CFPB Report - November 6, 2015

CBA Comments on CFPB Overdraft Survey
On Tuesday, November 3, 2015, CBA filed a comment letter in response to the CFPB's request to the Office of Management and Budget to conduct a survey as part of its study of overdraft protection services. On September 9, 2015, the CFPB published a notice in the Federal Register seeking approval for a web-based consumer survey on overdraft services. This first direct consumer survey conducted by the agency on overdraft services will target 8,000 consumers to explore their "comprehension and decision-making in response to revised overdraft disclosures." It also will evaluate "financial product usage, behavioral traits, and other consumer characteristics that may interact with a consumer's experiences with overdraft programs and related disclosure forms." According to the Bureau, the survey will include a representative sample of U.S. adults holding checking accounts and oversample respondents who are more likely to have experience with overdraft fees.
CBA expressed concern over the lack of a draft survey instrument in the Bureau's request. "We believe the public is at a greatly disadvantaged position to submit substantive comments due to the lack of specific survey questions and we urge the Bureau to withdraw its current request until such time as it is able to produce a model survey," CBA stated.
CFPB Release Reports on Mobile Financial Services
On Wednesday, November 4, 2015, the CFPB released a report on mobile financial services based on comments it received from industry stakeholders during last June's request for information. CBA offered comments to the Bureau during this process. The report indicated: 

  • Increasing smartphone use presents an opportunity to reach underserved consumers: 87-90 percent of U.S. adults have a mobile phone, and 62-64 percent of consumers own a smartphone. And 52 percent of smartphone owners with bank accounts used mobile banking in 2014.
  • Faster payments could be a boon for industry and consumers: Mobile financial services (MFS) such as remote deposit capture and online account opening have the potential to save consumers time and money. The report notes that faster funds availability and payments can bring more underserved consumers into the banking system, as this segment utilizes alternative financial services, in part, to gain immediate access to funds.
  • Mobile financial services should be paired with in-person services: The general consensus among industry stakeholders is at least in the near term MFS must be paired with in-person assistance in order gain traction across all consumer segments. For instance, some commenters stated MFS are not a substitute for bank branches as many consumers (e.g., elderly) are less than up-to-date on the latest MFS offerings.
  • Privacy and security are barriers to consumer adoption: Commenters identified privacy and security concerns to be a real barrier to MFS adoption. Data breaches, identity theft, transaction security, theft of devices, app stores and operating systems were all cited as possible security concerns. Risks associated with personal, location, financial and other data were also raised in the context of consumer privacy. Some commenters identified disparate impact and the potential for "virtual" redlining as a concern related to weak privacy protections.
  • Digital access and literacy could improve access for all consumers: Commenters have cited the need for "major investments" in digital literacy to help consumers navigate online and mobile financial services. Certain consumer segments report specific challenges to using MFS such as disabilities, limited English proficiency, inaccessible user interfaces, and a lack of comfort with technology. 

Latest Edition of CFPB Supervisory Highlights Released
On Tuesday, November 3, 2015, the CFPB released the ninth edition of its Supervisory Highlights, which conveys supervisory observations in consumer reporting, debt collection, mortgage origination, mortgage servicing, student loan servicing, and fair lending.
Remedial Actions | In terms of enforcement actions, the Bureau indicated supervisory activities have "either led to or supported six recent public enforcement actions, resulting in $764.9 million being returned to consumers and $50.7 million in civil money penalties." This is while, according the Bureau, "supervisory resolutions have resulted in restitution of approximately $107 million to more than 238,000 consumers."
Industry Best Practices | For the first time, the Bureau highlighted industry best practices, which included mortgage servicers making the effort to develop an adequate compliance position through increased resources devoted to compliance; and student loan servicers continuing to communicate with borrowers during the pay ahead period, conveying the remaining balance.
General observations and trends of examination violations by category included:

  • Consumer Reporting | Inadequate policies and procedures by furnishers;
  • Debt Collection | Insufficient disclosure and inadequate policies and procedures;
  • Mortgage Origination | Insufficient disclosure, failure to adhere to good faith settlement tolerances, failure to comply with settlement statement requirements, insufficient housing counselor disclosure, inaccurate loan servicing disclosure statement, failure to comply with financial information privacy requirements, failure to require necessary employees to register with the National Mortgage Licensing System and Registry, and failure to reimburse customers for understated annual percentage rates and finance charges;
  • Mortgage Servicing | Inadequate policies and procedures, improper loss mitigation denials, deceptive statements and insufficient reimbursements violating the Homeowner Protection Act, failure to disclose fees for receiving payments over the phone, using estimate debt amount on debt validation letters, and delayed sending of debt validation letters;
  • Student Loan Servicing | Absence of choice for allocation of partial payments, system payment processing issues, unfair automatic debit policies, misrepresenting discharge of student loans in bankruptcy, misrepresenting late fees, inadequate policies and procedures by furnishers; and
  • Fair Lending | Statistical disparities violating ECOA. 

CFPB Amends Appeals Process Policy
On page 41 of the Bureau's Supervisory Highlights, released Tuesday, November 3, 2015, the agency announced changes to its appeals process for supervisory actions. Applicable to appeals made on or after September 21, 2015, the CFPB revised policy, as amended:

  • Expressly allows members of the Supervision, Enforcement, and Fair Lending Associate Director's staff to participate on the appeal committee, replacing the existing requirement that an Assistant Director serve on the committee;
  • Permits an odd number of appeal committee members in order to facilitate resolution of appeals;
  • Limits oral presentations to issues raised in the written appeal;
  • Provides additional information regarding how appeals will be decided, including the standard the committee will use to evaluate the appeal;
  • Prevents an institution from appealing adverse findings or an unsatisfactory rating related to a recommended or pending investigation or public enforcement action until the enforcement investigation or action has been resolved; and
  • Changes the expected time to issue a written decision on appeals from 45 to 60 days.

Bureau releases Financial Literacy Annual Report
On Thursday, October 29, 2015, the CFPB published its Financial Literacy Annual Report, indicating it tailors its financial literacy approach to specific populations, highlighting service members and veterans, students and young adults, older adults, people with low income, and people who are economically vulnerable. The Bureau's financial literacy strategy is summarized by "knowledge, skills, action" and is two-fold: 1) Provide assistance to consumers at important points of the financial lives; and 2) Move forward on research to identify effective approaches to financial education and better define the metric of success.
The Bureau highlighted many of its financial initiatives and focused on its tools, including Ask CFPB; Paying for College; Owning a Home; and CFPB en Espanol. Regarding the Civil Monetary Penalty Fund, the CFPB indicated it has distributed "tens of millions of dollars" to consumers and used the funds to support a financial coaching initiative for veterans and nonmilitary low-income and economically vulnerable consumers across the country.
The CFPB indicated it is working to improve consumers' financial well-being, which they defined as someone who has control over day-to-day, month-to-month finances, has the capacity to absorb financial shock, is on track to meet his or her financial goals, and has the financial freedom to make the choices that allow him or her to enjoy life.
Agency Diversity and Inclusion Plan Introduced
On Tuesday, October 27, 2015, the CFPB issued a Strategic Plan on Diversity and Inclusion covering the period between 2016 and 2020. This plan will be used by the Bureau to promote diversity and inclusion within the agency in accordance with the law. Of more relevance for CBA members, the plan states CFPB will "use interagency policy standards to assess the diversity and inclusion policies and practices at regulated entities." Based on collected data, it appears the Bureau will produce a "survey of best practices" which can be shared with its regulated entities to "enhance their own diversity and inclusion efforts."

House Passes Long-Term Highway Bill
On Thursday, November 5, 2015 the House passed (363-64) a major, six-year, $340 billion highway transportation bill. The Senate passed its version of a six-year highway bill in July. The two bills are expected to go to conference before the November 20, 2015 deadline.
The Senate version and a previous version of the House bill contained a controversial funding measure which would reduce the dividend banks receive from the Federal Reserve from 6 percent to 1.5 percent, resulting in $17 billion in additional revenue. However, the House overwhelmingly adopted an amendment introduced by Reps. Randy Neugebauer (R-TX) and Bill Huizenga (R-MI) stripping this controversial funding source from the bill and replaced it with a liquidation and dissolution of the Federal Reserve capital surplus account, which currently maintains a funding level of $29 billion. According to the amendment, all surplus funds and future earnings in excess of member bank dividends would then be remitted to the U.S. Treasury. Not only did the Neugebauer-Huizenga Amendment replace the controversial funding, but an estimated additional $40 billion in excess revenue will be generated as a result.
CBA with 26 other trades submitted a letter to House Leadership supporting the Neugebauer-Huizenga Amendment, stating, "Member banks of the Federal Reserve are required by law to purchase stock in regional Federal Reserve Banks. This stock may not be sold, transferred or even used as collateral, unlike virtually every other asset a bank holds. These funds represent 'dead capital' for the financial institution. The dividend that the Senate is considering reducing reflects the unique structure and constraints of this arrangement that is required by law, as this is money that otherwise would be used by banks for lending and to provide other services to customers."

FTC Enforcement Initiative Aimed at Abusive Debt Collectors
On Wednesday, November 4, 2015, the Federal Trade Commission (FTC) unveiled the first coordinated federal-state enforcement initiative targeting deceptive and abusive debt collection practices. Included in the coalition are the FTC, CFPB, U.S. Department of Justice, attorneys general from 48 states, state regulatory agencies, and local authorities from around the country. The efforts by the coalition, titled "Operation Collection Protection," announced 30 new enforcement actions against collectors who use illegal tactics such as "harassing phone calls and false threats of litigation, arrest, and wage garnishment." This brings the total number of actions made this year by members of the coalition to 115. FTC Chairwoman Edith Ramirez, Illinois Attorney General Lisa Madigan, and Minnesota Commerce Commissioner Mike Rothman attended the event.
The FTC specifically announced five new enforcement actions against debt collectors engaged in allegedly illegal practices. BAM Financial and Delaware Solutions received temporary restraining orders, halting their operations. In a settlement, K.I.P., LLC has agreed to a $6.4 million judgment and a ban on working in any debt collection business. National Check Registry also agreed to a ban on participating in any debt collection business in a settlement with the FTC and New York Attorney General's Office. The last action has been filed under seal preventing disclosure of details at this time.

Chair Yellen Testifies Before House
On Wednesday, November 4, 2015, Federal Reserve Chair Janet Yellen testified before the House Financial Services Committee in a hearing entitled: "Semi-Annual Testimony on the Federal Reserve's Supervision and Regulation of the Financial System."
In his opening statement, Chairman Jeb Hensarling (R-TX) said, "[T]he Fed must not be allowed to shield its vast regulatory activities from the American people and congressional oversight by improperly cloaking them behind its traditional monetary policy independence. . . . [S]erious questions must be asked. Why isn't the Fed subject to statutory cost-benefit analysis? Why has the Fed yet to find any connection between its Volcker rule or any other rule and the precipitous drop in bond market liquidity?" And finally, he continued, "Why do the Fed's stress tests" more closely resemble "regulators punish[ing] banks for failing to meet standards that are never stated, either in advance or after the fact."
Many of the questions posed to Chair Yellen centered on a bill introduced by Rep. Blaine Luetkemeyer (R-MO) which passed the committee the previous day and would eliminate the $50 billion asset threshold that subjects institutions to greater regulatory oversight and replace it with an activities based approach to determine risk and whether an institution is systemically important.
Federal Reserve Chair Janet Yellen said she only would support a "very modest increase" to the $50 billion asset threshold and she was concerned about a process which would "require the board to use statutorily defined set of factors or make findings based on factors to decide whether to subject firms to high prudential standards." She stated the Fed is "looking at further ways in which we can tailor our supervisory approach for stress tests, but "there are some constraints on our ability to tailor our supervisory approach for the smaller firms."
In response to a question from Congressman Michael Capuano (D-MA), Chair Yellen said regulators are set to make decisions regarding banks' living wills in the next few months. In response to a question from Rep. Carolyn Maloney (D-NY) regarding monetary policy, Chair Yellen indicated the U.S. economy is performing well, domestic spending has been growing at a solid pace, and if the data continues, a December rate hike could be possible.