CFPB Report October 10, 2014

CFPB Holds Forum on Checking Account Access

On Wednesday, October 8, 2014, the CFPB held a forum on access to checking accounts. The event featured remarks from CFPB Director Richard Cordray, as well as presentations from consumer groups, federal and local government officials, and industry representatives. The CFPB's stated goal of the forum was to learn more about how the checking account screening system works and how to improve the information and products that are available for consumers. Director Cordray's remarks focused on information quality in credit reporting; the ability of consumer to access credit reports for examination and disputes, particularly specialty reporting companies such as ChexSystems, and the ways in which credit reports are being used by institutions for decisioning purposes.


Director Cordray stated an interest in developing clear credit reporting standards to improve its use among the industry. He also noted most consumers are unaware of the reporting and lack easy access to reports to correct erroneous information. The Director found it troubling that financial institutions are using credit reports to keep consumers out of traditionally non-credit products. "It is one thing to use a credit report or similar type of consumer report as a means of assuring consumers do not take on more risk than they can handle. Indeed, the Bureau would be concerned if banks or credit unions were to grant credit to consumers without regard to their prior credit history," Cordray said in his remarks. "For most consumers, though, checking accounts are not inherently credit vehicles, but instead are products for depositing and transferring funds. So it is troubling then that banks or credit unions may use a credit report to exclude some consumers from these basic financial services."


Corey Stone, Assistant Director of the CFPB's Office of Deposits, Liquidity Lending and Reporting Markets expressed concern that the financial institutions with the most stringent screening processes may be keeping future involuntary closures down are denying many worthy consumers access to basic banking products. On the other hand, banks with relaxed screening may be contributing to more involuntary closures, adding to the growing list of those that are "black listed." Stone stated credit reports should be used to help guide the consumer into appropriate products not simply cut them off or put them in products which do not meet their needs, such as an account with overdraft privileges when previously they have been involuntarily closed due to unpaid fees.


Next, three public panel discussions where followed by three roundtable focus groups. Discussions focused on primary issues concerning consumer access to checking accounts, including:

  • Issues consumers face when trying to regain access to a checking account;
  • The role Credit Reporting Agencies (CRA) and financial institutions play when consumers apply for a checking account;
  • Data used as part of the account opening decision;
  • How institutions set their risk tolerances;
  • Definitions of fraud and improper account usage;
  • How to increase the accuracy of data furnished to CRAs and the information they report;
  • How institutions can use various screening tools to manage risk without unnecessarily excluding potential accountholders;
  • How institutions can inform consumers of their right to know what is in their account histories and correct inaccuracies; and
  • How consumers can access different account products to meet their needs, such as accounts that do not offer overdraft.

Consumer groups focused on disproportionate low-to-moderate income/minority flagging for negative history or fraud when attempting to open an account. They also noted reporting is unpredictable across institutions and difficult for consumers to understand and resolve errors. They also noted there appears to be little effort by industry to "talk" to consumers about why they were turned down. Future focus leaned toward offering products which would make it difficult for consumers to go negative on accounts in the first place, such as those without allowable overdraft. CRA reform is another ongoing theme - improved data integrity standards by furnishers and CRA, and the duty of CRA to investigate reported information, and consumer access.


In response to the forum, CBA's President and CEO Richard Hunt issued a statement expressing the industry's desire to find collaborative solutions for any concerns surrounding access to checking. CBA also prepared a detailed summary of the event.


CBA will continue to monitor the issue and work with stakeholders to ensure practical solutions.


CFPB Updates Readiness Guide to Mortgage Rules

On Wednesday, October 8, 2014, the Bureau announced an update to its Readiness Guide on Mortgage Rules to include Truth in Lending (TILA) and Real Estate Settlement Procedures Act (RESPA) integrated disclosures. The update is aimed at offering financial institutions guidance on ways to evaluate compliance readiness. The guide incorporates changes made to Regulation Z, the implementing regulation for the TILA, and to Regulation X, the implementing regulation for the RESPA. The guide now contains changes to final rules issued through August 1, 2014 covering both RESPA and TILA.


CFPB Issues Consent Order Regarding Free Checking

On Thursday, October 9, 2014, the CFPB issued consent orders against M&T Bank for allegedly promoting free checking accounts to consumers without disclosing eligibility requirements. The alleged violations took place between January 1, 2009 through September 25, 2012. The Bureau ordered M&T Bank to refund $2.9 million to 59,000 consumers, pay $200,000 to the Civil Penalty Fund, end its deceptive advertising and update the credit reports of impacted consumers.


According to the Bureau, the bank advertised free checking accounts but automatically converted some customers to fee-based accounts when they did not meet eligibility requirements. The CFPB claims M&T Bank deceptively advertised checking accounts with "no strings attached;" automatically transitioned free checking accounts into fees-accounts; and failed to adequately alert consumers to the account conversions.

House Democrat Calls for Oversight Hearing to Examine Data Breaches

On Tuesday, October 7, 2014, Ranking Member of the House Committee on Oversight and Government Reform Elijah Cummings (D-MD), sent a letter to the Committee Chairman Darrell Issa (R-CA), requesting a hearing to examine the recent data security breach at JPMorgan Chase. Rep. Cummings cites recent data breaches at Home Depot, Target, and others retailers. "I believe that conducting an investigation of the data security breach at JPMorgan Chase and the other entities I have highlighted previously will help the Committee learn from these corporations about security vulnerabilities the have experience in order to better protect our federal information technology assets," Rep. Cummings said.

GAO Publishes Report Outlining Market Risks to Federal Housing Finance System

On Tuesday, October 7, 2014, the Government Accountability Office (GAO) published a report entitled: "Housing Finance System: A Framework for Assessing Potential Changes," highlighting the federal government's growing role in the housing finance market, particularly after 2008. The GAO found the federal government was providing support for 81 percent of the value of all new mortgages. The report states: "Developments in mortgage markets since 2000 have challenged the housing finance system and revealed or led to weaknesses in that system including misaligned incentives, an overall lack of reliable information or transparency, and excessive risk taking."


The report outlines a framework for policymakers to consider if they are to make reforms to the housing finance system. The GAO provides nine "elements" to help policymakers understand the relative strengths and weaknesses of proposals. These elements include:

  • Clearly defined and prioritized housing finance system goals;
  • Protection for mortgage securities investors; and
  • Recognition and control of fiscal exposure and mitigation of moral hazard.