CBA Recommends Legislative, Regulatory Changes to Improve CFPB, Consumer Protections

CBA Recommends Legislative, Regulatory Changes to
Improve CFPB, Consumer Protections

WASHINGTON – Prior to the House Financial Services Committee Hearing on the Consumer Financial Protection Bureau, Consumer Bankers Association President and CEO Richard Hunt wrote committee leadership to recommend ways to improve the Bureau to help consumers.

“Now more than eight years after the Bureau was stood up and numerous final rules later, both Congress and the Bureau have the opportunity to evaluate the Bureau’s operations and ensure its rules are working well for consumers,” Hunt wrote. “The American financial markets are healthy and banks are well-capitalized. However, there remain examples of overly prescriptive rules, some hardwired into statute, that are impeding the availability of consumer credit. It is prudent for Congress to examine these provisions of Dodd-Frank and subsequent rules promulgated by the CFPB as well as their impact on consumer access to credit and the ability for lenders to innovate and develop products. The financial marketplace is considerably safer for consumers and investors since the depths of the financial crisis and is constantly evolving to meet consumer demand.

“Improving the financial lives of consumers is a goal that unites lawmakers, regulators and industry … Regulatory stability and transparency will not be realized until the Bureau’s governance structure allows for the debate and deliberation of multiple leaders with diverse experiences and expertise. A bipartisan commission of five, Senate-confirmed commissioners would provide a balanced and deliberative approach to supervision, regulation, and enforcement of rules and regulations that oversee the financial services sector and provide consumers needed safeguards.”

A full copy of the letter is available here.

In the letter, CBA suggested several legislative and regulatory changes. The legislative changes are discussed below:

• Bipartisan Commission at the Consumer Financial Protection Bureau: The current director, who is removable only for cause, is responsible for the management of the Bureau and is the chief decision-maker on all rulemakings, enforcement and supervisory actions – leaving little room for alternative views to be considered. Replacing the sole director model with a bipartisan, Senate confirmed, five-person commission would depoliticize the CFPB while increasing stability, accountability and transparency for all consumers and industry stakeholders. A lack of certainty and long-term consistency in leadership at the Bureau adversely affects consumers, our economy, and the financial services industry.

• Independent Inspector General: CBA supports legislation that would establish an independent Inspector General at the CFPB, as opposed to sharing one with the Federal Reserve. This would be an appropriate step to provide independent oversight of the Bureau.

• Clarifying Guidance: CBA supports previously introduced legislation known as the GUIDE Act, which would provide greater clarity to what constitutes guidance, improve compliance with consumer financial protection laws, and bring predictability to the Bureau’s rulemaking. The Bureau has been historically slow to issue guidance, which has created an environment of uncertainty in the financial services industry.

• Harmonizing UDAP Authority: The Federal Trade Commission Act prohibits Unfair and Deceptive Acts or Practices (UDAP) in commerce, and this concept has been developed and refined over many decades by regulation and case law. The FTC employs UDAP in its enforcement of consumer financial service providers. The bank regulatory agencies examine the banks under their authority for compliance with UDAP. By granting the Bureau authority to regulate unfair, deceptive and “abusive” acts or practices (UDAAP), the Dodd-Frank Act created an anomaly within the existing and well-documented regulatory regime. In addition, Congress did not provide clarity to the redundant “abusive” violation, which has placed all companies under the Bureau’s jurisdiction at risk of inadvertent noncompliance because it is unclear how an “abusive” standard will be applied or how it is different from unfair or deceptive. Many depository institutions are supervised by the CFPB for UDAAP violations and by their prudential regulator for UDAP violations, creating an overlapping and potentially confusing supervisory regime.

Regulatory changes recommended by CBA are outlined below:

• Enforcement and Supervision: The CFPB has historically used the enforcement process as a regulatory tool. Former Director Richard Cordray stated on numerous occasions that companies should draw their understanding of the compliance and legal requirements of federal law by studying consent orders and other enforcement actions by the CFPB. The result is not in the best interest of either industry or consumers. This policy, which is often called “rulemaking by enforcement,” appealed to the CFPB because it was swifter and did not require as much substantiation. The rulemaking process, as mandated by the Administrative Procedure Act and the Dodd-Frank Act, is time consuming for a reason: it demands the CFPB adhere to a strict process that invites those who are affected by a proposal to have a say in the creation of the rule. Enforcement actions do not; and if they are negotiated consent orders, they may not even be a very fair representation of the regulator’s compliance expectations of others.

• Small-Dollar Bank Lending: We greatly appreciate the Bureau’s interest in revisiting the rule to ensure consumers have options in the marketplace for small dollar credit needs. Former CFPB Deputy Director Raj Date recently said banks should operate in this space as an alternative to less regulated sources of financing. Because we expect the rulemaking will likely identify other problems with the Final Rule, we also urge the Bureau to grant an immediate extension of the Compliance Date for the entire Final Rule. Without an immediate extension, banks will expend resources unnecessarily to achieve compliance with a rule the Bureau is reconsidering and may materially change. Further, the Bureau should exempt traditional consumer loan products, which do not raise consumer protection concerns, and which this rulemaking was not intended to address. In the 2017 Rule, the Bureau expansively defined “covered loans” — i.e., the loans subject to the Final Rule’s restrictions — without regard to the loan’s amount or duration. Consequently, the 2017 Rule captures many loans that are not, in fact, short-term, small dollar loans, including some wealth management products.

• Know Before You Owe Federal Student Loans: Absent Congressional action to improve federal student loan disclosures, CBA recommends the CFPB coordinate with the Department of Education to implement a “Know Before You Owe” initiative for federal student loan borrowers. Financial education is at the core of the CFPB’s mission, and we encourage the CFPB to work with the Department to make sense of the current opaque federal student loan disclosures by offering a clear, personalized, plain-language disclosure similar to those already provided to borrowers of all private consumer loans. CBA recently conducted a poll on Americans’ views regarding student debt and student protections. More information is available here.

• Separation of Ombudsman and Office of Students Role: For several years, the CFPB Student Loan Ombudsman also led the Office of Students. These are incompatible roles as they create a conflict of interest. An ombudsman should be impartial and serve in a confidential capacity, while a division head at the agency is a policy maker, enacting rules or recommending enforcement by the agency. CBA strongly recommends the Bureau separate the positions.

• No-Action Letters & the Office of Innovation’s Project Sandbox: CBA strongly supports the Bureau’s proposed changes to the 2016 NAL process and establishment of “Project Sandbox” and feels these programs are absolutely necessary to the Bureau’s commitment to increase innovation while better protecting consumers.

• Privacy Implications of the Home Mortgage Disclosure Act: CBA has long been concerned about the sensitive nature of HMDA data and believes the discretionary data fields added by the CFPB in 2015 deserve closer scrutiny. CBA applauds Director Kraninger’s decision to revisit the rule in May 2019 to closely review the data fields that will be collected, stored and ultimately made available to the public. CBA encourages the CFPB to take all necessary measures to ensure the personal financial data consumers are required to provide to their lenders remains private and protected.

• Complaint Database: CBA urges the Bureau to continue its review of consumer complaint data and its publication. We believe this will help ensure consumer privacy and prevent the dissemination of misleading information. Congress too has an important role to ensure future releases of consumer data is safeguarded.

• Section 1071 Small Business Rulemaking: CBA and its member institutions cannot stress enough the importance of well-balanced rules under Section 1071 in order to avoid overly burdensome data collection requirements that could stifle small business lending, greatly increase compliance costs for small business lenders, and open the door to costly litigation. Key to this rulemaking will be the ability for lenders to address 1071 reporting compliance with already existing reporting systems (e.g., Community Reinvestment Act, FinCEN Beneficial Ownership Rules, etc.) in order to ensure as little disruption in the market at possible. These systems will need to be automated and accurate. Adherence to systems already in place will allow lenders to streamline the collection process.

• Cost Benefit Analyses: The Dodd-Frank Act’s standards for rulemaking require the Bureau to consider, among other things, “the potential benefits and costs to consumers and covered persons, including the potential reduction of access by consumer to consumer financial products or services resulting from such rule.” Under this framework, we would encourage the Bureau not to focus solely on policy-based rulemaking and to base new regulations on real-world data and rigorous economic cost-benefit analysis, as required by the Act.

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About the Consumer Bankers Association:

The Consumer Bankers Association represents America’s leading retail banks. We promote policies to create a stronger industry and economy. Established in 1919, CBA’s corporate member institutions account for 1.7 million jobs in America, extend roughly $4 trillion in consumer loans and provide $275 billion in small business loans annually. Follow us on Twitter @consumerbankers.