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CFPB Report September 26, 2014
CFPB Announces Project Catalyst Pilot
On Thursday, September 25, 2014, the CFPB announced a research pilot titled Project Catalyst to examine the effectiveness of early intervention credit counseling for consumers who are at risk of default on their credit card debt.
"Managing credit card debt can be stressful for consumers and will affect their ability to access credit in the future," said CFPB Director Richard Cordray in a press statement. "This project can help us better understand what works and does not work to improve life for consumers in the marketplace."
The pilot will explore whether certain early intervention strategies can improve consumers' financial outcomes and whether similar strategies could be effective for consumers facing default on home, auto or other loans. The CFPB claims the information collected from third parties (Barclaycard and Clarifi) will be de-identified, and appropriate precautions will be taken to ensure individual consumers cannot be identified through the data.
CFPB Issues Consent Order to U.S. Bank for Add-on Products
On Thursday, September 25, 2014, entered into a consent order with U.S. Bank for allegedly charging customers for add-on products they did not receive. According to the Bureau, U.S. Bank used a third-party vendor to administer identity protection and credit monitoring programs, which required written authorization from the customer. The CFPB says U.S. Bank customers were charged for the products as soon as they enrolled but the bank did not obtain the required authorization to perform the services. According to the consent order, the bank's customers were billed for services they did not receive, unfairly incurred charges for interest and fees, and did not receive product benefits. U.S Bank will refund nearly $48 million to more than 420,000 customers, and pay $5 million to the Civil Penalty Fund and an additional $4 million to the OCC. The enforcement action also orders U.S. Bank to end unfair billing practices, conveniently repay consumers, and improve oversight of its third-party vendors.
CFPB Announces Partnership to Address Student Loan Debt
On Tuesday, September 23, 2014, Director Cordray announced a partnership with AmeriCorps and the Peace Corps to help their employees address their student loan debt. Borrowers of federal student loans with a career in public service are eligible for loan forgiveness after making on-time payments for 10 years. The CFPB's initiative encourages qualifying public service organizations to ensure their employees understand the loan forgiveness programs for which they may be eligible.
"We want everyone eligible to be signing up for the loan forgiveness that federal law provides, which they are earning by virtue of their public service work. These are great first steps toward that objective," said Director Cordray in a statement.
CBA Files Comment on CFPB Complaint Narrative Proposal
On Monday, September 22, 2014, CBA submitted to the CFPB a comment letter on the agency's proposal to include consumer narratives to its Consumer Complaint Portal. With input from its Consumer Complaints Subcommittee, CBA expressed support for the Bureau's ability to confidentially collect complaint data in order to better serve consumer complaint resolution, but strongly opposed the public disclosure of any consumer complaint information, including narratives.
CBA expressed concern regarding adequate protection of consumers' personally identifiable information, and questioned whether they would benefit from narratives when making decisions on financial products and services. CBA also pointed to the inability of financial institutions to completely respond to the public narratives due to privacy confines, thus creating a one-sided and unsubstantiated complaint process. The skewed representation of the financial services market by publication of unverified complaints, that are neither normalized or a complete representation of the entire financial services industry, was also addressed.
CBA will continue to work with the CFPB on this issue as it considers a final policy.
GAO Releases Study on CFPB Data Collection
On Monday, September 22, 2014, the Government Accountability Office (GAO) released a reportrecommending the CFPB take steps to protect the privacy of consumer financial data it collects from banks. According to the report, the CFPB has collected large amounts of information directly identifying individuals from arbitration case records, deposit accounts and borrower activity at payday loan stores. The focus of the report was on the CFPB's collection of data directly from banks, not from its Complaint Response Portal.
The GAO found the CFPB had taken steps to secure the data collections but lacked written procedures for securing information and had not implemented a number of privacy controls. The report asserts the CFPB "has not developed standard policies and written procedures to document the practices it uses for anonymizing data, including clarifying how data sensitivity will be assessed and defining specific roles, responsibilities, and steps in accordance with guidance and privacy controls." The GAO said, "According to CFPB staff, discussions among staff about removing sensitive data elements were informal and not documented. The CFPB also has not specified in policy which data fields are considered sensitive or potentially identifying and should be removed or masked."
DOD Proposes Amendments to MLA
On Friday, September 26, 2014, the Department of Defense (DOD) announced a proposal to amend regulations implementing the Military Lending Act (MLA). The MLA limits the amount of interest a creditor may charge a service member on "consumer credit" to a maximum annual percentage rate of 36 percent. The DOD has proposed amending its existing regulation primarily for the purpose of extending the protections of the MLA to a broader range of closed-end and open-end credit products, rather than the limited credit products currently defined as consumer credit. In addition, the DOD proposed amending its existing regulation to alter the provisions governing the tools a creditor may use in assessing whether a consumer is a "covered borrower." The proposal also would modify the disclosures a creditor must provide to a covered borrower and implement the enforcement provisions of the MLA.
More specifically, the DOD proposed amending its regulation so, in general, consumer credit covered under the MLA would be defined consistently with credit which, for decades, has been subject to the protections under the Truth in Lending Act (TILA), namely: credit offered or extended to a covered borrower primarily for personal, family, or household purposes, and is (i) subject to a finance charge or (ii) payable by a written agreement in more than four installments.
Requirements applicable to a creditor include:
- A creditor may not impose a Military Annual Percentage Rate (MAPR) greater than 36 percent in connection with an extension of consumer credit to a covered borrower;
- When extending consumer credit, a creditor must satisfy certain other terms and conditions,
- Provide certain information (e.g., a statement of the MAPR), both orally and in a form the borrower can keep, before or at the time the borrower becomes obligated on the transaction or establishes the account,
- Refrain from requiring the borrower to submit to arbitration in the case of a dispute involving the consumer credit, and
- Refrain from charging a penalty fee if the borrower prepays all or part of the consumer credit.
In August of 2013, CBA and other industry trade groups commented on the DOD's Advance Notice of Proposed Rulemaking for amendments to the MLA. In the letter, CBA wrote "[we] believe that the Military Lending Act as implemented by the regulation issued by the Department of Defense is working as intended to protect members of the armed forces and their dependents. Imposing additional requirements on lending to servicemembers would have adverse consequences for members of the armed forces and military families. While added restrictions are not needed, a proactive step the Associations support is strengthening financial education." "When the current rules were adopted in 2007, the goal was to focus on products that the Department had identified as most troublesome in its 2006 report to Congress: refund anticipation loans, payday loans and car title loans. To that extent, the rule has been effective: refund anticipation loans have largely disappeared, payday loans from brick-and-mortar locations are no longer widely available, and car title loans covered by the rules have been greatly reduced."
Comments will be due 60 days from publication in the Federal Register.
OCC Reports Improved Mortgage Performance
On Thursday, September 25, 2014, the OCC released a report indicating that the performance of first-lien mortgages serviced by large national and federal savings banks improved from the previous year. The OCC report, Mortgage Metrics Report, Second Quarter 2014, showed 92.9 percent of mortgages were current and performing at the end of the quarter, compared with 93.1 percent at the end of the previous quarter and 90.6 percent a year earlier. The percentage of mortgages 30 to 59 days past due decreased 17.3 percent from the previous year to 2.4 percent of the portfolio. Seriously delinquent mortgages—60 or more days past due or held by bankrupt borrowers whose payments are 30 days or more past due—decreased 17.0 percent from a year earlier. Foreclosure activity among the reporting servicers continued to decline.
Department of Education Publishes Federal Student Loan Performance Rate
On Wednesday, September 24, 2014, the U.S. Department of Education announced new data showing the three-year federal student loan cohort default rate slightly declined to 13.7 percent for students who entered repayment in FY 2011, compared to a default rate of 14.7 percent for FY 2010.
"While it's good news that the default rate decreased from last year, the number of students who default on their federal student loans is still too high, and we remain committed to working with postsecondary education institutions and borrowers to ensure that student debt is manageable," said Education Secretary Arne Duncan.
The Education Department recently renegotiated the terms of its federal student loan servicing contracts in an effort to improve repayment. These contracts provide incentives for federal loan servicers to improve counseling, and put borrowers in a repayment plan offering them the most benefit. Critics of these contracts have argued servicers do not have strong enough incentives to enroll borrowers in income-based repayment plans which cap monthly payments, and can provide loan forgiveness.
Senator Durbin Files Brief with Supreme Court in Debit Interchange Case
Earlier this week, Senator Richard Durbin (D-IL), author of the Durbin Amendment which led to Regulations II's debit interchange restrictions, filed an amicus brief with the Supreme Court urging them to consider NACS v. Board of Governors, the debit interchange case recently overturned in favor of the Federal Reserve Board from a prior ruling by a District Court in favor of the Merchants. Senator Durbin's Amicus stated:
- The Durbin Amendment was carefully crafted to respond to collusion, market failures, and excessive fees within the electronic debit system;
- The D.C. Circuit erred by deferring to the Board's inclusion of "third category" bank costs in its rulemaking, as the inclusion of such costs was contrary to the Durbin Amendment's text and legislative history; and
- The electronic debit system is one of the primary methods by which Americans transact money, and consumer welfare will be enhanced if large banks are required to compete with one another to manage fixed costs efficiently instead of having those costs uniformly subsidized by interchange fees under the Board's rulemaking.
On Tuesday, August 19, 2014, the retailers in NACS seeking to overturn Federal Reserve rules on debit interchange rates filed a petition asking the U.S. Supreme Court to hear the case. It is uncertain if the Court will take the case; however, the Court is expected to finalize its docket by the end of the year.
FFIEC Releases 2013 HMDA Data
On Monday, September 22, 2014, the Federal Financial Institutions Examination Council (FFIEC)released the results of the 2013 HMDA data collection. Notable findings include:
- Amount of reporting Financial Institutions is down: The number of reporting institutions declined about 3 percent to 7,190, as a result of mergers, acquisitions, and failures, which continued the downward trend that began in 2006 when HMDA covered about 8,900 lenders.
- 16.8 million total actions: The 2013 data includes information on nearly 16.8 million actions, with 14 million home loan applications—of which, 8.7 million resulted in loan originations—and about 2.8 million loan purchases.
- Total originations down: There were about 516,000 requests for preapprovals related to a home purchase loan. The total number of originated loans of all types and purposes declined by about 1.1 million (11 percent).
- Refinances down, home purchase up: Refinance originations declined by 23 percent, while home purchase lending increased by about 13 percent.
- Minority and LMI borrowers
- The share of home purchase loans for 1-4 family properties made to black and Hispanic white borrowers declined slightly, while loans made to Asian borrowers saw a slight increase.
- The percentage of 1-4 family home purchase loans made to low-to-moderate-income (LMI) borrowers declined to 26 percent from nearly 31 percent in 2012. Refinanced loans slightly increased from 19 percent to 20 percent.
- Black and Hispanic white applicants experienced higher denial rates for conventional home purchase loans than non-Hispanic white applicants.
- The denial rate for Asian applicants was comparable to the denial rate for non-Hispanic white applicants.
- Government-backed mortgages
- Overall government-backed loans were 38 percent in 2013, down from 45 percent in 2012 and 54 percent in 2009.
- Federal Housing Administration (FHA) loans were down to 24 percent from 31 percent in 2012, but Veterans Administration loans held steady at 9 percent.
- Higher-priced loans: Up 5 percent from 3 percent in 2012 due partly to the sharp rise in FHA-insured first-lien home purchase loans with annual percentage rates above the reporting threshold, from 4.6 percent in 2012 to 22 percent in 2013.
- HOEPA: In 2013, 1,873 loans covered by the Home Ownership and Equity Protection Act were reported, down from 2,194 in 2012.
CBA Files TCPA Petition for Declaratory Ruling with the FCC
In response to escalating and frivolous Telephone Consumer Protection Act (TCPA) class action lawsuits, on Friday, September 19, 2014, CBA filed a Petition for Declaratory Ruling with the Federal Communications Commission (FCC). CBA asked the FCC to clarify that "called party" means "intended recipient" for purposes of the TCPA's restrictions on certain automated calls. Using this definition, the Commission will:
- Prevent potential chilling of beneficial consumer communications;
- Shield consumers from higher costs stemming from institutions' increased litigation and compliance expenses;
- Quash frivolous litigation inundating courts and creating inconsistent law; and
- Allow small businesses to grow and nonprofits to reach their goals without the threat of litigation.
Moreover, the definition is consistent with Congressional intent, the FCC's prior interpretations, and a recent U.S. Supreme Court interpretation of statutory construction. In the coming weeks, the FCC will solicit comments in response and CBA will meet with the Commission to discuss the petition.