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CFPB Report September 12, 2014
CFPB Holds Consumer Advisory Board Meeting in Washington, D.C.
On Thursday, September 11, 2014, the CFPB's Consumer Advisory Board (CAB) held its third meeting of the year, attended by approximately 20 people, including the public and members of the press. The agenda covered the student loan market, small dollar credit building, harnessing technology to improve access to financial services, and the Bureau's use of technology and social media to engage the public. The meeting also featured a new Chair, Bill Bynum; a new Vice Chair, Maeve Elise Brown; and seven new CAB members.
CFPB Director Richard Cordray offered remarks to the board and attendees: "The information age is transforming leisure, the workplace, and indeed all of modern society. It is likewise inevitable that these changes will have vast consequences for the consumer financial marketplace," he said. "The worthy challenge for any system of financial regulation is how to make sure our oversight of the marketplace can keep up with these far-reaching shifts."
As part of the "Trends and Themes Discussion," Jennifer Mishory, the Executive Director of Young Invincibles, offered a report of the student loan market. The presentation covered the cost of college, trends in debt, implications of growing debt, and options for providing relief to consumers. She highlighted data which shows a college degree is still a good return on investment, but debt must be used responsibly. Jose Quiñonez discussed his work as Executive Director of the Mission Asset Fund and its efforts to form "Lending Circles" to build credit, which is now possible after the recent passage of California HB-96.
CFPB's Assistant Director of Financial Empowerment, Daniel Dodd-Ramirez, led a discussion on how technology can be used to increase access to financial products and services. The discussion focused on the use of the mobile channel and how it can increase access for the underbanked. Meeting participants also noted this channel could potentially provide weaker consumer protections, and regulators should closely monitor its development, especially if less regulated intuitions start playing a larger role. The meeting concluded with a discussion, led by the Deputy Assistant Director for Consumer Engagement, Dan Munz, about how the Bureau is using technology to engage consumers.
CBA Submits Comment on CFPB Mobile RFI
On Tuesday, September 10, 2014, CBA submitted a comment letter to the CFPB in response to the Bureau's request for information on mobile financial services, with a focus on opportunities for the unbanked and underbanked. CBA illustrated the benefits of mobile banking for consumers, including expanded access, decreased banking costs, real time money management, and financial planning. The letter also explored mobile banking's ability to keep consumers in the regulated, secure mainstream banking system instead of turning to costly nonbank alternatives, and highlighted technological advances which make banking more secure. CBA also offered suggestions for federal government involvement, advocating for a flexible regulatory structure that supports innovation and allows banks to compete with unregulated nonbank startups.
Congresswoman Sends Overdraft Letter to CFPB
On Wednesday, September 10, 2014, Congresswomen Carolyn Maloney (D-NY) sent a letter to CFPB Director Cordray calling on federal regulators to protect consumers from "excessive" overdraft fees at banks. In her letter, Rep. Maloney said the fees should be "reasonable and proportional" to the amount of the overdraft, and cited a recent study from the agency which found the average overdraft fee is $34, but most consumers who overdraft surpass their account balance by less than $24 and pay back the money within three days. The letter also urges Director Cordray to limit overdraft fees, expand overdraft opt-in requirements and protect consumers from accidental overdrafts with written checks and automatic payments they set up online. Rep. Maloney introduced The Overdraft Protection Act ( H.R. 1261), which calls upon the CFPB to cap the number of fees charged at one per month, not to exceed annually; and enhance disclosures to alternatives to overdraft protection, including linked accounts or lines of credit. It would also require the CFPB to study prepaid debit card overdraft fees and grants rulemaking authority over those fees.
Regulators Announce New Lending and Leasing Thresholds Under Regs Z, M
On Tuesday, September 9, 2014, the CFPB and the Federal Reserve Board announced increases in the dollar thresholds for Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing) for exempt consumer credit and lease transactions. Transactions at or below the thresholds are subject to the protections of the regulations. The adjustments to the thresholds are intended to reflect the annual percentage increase in the consumer price index as of June 1, 2014 and will take effect on January 1, 2015.
The protections of the Truth in Lending Act and the Consumer Leasing Act generally will apply to consumer credit transactions and consumer leases of $54,600 or less in 2015 - an increase of $1,100 from 2014. However, private education loans and loans secured by real property (such as mortgages) are subject to the Truth in Lending Act regardless of the amount of the loan.
Senators Seek Breach Information
On Thursday, September 11, 2014, Senators Jay Rockefeller (D-WV) and Claire McCaskill (D-MO) wrote to CEOs of Apple Inc. and Home Depot requesting a briefing from each company's information-security officials about potential system vulnerabilities in light of their latest breaches. The Senators questionedApple CEO Tim Cook on the protocols and security measures the company has adopted to ensure customer protection and privacy with regards to its popular iCloud storage platform. In their letter to Home Depot CEO Francis Blake, the Senators requested a briefing regarding the loss of customer's financial data, including debit and credit cards.
Prudential Regulators Propose Updates to CRA Guidance
On Wednesday, September 10, 2014, the Federal Reserve, OCC and FDIC offered proposed updates to their guidance for rules which implement the Community Reinvestment Act (CRA). The proposal would revise the "Interagency Questions and Answers Regarding Community Reinvestment" to address alternative systems for delivering retail banking services and add examples of innovative or flexible lending practices. It would also explain how examiners evaluate the extent to which a bank's loans, investments or community development services are responsive or innovative.
The proposed new and revised questions and answers would:
- Address alternative systems for delivering retail banking services;
- Add examples of innovative or flexible lending practices;
- Address community development-related issues by: (i) clarifying guidance on economic development; (ii) providing examples of community development loans, and activities that are considered to revitalize or stabilize an underserved nonmetropolitan middle-income geography; and (iii) clarifying how community development services are evaluated; and
- Offer guidance on how examiners evaluate the responsiveness and innovativeness of an institution's loans, qualified investments, and community development services.
Comments on the proposal are due within 60 days of publication in the Federal Register. CBA's Community Reinvestment Committee will be examining the issue.
Waters Introduces Credit Reporting Bill
On Wednesday, September 10, 2014, House Financial Services Committee Ranking Member Maxine Waters (D-CA) introduced the Fair Credit Reporting Improvement Act of 2014. Nearly 20 new provisions or fixes have been proposed to update the 44-year-old consumer protection law which governs the way lenders report consumer payments to credit bureaus.
The proposal would shorten the amount of time black marks remain on a credit report from seven to four years, remove all settled debts from the report and erase private student loan defaults for borrowers once they make nine consecutive, on-time payments. The measure also would remove any adverse information on a credit report on a fully paid or settled debt.
Judiciary Approves Bankruptcy Bill
On Wednesday, September 10, 2014, the House Judiciary Committee approved the Financial Institution Bankruptcy Act of 2014 ( H.R. 5421) by a voice vote. The bipartisan bill compiled years of witness testimony and regulator recommendations, and adds to chapter 11 of the Bankruptcy Code a new subchapter V. The subchapter would address the resolution of financial institutions, including large, multi-national financial firms. The bill now goes to the full House for a vote, where its fate relies on Democrat support. A similar bill by Senators Pat Toomey (R -PA) and John Cornyn (R-TX) also awaits action.
Senate Banking Regulatory Hearing
On Tuesday, September 9, 2014, the Senate Banking Committee conducted a hearing entitled: "Wall Street Reform: Assessing and Enhancing the Financial Regulatory System," which included testimony from:
- Daniel K. Tarullo, Governor, Board of Governors of the Federal Reserve System
- Martin J. Gruenberg, Chairman, Federal Deposit Insurance Corporation
- Thomas J. Curry, Comptroller of the Currency; Office of the Comptroller of the Currency
- Richard Cordray, Director, Consumer Financial Protection Bureau
- Mary Jo White, Chair, U.S. Securities and Exchange Commission
- Timothy G. Massad, Chairman, U.S. Commodity Futures Trading Commission
In his opening statement, Committee Chairman Tim Johnson (D-SD) spoke to the strong consumer protections implemented by the Dodd-Frank Act and the benefits of policing the financial markets to protect consumers who use it. Ranking Committee Member Mike Crapo (R-ID) discussed the need for a safe and secure marketplace, but cautioned against burdensome rules and regulations which could inhibit banking activities, especially amongst smaller community institutions. The majority of the questions throughout hearing focused on regulatory burdens, living wills and Basel III capital standards on banks.
Bipartisanship ensued when discussing the crushing cost of compliance in today's smaller institutions in rural locations. Ranking Member Crapo first suggested "unduly burdensome regulations" create major problems for banks of all sizes, but in particular, smaller community based institutions. Gov. Tarullo suggested moving the threshold or entirely eliminating regulatory burdens for institutions below $50 billion, making them less subject to the rules governing some of the largest financial institutions. Sen. Heidi Heitkamp (D-ND) was especially concerned about those banks in rural areas having to comply with stringent regulatory rules promulgated by the Dodd-Frank Act, leaving some community institutions "too small to succeed."
Senators on both sides expressed concern of the initial attempts of systemically important banks to provide to their regulators valid and well thought-out living wills. Sen. Bob Corker (R-TN) questioned Gov. Tarullo on the issue, calling the rule "watered down to a big degree" and suggested more steps were needed to prevent another financial crisis. Sen. Mark Warner (D-VA) suggested the living wills concept for complex financial institutions was "a struggle," and asked Gov. Tarullo and other regulators to keep "a fire lit" under the living will effort, urging them to achieve a sound outcome. Gov. Tarullo suggested the rule was "not watered down," and stated his letters in response to the banks' first set of living wills was to encourage banks to become more "resolvent" and have better "acceleration in planning" on new wills.
Basel III implementation and associated capital standards for banks were discussed as it relates to ensuring banks in the U.S. and abroad are adequately capitalized in times of financial duress. Sen. Sherrod Brown (D-OH) discussed capital surcharges with Gov. Tarullo, seeking a response to the proposed Basel III rules. The Fed assured Senators on the Committee they have been working "diligently" with their foreign banking regulators to ensure adequate capital responsibilities for all banks who fall under the requirements. Sen. Brown asked Gov. Tarullo the percentage range for most institutions under the United States' Basel Standards, to which he responded "No precise point estimate, but came up with a range and thought 2.5% was on the low end." When referencing necessary standards, cited 4.5 percent as a much more reasonable percentage when it comes to "grips for what is needed."
Sen. Robert Menendez (D-NJ) questioned SEC Chair White on executive compensation rules as they relate to Title II and pay ratio compensation methods as set forth in the Dodd-Frank Act. Sen. Elizabeth Warren (D-MA) asked whether or not the regulators have "given the Department of Justice" (DOJ) names of bankers who were responsible for the financial crisis, to which one regulator responded "We do not have criminal authority, but have worked with the DOJ." Sen. Richard Shelby (R-AL) agreed with Sen. Warren on accountability in the banking world, stating "people shouldn't buy their way out of culpability" and added that it "seems the Justice Department is bent on money and not justice," when referencing the actions of the DOJ in the banking crisis. Finally, Director Cordray was asked by Sen. Jack Reed (D-RI) a question regarding the Military Lending Act,implementing rules to protect veterans and ensuring sound protections from bad actors in the financial services marketplace.