disparate Impact Theory

On Tuesday, November 19, 2013, the House Financial Services Subcommittee on Oversight and Investigations held a hearing entitled, “A General Overview of Disparate Impact Theory.” Witnesses included representatives from the United States Commission on Civil Rights, the Brandeis Center for Human Rights Under Law, and the American Civil Liberties Union. The hearing followed settlement of the Mount Holly case, scheduled to be heard by the U.S. Supreme Court. Tuesday’s hearing discussed the general theory of disparate impact, whether it is helpful or harmful to its intended beneficiaries, and its impact on mortgages. Kenneth Marcus of the Brandeis Center for Human Rights Under Law, suggested to Congressman Keith Rothfus (R-PA) that disparate impact could lower the standards to which loans are evaluated, citing other sources in identifying intentional discrimination.

House Financial Services Subcommittee Reviews Flood Insurance Issues

On Tuesday, November 19, 2013, the House Financial Services Subcommittee on Housing and Insurance held a hearing entitled, “Implementation of Biggert-Waters Flood Insurance Act of 2012: Protecting Taxpayers and Homeowners.” Witnesses included representatives from FEMA, the National Wildlife Federation, Greater New Orleans, Inc., National Association of Realtors, National Association of Home Builders, Association of State Floodplain Managers, and the American Action Forum. The hearing addressed challenges and possible solutions to balancing affordable flood insurance premiums with an actuarially sound National Flood Insurance Program (NFIP). In his opening statement, Subcommittee Chairman Randy Neugebauer (R-TX) said, “One of the reasons that government is not good at pricing risk is because sometimes, instead of pricing it actuarially or based on a risk model, it's priced politically.” The full Committee Ranking Member, Maxine Waters (D-CA), highlighted a bill she recently sponsored with bipartisan support which would delay provisions of the Biggert-Waters Act and give FEMA additional resources to complete its mandated affordability study.