CBA Letter for the Record - Senate Banking Hearing 4.7.16


April 7, 2016



The Honorable Richard Shelby

Chairman, Committee on Banking,

Housing, and Urban Affairs

United States Senate

Washington, D.C. 20510


The Honorable Sherrod Brown

Ranking Member, Committee on Banking, Housing, and Urban Affairs

United States Senate

Washington, D.C. 20510



Dear Chairman Shelby and Ranking Member Brown:


The Consumer Bankers Association (CBA)[1] appreciates the Banking Committee’s continued oversight of the Consumer Financial Protection Bureau and its activities.  We would like to take this opportunity to submit the following comments on the hearing entitled, “Consumer Financial Protection Bureau’s Semi-Annual Report to Congress.”  CBA is the voice of the retail banking industry whose products and services provide access to credit for consumers and small businesses.  Our members operate in all 50 states, serve more than 150 million Americans, and collectively hold two-thirds of the country’s total depository assets.


Over the next year, the CFPB is expected to finalize a set of regulations and propose others that will have the potential to restrict the American consumer’s ability to exercise free will over the financial products they use.  The actions by the CFPB could place additional regulatory constraints on an already heavily regulated industry, ultimately limiting consumer choice and access to credit. 


Small-Dollar Lending


In 2013, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) issued overly restrictive guidelines on bank-offered small-dollar loan alternatives, sometimes known as a deposit advance products.  These safe and affordable bank-offered products were successfully serving bank customers, but the regulators practically forced them out of existence.  The elimination of the deposit advance product significantly reduced consumer choice leaving consumers with fewer credit options in their time of need, making them more vulnerable to those who would take advantage of their economic situation. 


In the coming months, the Bureau is expected to issue a proposed rule that would cover payday loans, certain loans secured with a vehicle title, “high-cost” installment loans, and lines of credit.  CBA understands consumers should be protected from harmful predatory lending that can lead to a seemingly never-ending cycle of debt.

We appreciate the Bureau recognizing the beneficial role banks could play and we are hopeful that the Bureau is actively exploring viable products for banks to offer customers who need access to safe and available forms of small-dollar credit.  Unfortunately, the Bureau’s current outline, published last year in advance of its small business review panel process, would make it difficult for any lender to offer affordable, easy-to-use products. [2]  Specifically, the Bureau would require overly restrictive underwriting and unrealistic terms of use, including limits on frequency of use and limited loan-to-income ratios.  For example, short-term loans (45 days or less) would require lenders to verify the consumer’s income, “major financial obligations,” and borrowing history, using third-party records.  “Major financial obligations” would include such obligations as housing payments, car payments, and child support payments.  Using this information, the lender would then have to make a determination whether the consumer has the ability to repay the loan after covering other major financial obligations and basic living expenses.  This level of underwriting complexity ignores the cost of providing this type of loan.  Requiring a level of underwriting similar to a home mortgage, would make it too costly to offer these much needed products.  Additionally, consumers cannot afford to wait long periods of time for an underwriting decision when they have emergency expenses that need to be paid. 


Consumers have demonstrated a strong demand for safe, small-dollar loan products.  Regulators need to recognize that if banks are permitted to offer these products, competition will help keep prices affordable.  We encourage the CFPB and prudential regulators to work with Congress, banks, and other stakeholders in the financial services industry to ensure the availability of properly regulated small-dollar loan products that will continue to meet the credit needs of consumers. 




Arbitration is oftentimes the best way for consumers and banks to resolve disputes.  It is regularly cheaper, faster, and easier for the consumer than going to court.  Under the Dodd-Frank Act, the CFPB is charged with undertaking a study of mandatory pre-dispute arbitration, and subsequently deciding, based on the outcome of the study, if it is necessary to regulate or restrict the use of arbitration in consumer financial contracts.  The CFPB has concluded its study and is now signaling an intention to effectively prohibit the availability of these terms in consumer financial agreements.


We believe the study, which was not peer-reviewed, lacked some critical elements necessary for a thorough analysis.  In a letter to Director Cordray (see attached letter in Appendix A), CBA and other trade associations asked the Bureau to conduct additional research to complete its study before making any final policy decisions on arbitration, and we do so again here.  Due to the inconsistency and concerns that have emerged from the CFPB’s study, we provide several suggestions on how to clarify the data: the CFPB should perform a comparison between litigation and arbitration on the basis of accessibility, cost, fairness, and efficiency; the CFPB should determine if consumers would benefit from becoming more informed about arbitration; the Bureau should examine the net benefit of class actions to consumers in light of the supervisory or enforcement authorities of the regulatory and enforcement agencies; and finally, the Bureau should determine if prohibiting or restricting the availability of mandatory pre-dispute arbitration provisions would effectively eliminate arbitration as an alternative dispute resolution process for the majority of consumers.

Even with its limitations, a strong argument could be made that the study demonstrates that consumers are better served taking their disputes through arbitration rather than participating in a class action to resolve a dispute.  The study shows that very few class actions are tried on the merits and 60 percent of class actions produce zero benefit to putative class members.  Moreover, while the CFPB highlighted that consumers obtained $2.7 billion through class action settlements between 2008 and 2012, this only amounts to  $79.41 per consumer on average (and just $32.35 in cash recoveries), compared with the $5,389 on  average consumers recover in a favorable arbitration decision.  In summary, we believe the arbitration study provides an insufficient basis for prohibiting the use of arbitration and encourage Congress to work with the CFPB on the issue of arbitration so consumers can choose their best legal course of action.


Home Mortgage Disclosure Act Privacy

Since 1975 when HMDA was enacted, our members have strived to responsibly and fairly serve the housing needs of their communities and are committed to the purposes of HMDA: “1. help determine whether financial institutions are serving the housing needs of their communities; 2. assist public officials in distributing public-sector investment so as to attract private investment to areas where it is needed; and 3. assist in identifying possible discriminatory lending patterns and enforcing antidiscrimination statutes.”[3] 


The Dodd-Frank Act mandated the expansion of information collected under Regulation C, HMDA’s governing regulation.  However, the final HMDA rule, written by the CFPB, almost tripled the number of data fields and greatly increased the complexity of reporting.  This is in addition to increased compliance pressures stemming from the Dodd-Frank Act’s strengthened enforcement monitoring due to the uncertainty of what is an Unfair, Deceptive, and Abusive Acts and Practice (“UDAAP”), and additional rules and requirements that have inundated the banking industry, including the implementation of the Qualified Mortgage rules and TILA-RESPA Integrated Disclosure.  The compliance burden placed on banks requires expenditures of resources that inevitably are reflected in the cost and availability of credit for consumers.


As institutions begin implementing the sweeping changes, we would like to raise our concerns about the sensitive data that CFPB intends to collect, store, and publish.  We ask that the Bureau keep all the new HMDA data confidential and refrain from publishing it on the Federal Financial Institutions Examination Council (FFIEC) website.  Consumers buying a home are forced to relinquish their most sensitive information often without understanding this information is being handed over to a governmental agency.  The new data fields are even more sensitive than many of those currently collected, with the addition of credit score, debt to income ratio, and property address, among other new fields.  It is the CFPB’s duty to protect consumers from risks associated with data breaches and re-identification.  In a 2005 speech, former Federal Reserve Board Senior Advisor Glenn Canner raised concerns about HMDA’s privacy risks, noting “approximately 95 percent of loan records are “unique,” meaning loan amount and census tract can be attributed to a single person.  With a cross match to private lien transfer records, one can identify these individuals in 95 percent of the cases.[4] 


Simply put, “privacy in HMDA data: there is none.”[5]  With the inclusion of even more sensitive information under the new rule, it is critical that the CFPB protect consumers’ information by establishing robust data security protections and decrease re-identification risks by not publishing the new information—even anonymized—to the FFIEC website.


Indirect Auto Lending Settlements


Our member banks are unequivocally committed to providing access to credit fairly and responsibly to qualified borrowers.  To this end, our members maintain robust compliance programs and stringent internal procedures to ensure they are meeting that goal.  Indirect vehicle lending poses a unique challenge in that regard, since the bank does not come into contact with the consumers obtaining a loan at the dealership and has no knowledge of their race or ethnicity.  Therefore, the bank must ensure fair lending compliance under a disparate impact theory, using complex statistical approaches, which are, at their best, imperfect.  Banks need clearer guidance from the CFPB on how best to maintain a strong and effective compliance program that meets its expectations in this area. 


Since 2013, the CFPB, along with the Department of Justice, has recovered more than $140 million from settlements in indirect auto finance cases using disparate impact claims.  These settlements provide a broad outline of the CFPB’s expectations for banks and finance companies, but they do not detail what monitoring and restitution are necessary to be in satisfactory compliance.  Nor do they clearly describe how banks should best make use of sophisticated statistical methodologies and proxies for customer race and ethnicity, in order to make credit available fairly and responsibly in today’s competitive marketplace.


It is concerning that the Bureau appears to be comfortable forcing marketplace change though enforcement actions that are then left up to interpretation.  In order to confidently operate, banks need to ensure they are in compliance with the law.  Only through a rulemaking process can these complex issues be addressed, giving certainty to banks and others that they are meeting regulatory expectations.



Complaint Portal


CBA appreciates the Bureau heeding feedback from CBA member banks and releasing a revised Company Portal Manual earlier this month to clarify and update several items pertaining to its complaint portal.  Specifically, CBA was pleased to see the more accurate definition of what constitutes a “duplicate” complaint, additional categories and “Administrative Response” options, and improved disclosure for companies that do not publically respond to complaint narratives, which better captures banks’ commitment to customer relationships and maintenance of customer privacy.  Though we applaud these improvements, we continue to ask the Bureau to follow the Consumer Product Safety Commission model and institute an appeals process where companies have the ability to flag and potentially eliminate materially inaccurate complaints.


Overdraft Services


Later this year, the CFPB will begin the process of writing a new rule for bank overdraft protection services.  This widespread and longstanding service at depository institutions covers the amount a consumer overdraws from his or her deposit account, and charges the customer a fee for the service.  If the bank does not cover the overdraft when there are insufficient funds, the customer’s check will bounce or debit card will be denied, and the consequences, depending on the transaction, could involve a significant cost and inconvenience. 


The existing federal regulation addressing this service, written five years ago by the Federal Reserve Board after long study, leaves the choice squarely in the hands of the consumer.  It requires banks to give consumers the opportunity to affirmative opt-in to overdraft services for most typical debit transactions after a full disclosure, which is mandated by the regulation.  Consumers are given the right to opt-in to the service when they open the account, or they can do so later at any time, or change their minds as they wish. Studies, such as one by Novantas,[6] have shown consumers make highly informed choices about whether and when to use overdraft services. 


We urge the Bureau to take into consideration that without such access to short-term liquidity by depository institutions, consumers are left with few options other than the less well-regulated and supervised non-bank lenders, and more consumers will become “unbanked.”  The Bureau should work closely with the prudential regulators and the industry to ensure that consumers continue to have flexibility and choice from the banking industry.


Regulatory Overlap, Duplication, and Inefficiencies Persist


Despite Congressional efforts to streamline financial regulations, a March 28, 2016 Government Accountability Office (GAO) report finds that the financial regulatory framework is still too complex and fragmented.  While the current structure allows for effective financial regulation in some key areas, the fragmentation and overlap “have created inefficiencies in regulatory processes, inconsistencies in how regulators oversee similar types of institutions, and differences in the levels of protection afforded to consumers.”[7]


The report further contends that although the Dodd-Frank Act consolidated some activities, the act failed to address many fragmentation and overlap concerns that persist throughout financial regulators, resulting in (1) inefficient and ineffective oversight, (2) inconsistent financial oversight, and (3) inconsistent consumer and investor protections.


Specifically, GAO found that “the sheer number of regulatory bodies and differences in their regulatory approaches continue to make coordination challenging,” resulting in inefficient and inconsistent safety and soundness and consumer protection oversight.  Such inefficiencies and inconsistencies make tracking violations, identifying emerging trends, and providing the same high levels of protections to consumers difficult.  Fair lending laws, unfair and deceptive acts and abusive practices, and data collection are a few examples of where the GAO found either inconsistency in application and treatment across institutions and/or duplication in regulation and enforcement.


According to GAO, this kind of inconsistency and duplication can result in varying levels of consumer protection and delays in regulatory action, ultimately hurting the consumers the Bureau aims to protect.  When multiple regulators are charged with similar goals but apply varying practices, procedures, and standards, it becomes challenging to hold agencies accountable for when they fail to protect consumers and achieve their regulatory objectives.


As the Bureau continues to fulfill its mission in protecting consumers, it should make a concerted effort to work in close coordination with the OCC, FDIC, and the Federal Reserve to reduce and eliminate fragmentation, overlap, and duplication that result in inefficient and ineffective regulation.


CFPB Commission


Improving the financial lives of consumers is a goal we share with the CFPB.  The best way to ensure that shared outcome for consumers is to establish a governance structure at the CFPB that promotes debate and deliberation among leaders with diverse experiences and expertise so rules and regulations are written for the financial betterment of consumers. 


Ensuring that the Bureau is an objective and neutral regulator that will issue rules based on consumer safety with input from a diverse array of perspectives, devoid of political volatility and bias, is the ultimate purpose of a commission.  Serving as a source of balance and stability for consumers and the financial services industry, a commission would encourage internal debate and deliberation, ultimately leading to financial products that benefit the consumer. 


The Financial Product Safety Commission Act (H.R. 1266), introduced this Congress, is common-sense, bipartisan legislation that would create a bipartisan five-member, Senate-confirmed board at the CFPB charged with the responsibility to provide a balanced and deliberative approach to supervision, regulation, and enforcement of rules and regulations that oversee the financial services sector.  The passage of H.R. 1266 would transition the CFPB’s governance structure to a bipartisan commission that would increase certainty, ensure greater collaboration from all stakeholders, improve consumer protection, and result in financial products that are safe, affordable, and meet the credit demands of our customers.




Strong and effective consumer protection, and fair and responsible banking, are profoundly important to our member banks.  CBA routinely engages with the CFPB and other regulators to promote reasonable and effective regulation that ensures consumers have the ability to choose safe and affordable products and services.  It is our concern that many of the CFPB’s impending rules will further limit consumer choice and inhibit the ability of financial institutions to innovate and better serve their customers. 


CBA stands ready to work with Congress and the CFPB to craft a regulatory framework that safeguards the American consumer and small business, ensures access to credit, and promotes competition in the financial marketplace.  On behalf of our members, we appreciate the opportunity to submit this statement for the record.





Richard Hunt

President and CEO

Consumer Bankers Association



(Full Letter)