Recent Articles tagged consumer financial protection bureau from LexMonitor

CFPB to Share Information with Attorneys General

Tue, 06 Mar 2012 16:59:35 GMT

Carter Dougherty of Bloomberg reports this morning that the Consumer Financial Protection Bureau is entering into an information-sharing agreement with state attorneys general, that will help states enforce consumer protection laws. The agreement will “establish a general framework to share data on consumer financial protection issues,” according to an advance copy of a speech Cordray will give to the National Association of State Attorneys General later today in Washington. Cordray will also collaborate with state AGs offices on a “national strategic plan” to address abuses in various areas, but debt collection, an area regulated on both state and federal levels, was specifically mentioned. I can think of a couple of other areas where such collaboration would also be useful, but this is a good start.

CFPB Is Looking Into Overdraft Fee Issues

Wed, 22 Feb 2012 21:22:56 GMT

The Consumer Financial Protection Bureau (CFPB) has opened an inquiry into overdraft fee practices. Today, CFPB representatives are in New York at town hall meeting for consumers to share their overdraft fee experiences. The CFPB also has a Notice and...

Regulating Credit Reporting Agencies and Debt Collectors: Richard Cordray and the CFPB Establish Some of Their Territory

steven@berklawdc.com (Steven Berk) — Wed, 22 Feb 2012 14:08:05 GMT

Sally Adams rides the bus home from her second job as a nighttime clerk and—every day—goes by the bright green “Payday Loans” sign. She knows such offers have a reputation as scams, but she also has two kids at home, one of whom has come down with a bone-shattering cough, and she can’t afford his medicine. That green sign becomes more and more tempting every day that she drives by, as her son’s cough lingers in her memory.

What’s more, she gets on the computer and is inundated with yet more advertisements, to the point that she can’t help herself. “$250-$1000 right now—as soon as tomorrow,” they promise. What’s more, most don’t specify the effective interest rate anywhere. Well, so what? Sally doesn’t quite know what the interest rate is, but she knows that having $1000 in her pocket tomorrow would pay a lot of the bills lying around and buy a lot of medicine.

Two weeks later, when her paycheck rolls in, she owes most of it to Paydayloansharks.com, and she finds herself in an even worse situation than before. Not only is the $1000 used up on groceries and medicine, but she has no money from her recent paycheck, setting her two weeks further behind. (But maybe another payday loan would help her bridge the gap—and so the vicious cycle begins.)

Valuable to many and a safety net to millions more, predatory loans are around to stay. But good news: Our new friends at the Consumer Financial Protection Bureau—for the first time—will be taking a good hard look at what is legalized “loan sharking” and put a national enforcement strategy together for policing these practices. The Consumer Financial Protection Board is not playing games. Last week, Director Richard Cordray began to announce its domain. The rules propose to govern almost two-thirds of debt collection agencies and over 90% of the United States’ credit reporting agencies, two industries which have never faced governmental regulation before. The companies would be subject to stricter guidelines and greater scrutiny.

While it’s been a long task, it seems President Obama found the right person to lead the Bureau. Cordray is unabashed and blunt, and has wasted no time cracking down on the industries that prey on the members of society with fewer options. We can only hope that Richard Cordray and his team will get it right; balancing the interests of those who sadly live too close to the edge of poverty (“paycheck to … maybe another … paycheck”) and companies who are willing to make high risk loans.

At a minimum, the CFPB should require disclosures of the risk and the actual interest rate, and provide information on their website about the realities of taking out a payday loan. That way the Sallies of the world will at least have the requisite information to decide. Information is power.

Assisted by David T. Martin

David Lazarus Interview with Richard Cordray on Proposed Rules for CFPB to Supervise Large Credit Bureaus and Debt Collectors

Alan.White@valpo.edu (Alan M. White) — Wed, 22 Feb 2012 00:54:51 GMT

by Jeff Sovern Here. Lazarus has an interesting quote from Cordray: "Unlike most services or products where consumers can shop around among different providers, consumers can't do that with these businesses," Cordray said. "Consumers don't get to choose their debt...

by Jeff Sovern

Here. Lazarus has an interesting quote from Cordray: "Unlike most services or products where consumers can shop around among different providers, consumers can't do that with these businesses," Cordray said. "Consumers don't get to choose their debt collector, and they don't get to choose whether to have the consumer credit reporting agencies keep track of their credit history."

That's an important point. Free-marketers argue that government regulation is generally unnecessary because the free market will discipline poorly-performing businesses. But there is no free market as to debt collectors or credit bureaus, with the result that the market cannot be expected to address such businesses when they misbehave. That's another reason we needed the CFPB as well as the Fair Credit Reporting Act and the Fair Debt Collection Practices Act.

Consumer Financial Protection Bureau Proposes Supervision of Debt Collectors, Reporting Agencies

Sat, 18 Feb 2012 04:19:54 GMT

This posting was written by Sarah Borchersen-Keto, CCH Washington Correspondent.

A proposed rule from the Consumer Financial Protection Bureau (CFPB)would place debt collectors and consumer reporting agencies that qualify as larger market participants within the bureau’s nonbank supervision program, marking the first time these activities would face federal supervision.

The proposed rule would cover debt collectors with over $10 million in annual receipts from debt collection activities. The CFPB estimates that approximately 175 debt collection firms would be under their supervision, accounting for 63 percent of annual receipts from the debt collection market.

Meanwhile, consumer reporting agencies with over $7 million in annual receipts would be subject to CFPB supervision, representing approximately 30 consumer reporting companies that account for about 94 percent of annual receipts.

“Consumer financial products and services have become more complex over the years and they have expanded well beyond traditional banks,” noted CFPB Director Richard Cordray.

The CFPB has until July 21, 2012 to issue an initial rule defining larger market participants that could come under CFPB supervision. The bureau is seeking public input as to which markets to include in the initial rule and which data sources the bureau might use to determine larger participants in nonbank markets.

The CFPB noted that as it adds new markets to monitor it will choose the best criteria for determining market participation, as well as the appropriate thresholds for individual markets.

The Consumer Financial Protection Bureau Proposes Boundaries for its Nonbank Supervision of Debt Collection and Credit Reporting Organizations

Fri, 17 Feb 2012 16:10:20 GMT

On February 16, 2012, the Consumer Financial Protection Bureau (“CFPB”) proposed a new regulation, pursuant to Section 1024 of the Consumer Financial Protection Act of 2010 (Title X of the Dodd-Frank Act) (the “Act”), intended to establish “the scope of coverage of the Bureau’s supervision authority for nonbank covered persons,” in particular as pertains to credit reporting and debt collection organizations. The proposed regulation first recognizes the authority of the CFPB, under Section 1024 of the Act, to supervise certain “nonbank covered persons” that offer or provide to consumers (1) home mortgage loan brokerage, origination, modification, or foreclosure relief; (2) private education loans; (3) payday loans; and, most relevant, (4) “any ‘larger participant of a market for other consumer financial products or services’ as defined by rule by the” CFPB. Such supervision under the Act includes (i) compliance assessment with Federal consumer financial laws; (ii) obtaining information regarding such “persons’” activities and compliance; (iii) detection and assessment of risks to consumers. The proposed regulation is limited to defining “larger participants” subject to nonbank supervision and does not contain any new substantive requirements for regulated entities.

The proposed regulations would define “larger participants” based on their annual receipts resulting from activities relating to “the market in question.” The threshold proposed for consumer debt collection organizations to be characterized as a “larger participant” is any entity with annual receipts of $10 million. For consumer reporting market, the threshold is $7 million. According to the proposed regulation, the classification of a business as a “larger participant” would last for a period not less than two years but also sets forth a procedure by which a person can challenge that classification.

Cordray Controversy Continues

update@blankrome.com (Blank Rome Government Relations) — Tue, 17 Jan 2012 14:26:29 GMT

Following President Obama’s January 4th announcement that he would install former Ohio Attorney General Richard Cordray as director of the Consumer Financial Protection Bureau (CFPB) using a recess appointment, a hailstorm of controversy has ensued, as lawyers, legislators and industry question the legitimacy of the move – and look for ways to undermine it.

Lawyers:

Following the appointment, the Office of Legal Counsel stated that Congress can only prevent the president from making such appointments “by remaining continuously in session and available to receive and act on nominations,” not by holding pro forma sessions.

Senate Republicans, led by Sen. Chuck Grassley, Ranking Member of the Senate Judiciary Committee, accused the president of ignoring more than 90 years of legal precedent in making the recess appointments while the Senate remained in pro forma session. “The Justice Department and the White House owe it to the American people to provide a clear understanding of the process that transpired and the rationale it used to circumvent the checks and balances promised by the Constitution,” Grassley said. “Overturning 90 years of historical precedent is a major shift in policy that should not be done in a legal opinion made behind closed doors hidden from public scrutiny.” The letter was signed by Senate Judiciary Committee members Grassley, Sen. Orrin Hatch (R-UT), Sen. Jon Kyl (R-AZ), Sen. Jeff Sessions (R-AL), Sen. Lindsey Graham (R-SC), Sen. John Cornyn (R-TX), Sen. Mike Lee (R-UT), and Sen. Tom Coburn (R-OK).

On January 12, the Department of Justice issued a memo arguing that pro forma sessions held every third day in the Senate do not constitute a functioning body that can render advice and consent on the president’s nominees. It said the president acted consistently under the law by making the appointments. “Although the Senate will have held pro forma sessions regularly from January 3 to January 23, in our judgment, those sessions do not interrupt the intrasession recess in a manner that would preclude the president from determining that the Senate remains unavailable throughout to ‘receive communications from the president or participate as a body in making appointments,’” Virginia Seitz, assistant attorney general for the Office of Legal Counsel, wrote in the memo dated Jan. 6.

Legislators:

On the legislative front, there are two issues: the legislation that created Dodd-Frank, and the countless bills that will soon be introduced in response to the president’s recess appointment.

The conventional wisdom in both industry and government circles has been that the CFPB’s authority will be limited until it has a director, and that once it has a director, it will assume its full powers. Not quite. As Dodd-Frank was drafted, Section 1066 reserves many of the bureau’s powers for the Secretary of the Treasury “until the Director of the Bureau is confirmed by the Senate.” As Cordray was appointed through a recess appointment, rather than the Senate confirmation process, he will still have certain constraints on his authority. Specifically, the section transfers consumer financial protection functions of several other federal agencies to the CFPB Director.

In the absence of a Senate-confirmed director, those powers, which include the authority to regulate non-banks, should, according to statute, remain with the Secretary of the Treasury. Despite this, the CFPB has announced that it has launched its non-bank supervision program. Should that supervision become enforcement, it remains to be seen whether enforcement actions could withstand a court challenge.

Where the current legislation has raised questions, two freshman House Republicans are making moves to answer them.

On January 10, Rep. Diane Black (R-TN) introduced a House resolution “Disapproving of the President's appointment of four officers or employees of the United States during a period when no recess of the Congress for a period of more than three days was authorized by concurrent resolution and expressing the sense of the House of Representatives that those appointments were made in violation of the Constitution.” The resolution has 70 Republican co-sponsors.

On January 13, Rep. Jeff Landry (R-LA) introduced the Executive Appointment Reform Act (EARA), which would eliminate loopholes in the U.S. Code that allow for the payment of certain recess appointed individuals and also place limitations on an appointee’s ability to provide voluntary or gratuitous service. Additionally, the legislation would prevent all regulations hailing from the CFPB from becoming final until the director has been confirmed by the Senate. The bill has 22 Republican co-sponsors.

Industry:

While few expected industry to enter the fray, a few major players have spoken out.
Citigroup said that it does not view the move as a recess appointment and said it expects a court challenge. The U.S. Chamber of Commerce, a vocal critic of the bureau, has not ruled out a lawsuit, but said Friday, “We are not going to sue today.”

Cordray has said that he is working closely with industry leaders and lobbyists to ensure that their concerns are heard. “What I want to say to business is: They should embrace the bureau,” he said. “Not only are we going to protect consumers, but we are going to support the honest and responsible businesses in the financial marketplace” who were undercut by companies that did not “adhere to the same standards.”

The White House has held firm that the move was constitutional. “The Senate has effectively been in recess for weeks, and is expected to remain in recess for weeks,” White House spokesman Eric Schultz said in a statement. “Gimmicks do not override the president’s constitutional authority to make appointments to keep the government running,” he said.

U.S. Chamber of Commerce Won't Sue Over CFPB Appointment - At Least for Now!

Fri, 13 Jan 2012 01:24:53 GMT

The U.S. Chamber of Commerce has been highly critical of President Obama's recess appointment of Richard Cordray to head the Consumer Financial Protection Bureau (CFPB). Today, however, the Chamber reportedly has decided to wait and see how the CFPB performs....

Despite Republican Objections, Obama Installs Cordray as CFPB Director

update@blankrome.com (Blank Rome Government Relations) — Wed, 04 Jan 2012 21:22:27 GMT

President Obama announced this afternoon that he will install Former Ohio Attorney General Richard as director of the Consumer Financial Protection Bureau by “recess appointment.” The recess appointment comes despite the fact that the Senate is not officially in recess. The appointment will almost certainly be challenged in court.

Speaking in Shaker Heights, Ohio, the president said “Today I’m appointing Richard as America’s consumer watchdog. That means he’ll be in charge of one thing: looking out for the best interests of American consumers. His job will be to protect families like yours from the abuses of the financial industry.” The president went on to criticize Senate Republicans for blocking Cordray’s confirmation. “The only reason Republicans in the Senate have blocked Richard is because they don’t agree with the law setting up the consumer watchdog. They want to weaken it. Well that makes no sense at all.”

Now that the bureau has a director, it will assume its full authority under Dodd-Frank, which includes oversight authority over non-bank financial institutions. In the five-and-a-half months since the bureau opened its doors, mortgage servicers, debt collectors, and payday lenders have been outside of its purview. Now, these and other non-banks will likely be subject to regulatory and enforcement actions by the CFPB.

While many Democrats are claiming victory, all signs suggest that the battle is just beginning for Cordray. Many Republicans are already threatening court challenges, and Rep. Patrick McHenry, Chairman of the House Financial Services Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs wrote to Cordray today, requesting that he testify before the Subcommittee on January 24th.

This will not be the first time a presidential recess appointment has ended up in a courtroom. In 1921, the attorney general, at the request of the president, held that recess appointments could be made during an almost month-long recess, but noted that recess appointments during short recesses are unconstitutional finding that “ the term ‘recess’ must be given a ‘practical construction.’”

According to a report released by the Congressional Research Service last month, no recess appointments have been made in recent history during recesses lasting fewer than 10 days. During the Clinton Administration, the Department of Justice argued that any recess longer than three days meets the Constitutional standard for recess appointments. The DOJ did not claim that a recess appointment made in a recess of three days or less is unconstitutional, rather, only that it would present a “closer question.” It remains to be seen who will bring the suit, though there are undoubtedly a number of third parties that have a vested interest in the issues.

Senate Democrats were vocal opponents of recess appointments during the George W. Bush Administration. When President Bush recess appointed John Bolton as Ambassador to the United Nations, then-Senator Barack Obama (D-IL) said that a recess appointment was “the wrong thing to do,” and added that a recess appointee is “damaged goods… somebody who couldn't get through a nomination in the Senate. And I think that that means that we will have less credibility...” Also during the Bush Administration, Senate Majority Leader Harry Reid called recess appointments “mischievous” and “an end run around the Senate and the Constitution.” Now that the tables have turned, Senate Republicans have several of their Democrat colleagues on the record making similar comments.

The Senate failed to confirm Cordray on December 8, 2011, when it voted 53-45 to end the filibuster and proceed with the confirmation, falling short of the 60 votes needed to proceed. All but two Republicans voted to sustain the filibuster. Sen. Scott Brown (R-MA) is the only Republican Senator to publicly support Cordray, likely because he finds himself in a tight Senate race against CFPB architect Elizabeth Warren. Sen. Olympia Snowe (R-ME), who was one of only three Republicans to vote for Dodd-Frank, voted “present.”

Forty-Five Republican Senators signed onto a letter vowing to oppose any nominee for director until the CFPB is restructured. Specific reforms suggested in the letter were: (1) the establishment of a board of directors; (2) the requirement that the CFPB submit a budget request and go through the appropriations process just like the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Trade Commission; and (3) the oversight of CFPB regulations by Federal bank regulators to ensure that such regulations do not needlessly cause bank failures.

Members on both sides of the aisle issued strongly-worded statements on the president’s move:

Senate Minority Leader Mitch McConnell (R-KY), who has led the Republican effort to block the confirmation, blasted President Obama’s decision, accusing him of “arrogantly circumventing the American people with an unprecedented ‘recess appointment’ of an unaccountable czar.” McConnell described the historical precedent of limiting recess appointments to recesses lasting ten days or more and said “breaking from this precedent lands this appointee in uncertain legal territory, threatens the confirmation process and fundamentally endangers the Congress’s role in providing a check on the excesses of the executive branch.”

Senate Majority Leader Harry Reid (D-NV) said, “I support President Obama’s decision to make sure that in these tough economic times, middle-class families in Nevada and across the country will have the advocate they deserve to fight on their behalf against the reckless practices that denied so many their economic security… I hope that moving forward, Republicans will work with Democrats to address the concerns of middle-class Americans, instead of turning every issue into a partisan fight.”

House Speaker John Boehner (R-OH) issued a statement calling the move “an extraordinary and entirely unprecedented power grab by President Obama that defies centuries of practice and the legal advice of his own Justice Department," Boehner said. “This action goes beyond the President’s authority, and I expect the courts will find the appointment to be illegitimate.”

Senate Banking Committee Chairman Tim Johnson (D-SD) said, “With Richard Cordray leading the Consumer Financial Protection Bureau, Americans will finally get the consumer protections they deserve. Mr. Cordray is eminently qualified for the job, as even my Senate Republican colleagues have acknowledged…It’s disappointing that Senate Republicans denied him an up-or-down vote, especially when it’s clear he had the support of a majority of the Senate.”

House Financial Services Committee Chairman Spencer Bachus (R-AL) said, “The President’s unprecedented decision to attempt to circumvent the Constitution and ignore the law he himself signed is the clearest indication yet that he has abandoned any effort to work in a bipartisan manner to strengthen accountability and oversight of this new government bureaucracy… In doing so, President Obama has delegitimized the CFPB and has opened the agency up to legitimate legal challenges that will cripple it for years. The greatest threat to our economy right now is uncertainty, and the President just guaranteed there will be even more uncertainty.”

Defying Senate, President Obama purportedly makes recess appointment of Cordray to lead CFPB

tcrisp@foley.com (Timothy S. Crisp) — Wed, 04 Jan 2012 17:54:48 GMT

For nearly six months, President Obama’s nomination of Richard Cordray to be the first Director of the Bureau of Consumer Financial Protection (CFPB) has been blocked by Senate Republicans. Today, the President is attempting to call the Senate’s bluff by making a legally questionable recess appointment of Cordray. Under Article II, Section 2, Clause 3 of the federal... Continue reading this entry

Under Article II, Section 2, Clause 3 of the federal Constitution, the President is empowered to make appointments to fill vacancies while the Senate is in recess. These so-called “recess appointments” have a limited duration, expiring when the next session of Congress ends, so Cordray’s appointment would not be effective for the full five-year term contemplated by the Dodd-Frank Act unless he were renominated by the President and confirmed by the Senate.

There is a real constitutional question whether the Senate is, in fact, in “recess” and whether President Obama’s appointment of Cordray is valid. In attempting to block President Obama from making recess appointments (and, in particular, an appointment of Cordray), the House of Representatives has purported to remain in session, holding “pro forma” sessions every few days in which few members of the House are present and which last literally seconds or minutes. Due to the requirements of Article I, Section 5, Clause 4 of the Constitution, the Senate is unable to adjourn for more than three days without the consent of the House, and the current Republican-controlled House has forced the Democrat-controlled Senate leadership to remain officially in session and to hold similar pro forma sessions every few days.

Much more is at stake than a high-profile leadership appointment for Cordray. Under the Dodd-Frank Act, the CFPB lacks supervisory and enforcement jurisdiction over nondepository institutions until a director is in place. With very few exceptions, Congressional Republicans have never been supporters of Dodd-Frank or, in particular, the CFPB and its broad jurisdiction and consumer protection mandate, and they have used their leverage over the appointment of a director to forcefully advocate for major structural changes in the CFPB.

It now seems likely that Cordray’s recess appointment, as well as attempted supervision and enforcement actions by the CFPB for nondepository institutions, may be challenged soon in federal court. Stay tuned: this saga is far from over.

CFPB Republishes Certain Existing FTC Rules

tcrisp@foley.com (Timothy S. Crisp) — Fri, 16 Dec 2011 16:31:14 GMT

The Consumer Financial Protection Bureau (CFPB) issued three interim final rules, each effective December 30, 2011, which republish and make minor, nonsubstantive changes to certain existing regulations of the Federal Trade Commission (FTC). The Dodd-Frank Act transferred rulemaking authority for those existing regulations to the CFPB effective July 21, 2011. CFPB Regulation F (12 CFR Part... Continue reading this entry

CFPB Regulation F (12 CFR Part 1006) republishes the FTC’s regulation (16 CFR Part 901) on procedures for states to apply for exemptions from certain provisions of the Fair Debt Collection Practices Act where the states’ laws are at least as protective of consumers as the federal law. CFPB Regulation I (12 CFR Part 1009) republishes the FTC’s regulation (16 CFR Part 320) on disclosure requirements for depository institutions which do not maintain federal deposit insurance. CFPB Regulation N (12 CFR Part 1014) republishes the FTC’s Mortgage Acts and Practices–Advertising Rule (16 CFR Part 321). CFPB Regulation O (12 CFR Part 1015) republishes the FTC’s Mortgage Assistance Relief Services Rule (16 CFR Part 322).

The CFPB has apparently elected to designate its regulations by letter, which had been the convention used by the Federal Reserve Board. The new CFPB Regulations F, I, N and O should not be confused with existing Federal Reserve Board Regulations F, I, N and O, which address topics such as correspondent banking, issuance and cancelation of Federal Reserve Bank capital stock, relations with foreign banks and bankers, and loans to bank insiders.

CFPB Report on Credit Card Complaints Proposes Publicly Accessible Database of Complaint Data

tcrisp@foley.com (Timothy S. Crisp) — Fri, 02 Dec 2011 04:03:05 GMT

The website of the Bureau of Consumer Financial Protection (CFPB) has been soliciting consumer complaints since the CFPB opened for business on July 21, 2011. The CFPB has issued an interim report, detailing the 5,074 complaints the CFPB has received from consumers through November 15, 2011, and now proposes a publicly accessible database of consumer credit card complaints. Of the complaints... Continue reading this entry

Of the complaints received by the CFPB through November 15, 2011, card issuers reported full or partial resolution of the complaints in 3,151 cases (74%), no relief granted in 845 cases (19.8%), and continuing issuer review of the complaints in 258 cases (6.1%). Of the reported resolutions, consumers confirmed that the complaints were satisfactorily resolved in 2,238 cases (71%) and disputed in 400 cases (12.7%), with the 513 cases (16.3%) pending the consumer’s review of the issuer’s reported resolution.

According to the CFPB, the most frequent complaint types, as identified by the consumers, are billing disputes (13.4%), APR or interest rate (11.0%), and identity theft, fraud or embezzlement (10.8%). No other identified category of complaint accounted for more than 5% of the total complaints received.

The CFPB also proposes to publicize certain information it receives from completed complaint submissions.

According to a notice and request for comments to be published soon in the Federal Register, the CFPB proposes to create a publicly accessible database of certain data derived from credit card complaints made by consumers to the CFPB. The proposed database would be fully searchable and downloadable by the public and would contain certain non-narrative information provided by consumers, including the name of the card issuer, the type of complaint, the date of the complaint and the zip code of the complaining consumer.

Confidential personally information about the complaining consumer–such as the consumer’s name, address (other than zip code), and card number–would not be included in the database. The CFPB does not intend to include consumers’ narrative comments at this time.

When an issuer represents to the CFPB that it has been wrongly identified as the issuer of a card subject to a complaint, the CFPB will not disclose the issuer’s name pending its determination of the correct issuer.

The public comment period will end January 12, 2012.

Who’s Your Regulator? Federal Regulatory Agencies Jointly Clarify CFPB Jurisdiction

tcrisp@foley.com (Timothy S. Crisp) — Thu, 17 Nov 2011 13:42:41 GMT

A new Supervisory Statement clarifies when insured depository institutions and insured credit unions will be subject to supervision and enforcement by the Bureau of Consumer Financial Protection (CFPB). The CFPB issued the Supervisory Statement jointly with the federal prudential regulators–the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board (FRB), the Office of the Comptroller of the Currency (OCC), and the... Continue reading this entry

Section 1025 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) gives the CFPB exclusive supervisory authority and primary enforcement authority with respect to federal consumer financial laws over any insured bank, thrift or credit union and its affiliates, but only if its total assets exceed $10 billion (Large Institutions). For other institutions and their affiliates, the federal prudential regulators retain supervisory and enforcement authority with respect to federal consumer financial laws.

Because the Dodd-Frank Act did not clearly specify how or when to measure (or remeasure) the asset size requirement, institutions with fluctuating asset sizes near $10 billion faced uncertainty as to which agency regulated and enforced its compliance of federal consumer financial laws and under what circumstances its regulator might change. The Supervisory Statement is intended to clarify how and when the asset size test will be measured and remeasured, giving greater clarity and consistency to agencies, institutions and consumers.

Initially, the agencies will look to data in the June 30, 2011 call report to determine whether an institution is a Large Institution subject to CFPB supervisory and enforcement jurisdiction. If an institution reported assets exceeding $10 billion in its June 30, 2011 call report, it will initially be classified as a Large Institution. If it reported assets of $10 billion or less in its June 30, 2011 call report, it will initially remain subject to supervision and enforcement by its existing prudential regulatory agency.

After the initial classification based on the June 30, 2011 call report, growth or shrinkage in an institution’s asset size could result in an institution becoming (or ceasing to be) a Large Institution subject to CFPB jurisdiction. However, the agencies will only change an institution’s classification if its total asset size newly exceeds (or drops to or below) $10 billion as reported in call reports for four consecutive quarters. If a classification changes, it will become effective on the first day of the quarter following the four-quarters measurement period resulting in the change.

In the case of an acquisition, merger or other combination of two or more institutions occurring after June 30, 2011, when each of the institutions had not previously been classified as a Large Institution, the agencies will evaluate, on a pro forma basis, the combined assets of the institutions for the four completed quarters immediately preceding the transaction. If the pro forma combined assets of the institutions for the four-quarters period exceeds $10 billion, the resulting institution will be deemed a Large Institution.

CFPB Releases Examination Manual

gstephenson@porterwright.com (Grant Stephenson) — Wed, 09 Nov 2011 16:15:10 GMT

In October, the Consumer Financial Protection Bureau published its first supervision examination manual which will be of interest to bankers and other financial service executives.

On one level, the manual is fairly pedestrian and may contain little surprising in that most bankers have a fairly extensive appreciation of (and experience with) an examination process. And, of course, the Bureau has direct supervisory authority only over the roughly 100 large banks, thrifts, and credit unions that have assets more than $10 billion.

What should be interesting to many bankers, however, is the insight the Manual provides into the examination approach of the Bureau, an approach that will doubtlessly influence and inform the practices and procedures of all other financial institution regulators, large and small. Essentially, the Manual describes the Bureau's process for risk assessment: first there will be the establishment of the inherent risk of a particular "product" line for consumers and then there will be an assessment of an entity's set of quality controls to manage and mitigate the risks.

As bankers consider the Manual and its implications for the future regulatory approach of the Bureau, they will be particularly interested in its discussion in a hitherto unknown concept in consumer financial regulation: "abusive" practices.

As a matter of law, the Bureau has jurisdiction over "unfair, deceptive and abusive" practices. Unfair and deceptive are fairly established legal terms; indeed much of existing consumer law and regulation is predicated on these terms. "Abusive" in the context of consumer financial practices is new however (although there is precedent in other contexts). The Manual suggests a practice will be "abusive" if it:

Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or

Takes unreasonable advantage of –

A lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;

The inability of the consumer to protect its interests in selecting or using a consumer financial product or service; or

The reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

There are no concrete examples of "abusive" practices in the Manual of course because the Bureau has yet to begin its examinations or to institute enforcement actions. The Manual does contain a template for risk assessments that provides an indication into what will be the approach of the Bureau to its review of consumer products and practices:

Products are bundled in a way that may obscure relative costs;

The terms of the product are subject to change at the discretion of the entity, and the entity has frequently made changes in the terms; and

Complex products are marketed to consumers not likely to benefit from them or who may be likely to be harmed by them.

It would appear, then, the Manual confirms what had been predicted since the passage of the Dodd-Frank Act and the creation of the Bureau: that bankers and financial services executives should be prepared to deal with a review of their products and practices, during a examination by the Bureau, that goes much further than the current review which is grounded in compliance with the disclosure requirements of various federal and state statutes, such as the Truth in Lending Act. This review will apparently be more subjective and less empirical.

Examining the Call for the CFPB to Have a Commission-Structure

Alan.White@valpo.edu (Alan M. White) — Thu, 20 Oct 2011 17:15:36 GMT

investors Business Daily has an editorial here, Cordray Can Wait, opposing Cordray's confirmation and urging that the Consumer Financial Protection Bureau have a commission-structure. Let's take a look: As Ohio's attorney general, Cordray's main focus was making Wall Street pay...

investors Business Daily has an editorial here, Cordray Can Wait, opposing Cordray's confirmation and urging that the Consumer Financial Protection Bureau have a commission-structure. Let's take a look:

As Ohio's attorney general, Cordray's main focus was making Wall Street pay for the financial crisis. He sued BofA, AIG, Standard & Poor's, Moody's and other Wall Street firms on behalf of public-employee pensions. His shakedown netted trial lawyers and the unions they represent for more than $1 billion in settlements and fees.

Standard & Poor's and Moody's would be the folks that gave top ratings to toxic mortgages that later defaulted. AIG received hundreds of billions in bailout funds, gave hundreds of millions in bonuses, and issued insurance in the form of credit default swaps that they couldn't make good on without the bailout. And BofA took over Countrywide's toxic mortgages. Could it be that Cordray was justified in bringing those suits?

Here's more:

Most concerning, this wannabe federal bank sheriff is in the back pocket of trial lawyers. The law firm that represented Ohio in the AIG case pumped $125,000 into Cordray's campaigns. Other firms donated $200,000 to Cordray, who plans to run for Ohio governor one day.

That's a fraction of the $2.3 million the finance, insurance, and real estate sector has donated in the current cycle to Senator Richard Shelby, the leader of the 44 Republican Senators opposing Cordray's confirmation, according to the Center for Responsive Politics. Sounds like if Cordray were willing to be bought, he could have made more money working for the banks. Could the fact that he didn't sell out to the highest bidder mean he's honest? Another excerpt:

Heading its Office of Fair Lending is Patrice Ficklin, a a black civil-rights lawyers who headed Fannie Mae's racial grievance unit. She leads a team using new race-based lending data to crack down on banks that apply prudent lending standards equally to minorities.

Why is it relevant that she's black? And what's wrong with using data to make decisions? Isn't that how it's supposed to be? A final quote:

As Democrats set up the CFPB, the director enjoys unprecedented power, reporting only to the president. The agency is . . . funded outside the annual appropriations process . . . . In effect, it's not accountable to Congress or the American public.

Just like the OCC, except that, unlike the Bureau, OCC decisions aren't subject to overruling by the Financial Stability Oversight Commission. Odd how the more powerful OCC hasn't generated calls for a commission. Could it be because the OCC has been captured by the banks? When IBD says that the Bureau isn't "accountable to Congress or the American public," could they mean that it isn't accountable to the banks? Because the OCC seems a lot more accountable to the banks than to Congress or the American public

Sheryl Harris on Opposition to Confirmation of the CFPB Director

Alan.White@valpo.edu (Alan M. White) — Mon, 17 Oct 2011 02:32:44 GMT

Here. An excerpt: Republican senators . . . insist they will block the Consumer Financial Protection Bureau from getting a director unless the White House agrees to radical changes. Most dangerously, Republicans want the bureau's budget to be part of...

Here. An excerpt:

Republican senators . . . insist they will block the Consumer Financial Protection Bureau from getting a director unless the White House agrees to radical changes.

Most dangerously, Republicans want the bureau's budget to be part of the appropriations process, which not only makes its funding subject to the whims of Congress but also forces the cost onto the backs of taxpayers. The previous Congress funded the bureau through the self-supported Federal Reserve precisely to protect it from political pressures.

Unlike most other federal agencies, the Consumer Financial Protection Bureau's decisions are subject to review by a panel of other regulators. The hold-out Republicans want to make it easier for those regulators to overturn the bureau's rules.

Lastly, the Gang of 44 wants to replace the bureau's director with a five-member commission. That means that instead of enduring endless delays in affirming just one leader, the American public could look forward to five times the foot-dragging.

Enough.

American families are in crisis. They have lost homes or become anchored to cities where jobs are scarce by houses they cannot sell without taking a loss. Their kids go to college only to emerge with staggering private student loan debt they must immediately repay even if they can't find jobs. Many adults are struggling to pay off debts incurred when credit limits were just a state of mind and going through bankruptcy meant coming home to a slew of new card offers.

Elizabeth Warren: Occupy Wall Street, 'Formidable,' and Other Comments on the Campaign

steven@berklawdc.com (Steven Berk) — Fri, 14 Oct 2011 16:28:08 GMT

I am all in for Elizabeth Warren. Even before the flop. I may not even look at the cards in my hand. Why? One word. She is formidable. Yes, there are many to choose from: smart, (the oft-cited Harvard Law Professor sure is smart), tenacious, straightforward, tireless, charming, persuasive, possessing of the common touch, and possessing the skill sets to scare the heck out of any foe – large or small, hence formidable.

“There is nobody in this country who got rich on his own. Nobody.”

What has become a proclamation; part of a ripple that may become a wave—the OWA (Occupy Wall Street protesters) could do a lot worse. Warren touched on something: the desire to find a cogent response to a powerful conservative message. A message that often controls the agenda of public life.

Adding to the texture of her formadibility is a wonderfully homespun back story, such as waiting tables at her aunt’s Mexican restaurant. And she has also shown a feistyness that one needs in any high-powered election battle. By now it's nearly famous how she took a little jab at my classmate Scott Brown (BC Law) and her opponent. Pretending to seem as offhanded and casual as possible, Warren poked fun at opponent Scott Brown’s nude pictures in GQ, which he took in law school and claims it was all and only about the money. Be fine with me, if he had a record—something, anything. A pickup truck is not a record of service. Professor Warren went on to make clear her own college experience. “I kept my clothes on,” replied Warren when asked how she paid her way through Houston University and Rutgers Law (that is to say: student loans and a part-time job). Told that Warren “kept her clothes on,” Brown commented, “Thank God.”

The Corporate Observer has covered Elizabeth Warren and her CFPB for the last several years. The below posts are a small sampling of the Warren coverage TCO has had:

Entering the workforce, as a young lawyer, women were -- as they always had been -- my colleagues and competitors. But for the first time, I started seeing a distinction between men and women in the workplace.

I was attending a conference at no less than the United States Chamber of Commerce in Washington, DC, just across Lafayette Park from the White House. I was there to see and hear Professor Elizabeth Warren. Since 2008, she hasbeen a powerful voice for consumers; no, she has been the most powerful voice for consumers. And now as she races to get the new Consumer Finance Protection Board (CFPB) up and running, she faces the full court press of corporate, banking and Wall Street interests attempting to derail her.

Click here for full article.

Professor Warren is straightforward, persuasive and charming. And this was no friendly audience.
My attendance at today’s event at the Chamber reminded me of the harsh reality that we have two teams in Washington. Two sides, Democrat and Republican; left and right; conservative and liberal. Call it what you like. Despite her best efforts atfinding common ground, between those two sides even the mighty Elizabeth Warren will not so easily succeed.

Click here for full article.

With her brains, charm and experience, Elizabeth Warren will be an advocate for the middle class and consumers. Not just for Massachusetts but for our entire nation. When its time, as they say in my hometown of Chicago, “vote early and often” for Elizabeth Warren. For now send her a check, send her two, at www.ElizabethWarren.com. The country needs her more than ever. Scott Brown, her opponent, is a nice guy and nice looking, but he hardly has the brains, gravitas and devotion to the needs of consumers embraced by Professor Warren.

Click here for full article.

My American Banker Op-Ed: Don’t Let Banking Industry Capture the CFPB

Alan.White@valpo.edu (Alan M. White) — Thu, 13 Oct 2011 18:07:09 GMT

Here.

CFPB Releases Supervision and Examination Manual

tcrisp@foley.com (Timothy S. Crisp) — Thu, 13 Oct 2011 16:01:33 GMT

Today the Bureau of Consumer Financial Protection issued its initial Supervision and Examination Manual. The Bureau states that the manual "is a guide to how the CFPB will supervise and examine consumer financial service providers under its jurisdiction for compliance with Federal...

What would happen if everyone moved their money from a bank to a credit union in one day?

Tue, 11 Oct 2011 06:00:14 GMT

By: Rob This whole idea is picking up steam along with the Occupiers. The concept is that on November 5th, consumers can vote with their feet and express dissatisfaction with banks by moving their money to a credit union. To people stung by new fees, one would think such a proposal would have the chance [...]

By: Rob

This whole idea is picking up steam along with the Occupiers. The concept is that on November 5th, consumers can vote with their feet and express dissatisfaction with banks by moving their money to a credit union. To people stung by new fees, one would think such a proposal would have the chance to go viral. I don’t think it will because people really need to be mad to generate enough will power to overcome the inertia of changing their bank accounts. Ironically, the new fees are the result of The Dodd-Frank Act and the creation of the CFPB which was initially supposed to reform Wall Street but now sees itself as providing consumer protection. People are mad, but they aren’t that mad.

Let’s assume for the sake of argument that a good percentage of the population actually did get that mad and moved their money in one day. What would happen? It’s actually easy to predict: utter chaos. It turns out that having too much by way of assets is not a good thing for a credit union. The influx of cash to the credit union movement would immediately plunge the receiving credit unions into a state of ill-health.

Meantime, on the bank side, we have historical evidence of what happens when everyone takes their money out of the banks at once. It’s called a run. During the depression, many banks went out of business for that reason. The exposure would be so great that the Federal Reserve would act, most likely, to close down consumers access to banks and credit unions until the dust settled. You think people are mad now? Imagine hundreds of millions of people not being allowed access to their bank accounts for a week!

Now if such a shift occurred gradually, over time credit unions could manage the capital and banks would not have the immediate pain of a run. Certainly, many credit union advocates have sought this over the years. Timing is everything though and so is being careful what you wish for.