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Comptroller Curry Discusses Nonbank Supervision, Regulatory Capture
On May 14, Comptroller of the Currency Thomas Curry spoke to the Conference of State Bank Supervisors, urging state regulators to, among other things, avoid regulatory capture and ensure balanced supervision of nonbanks and banks. Mr. Curry stated that “[r]egulatory capture is a real threat” to federal and state banking agencies and the system more broadly, and that regulators should never employ chartering authority to compete for “market share.” He also cautioned about the potential rise of the “shadow banking system”—the shift of assets from regulated depository institutions to less-regulated, non-depository institutions—as bank regulators become more rigorous in pursuing enhanced safety and soundness and consumer protection at depository institutions. He specifically identified the transfer of mortgage servicing rights as an example of that shift of assets, which “could carry with it the seeds for the next financial crisis.” He called on state regulators to make nonbank supervision, including with regard to mortgage servicing, a top priority.
CSBS Publishes Annual Report
On May 1, the Conference of State Bank Supervisors (CSBS) published its 2013 annual report, which aggregates and reviews the organization’s activities in the prior year, identifies future goals for the organization, and outlines specific priorities for 2014. Those priorities include, among others, continuing to coordinate with federal regulators on cybersecurity and with the CFPB on complaint sharing. The report also includes more detailed reports on past and future activities by various CSBS divisions and boards, including a report from the Policy and Supervision Division that reviews the CSBS’s legislative and regulatory policy positions, and its bank supervision and consumer protection and non-bank supervision activities.
CFPB Report Recaps Fair Lending Activities
On April 30, the CFPB published its second annual report to Congress on its fair lending activities. According to the report, in 2013 federal regulators referred 24 ECOA-related matters to the DOJ—6 by the CFPB—as opposed to only 12 referrals in 2012. The report primarily recaps previously announced research, supervision, enforcement, and rulemaking activities related to fair lending issues, devoting much attention to mortgage and auto finance. However, the Bureau notes that it is conducting ongoing supervision and enforcement in other product markets, including credit card lending. The Bureau also identifies the most frequently cited technical Regulation B violations.
With regard to housing finance supervision and enforcement, the CFPB reports that while many lenders have strong compliance management systems and no violations, the CFPB’s ECOA baseline reviews have identified factors that indicate heightened fair lending risk at some institutions, including weak or nonexistent fair lending CMS, underwriting and pricing policies that consider prohibited bases in a manner that presents fair lending risk, and inaccurate HMDA data. The CFPB referred three mortgage-related cases to the DOJ. Two of those involved findings that a mortgage lender discriminated on the basis of marital status; the DOJ deferred to the Bureau’s handling of the merits of both. The third contained findings that a mortgage lender discriminated on the basis of race and national origin in the pricing of mortgage loans. That referral led to a joint DOJ-CFPB enforcement action.
In the area of auto finance, the report highlights the CFPB’s auto finance forum and March 2013 auto finance bulletin, and again defends the CFPB’s proxy methodology, which has been challenged by members of Congress and industry since the CFPB issued its auto finance bulletin. The CFPB states that it is currently investigating whether a number of indirect auto financial institutions unlawfully discriminated in the pricing of automobile loans, particularly in their use of discretionary dealer markup and compensation policies using a disparate impact analysis. During the reporting period, the Bureau made one referral to the DOJ, and subsequently took joint enforcement action with the DOJ against that indirect auto financial institution for alleged violations of ECOA.
The report indicates that the Bureau has expanded its focus beyond mortgage and auto finance, noting that the CFPB is conducting ECOA Baseline Reviews and ECOA Targeted Reviews of consumer financial services providers of other products, singling out credit cards as an example. The report adds that the CFPB also referred to DOJ three matters related to unsecured consumer lending, but that DOJ declined to act upon such referrals.
Federal Reserve OIG Criticizes CFPB's Supervision Program
On April 1, the Federal Reserve Board’s Office of Inspector General (OIG), which also is responsible for auditing the CFPB, issued a report that is critical of the CFPB’s supervisory activities and recommends that the CFPB take specific actions to strengthen its supervision program. The report shares concerns raised by entities having been through the examination process.
The report covers the CFPB’s supervisory activities from July 2011 through July 2013, including 82 completed examinations (excluding baseline reviews), which yielded 35 reports of examination and 47 supervisory letters. Of those 82 completed examinations, 63 were of depository institutions, and 19 were of nondepository institutions.
Among the findings, the OIG concludes that:
- The CFPB failed to meet reporting timelines. CFPB staff routinely failed to meet internal timeliness requirements for submitting draft examination products to headquarters. These failures resulted in a “significant number of examinations outstanding for longer than 90 days,” which the OIG believes creates unacceptable uncertainty for supervised institutions.
- The CFPB failed to consistently use standard compliance rating definitions. In two out of eight examinations sampled, CFPB staff edited standard ratings definitions to omit information and add qualifying language, including in one ECOA examination report altering the FFIEC’s definition for a 3 rating to state that no “overt” discriminatory acts or practices were identified. In that instance, examiners flagged as a potential fair lending violation the discretion accorded the institution’s customer service representatives to grant fee waivers. The CFPB required the institution to create policies and procedures that limit the discretion of customer service representatives to grant fee waivers, but the examination report did not indicate “whether the CFPB identified any discriminatory acts or practices, suggesting that the CFPB did not reach a definitive conclusion as to whether fee waivers had been granted on a discriminatory basis.” The OIG concluded that “inserting the word ‘overt’ creates the appearance that the CFPB deviated from the standard template language to qualify its rating of the supervised institution, calling into question the appropriateness of the assigned rating.” The report states that the CFPB has since reviewed examination ratings and determined that adjustments were not necessary.
- The CFPB failed to timely record examination milestones. The report states that the CFPB has not adopted a requirement for the timely recording of examination data. To assess timeliness, the OIG used seven days as a standard. The OIG found that at least 25% of examination milestones were not recorded within seven days, and that in eight instances, examination milestones were not recorded for more than 200 days after their occurrence. In addition, CFPB staff entered dates before the milestone occurred 109 times.
- The CFPB’s examination reporting policy is not current. The report states that the CFPB has not updated its examination reporting policy since the CFPB reorganized its supervision offices in December 2012. In addition, the policy does not reflect the CFPB’s current definition for the “completion of field work”, which is a key milestone because it initiates the reporting process. Notably, a senior CFPB official advised the OIG that the CFPB is still determining the most effective process for reviewing examination reports.
- The CFPB and prudential regulators can improve coordination. The report notes that the CFPB and prudential regulators do not formally share supervisory actions documented outside of an examination report, which excludes prudential regulators from commenting on other supervisory actions. The OIG notes that only 19% of closed examinations of depository institutions resulted in reports of examination, and that of the CFPB’s examinations of depository institutions that resulted in a matter requiring attention, only 30% were documented in reports of examination. The remaining 70% were documented in supervisory letters or baseline reviews and, therefore, were not formally shared with the prudential regulators. Further, for institutions subject to continuous monitoring, the CFPB states that it shares findings with the prudential regulator at the end of the examination cycle. The OIG observes, however, that as of July 2013, none of the continuous full-scope examinations had been finalized or shared with the prudential regulators. The OIG believes that the CFPB’s current approach increases the risk that regulators will not receive important supervisory information and increases the likelihood of duplication of efforts and other inefficiencies.
The OIG also found that (i) the CFPB did not consistently retain evidence of required communication with prudential regulators; (ii) the CFPB regions use different and inconsistent practices for scheduling examination staff and do not track examination staff hours; and (iii) the CFPB has not finalized its examiner commissioning program.
The report states that since the OIG completed its field work in October 2013, the CFPB has assured the OIG that it has taken steps to address certain of the findings, including streamlining the report review process and reducing the number of examination reports that have not been issued. The OIG plans to conduct follow-up activities to assess whether the CFPB’s subsequent actions address the OIG’s findings and recommendations.
UK FCA Finalizes New Consumer Credit Rules
On February 28, the UK Financial Conduct Authority (FCA) announced final rules for consumer credit providers, including new protections for consumers in credit transactions. The FCA states that the most drastic changes relate to payday lending and debt management. For example, with regard to “high-cost short-term credit,” the new rules will (i) limit to two the number of loan roll-overs; (ii) restrict to two the number of times a firm can seek repayment using a continuous payment authority; and (iii) require creditors to provide a risk warning. Among other things, the new rules also establish prudential standards and conduct protocols for debt management companies, peer-to-peer lending platforms, and debt advice companies. The policy statement also describes the FCA’s risk-based and proactive supervisory approach, which the FCA states will subject firms engaged in “higher risk business” that “pose a potentially greater risk to consumers” to an “intense and hands on supervisory experience” and will allow the FCA to levy "swift penalties” on violators. The new rules take effect April 1, 2014. The FCA plans next to propose a cap on the cost of high-cost, short-term credit.
CFPB Supplements Consumer Reporting Guidance, Holds Consumer Advisory Board Meeting, Issues Consumer Reporting Complaints Report
On February 27, the CFPB issued supplemental guidance related to consumer reporting and held a public meeting focused on consumer reporting issues. The CFPB also released a report on consumer reporting complaints it has received.
Supervisory Guidance
The CFPB issued a supervision bulletin (2014-01) that restates the general obligations under the Fair Credit Reporting Act for furnishers of information to credit reporting agencies and “warn[s] companies that provide information to credit reporting agencies not to avoid investigating consumer disputes.” It follows and supplements guidance issued last year detailing the CFPB’s expectations for furnishers.
The latest guidance is predicated on the CFPB’s concern that when a furnisher responds to a consumer’s dispute, it may, without conducting an investigation, simply direct the consumer reporting agency (CRA) to delete the item it has furnished. The guidance states that a furnisher should not assume that it ceases to be a furnisher with respect to an item that a consumer disputes simply because it directs the CRA to delete that item. In addition, the guidance explains that whether an investigation is reasonable depends on the circumstances, but states that furnishers should not assume that simply deleting an item will generally constitute a reasonable investigation.
The CFPB promises to continue to monitor furnishers’ compliance with FCRA regarding consumer disputes of information they have furnished to CRAs. Furnishers should take immediate steps to ensure they are fulfilling their obligations under the law.
Consumer Advisory Board Meeting
The public session of this week’s two-day Consumer Advisory Board (CAB) Meeting featured remarks from Director Cordray, and a discussion among CAB members, industry representatives, and consumer advocates on several major topics: (i) use of credit history in employment decisions; (ii) consumer access to credit information; and (iii) the credit dispute process.
Mr. Cordray focused on steps the CFPB has taken related to the credit reporting market, including: (i) launching a complaint portal through which consumers have submitted 31,000 consumer reporting complaints, nearly 75% of which have related to the accuracy and completeness of credit reports; (ii) beginning to supervise large credit reporting companies and many large furnishers; (iii) identifying process changes, including upgrades to the e-Oscar consumer dispute system to allow consumers to file disputes online and to provide furnishers direct access to dispute materials; and (iv) issuing guidance to furnishers on resolving consumer disputes.
Mr. Cordray also expressed support for a “major initiative” in the credit card industry to make credit scoring information more easily and regularly available to card holders. Mr. Cordray stated that he sent letters to the CEOs of the major card companies “strongly encouraging them to consider making credit scores and educational content freely available to their customers on a regular basis.” He added that he sees “no reason why this approach should not be replicated with customers across other product lines as well.”
In his CAB remarks, Mr. Cordray also identified some persistent concerns that resulted in the additional furnisher guidance issued today, discussed above. He stated that “[s]ome furnishers are taking short-cuts to avoid undertaking appropriate investigations of consumer disputes. For example, a consumer may find an error on the credit report and file a dispute about an incorrect debt or a credit card that was never opened. In response, the furnisher may simply delete that account from the information it passes along to the credit reporting company.” He stated that such practices deprive consumers of important protections.
During the discussion session, consumer advocates complained that credit reports provided to consumers are not the same as the reports provided to creditors. They claimed that consumers receive “sterilized” versions and do not, for example, get to see if their file is mixed with some else’s file. They also complained that the reports do not provide credit scores.
With regard to the CFPB’s support for creditors disclosing credit scores on a regular basis, several participants, including a representative for CRAs, stated that creditors should be free to provide the credit score of their choice, and not only FICO. Mr. Cordray and the CFPB’s Corey Stone responded that the CFPB is encouraging voluntary participation in score disclosure programs, but stated the Bureau does not believe that any one score needs to be disclosed. Instead, Mr. Stone explained that creditors should provide the score that is most relevant and useful for its customers. Mr. Cordray stressed the importance of providing educational information with the score, regardless of what score is provided.
The consumer advocates also were sharply critical of the CRAs and certain creditors’ dispute resolution processes. One participant raised specific concerns about the lack of human interaction in online dispute processes and the sale of certain add-on products offered during the dispute process.
The industry’s representative defended recent enhancements to the dispute process and highlighted the efficiency benefits of online disputes, including quicker resolution. He added that many furnishers prefer to hear directly from their customers, and that the real issue is how creditors respond.
Report on Consumer Reporting Complaints
The “credit reporting complaint snapshot” states that of the nearly 300,000 complaints the CFPB has received on a range of consumer financial products and services, approximately 31,000 or 11 percent have been about credit reporting. The CFPB accepts consumer credit reporting complaints in five categories: (i) incorrect credit report information; (ii) credit reporting company’s investigation; (iii) improper use of a credit report; (iv) inability to obtain credit report or score; and (v) credit monitoring or identity protection services. The CFPB reports that the most common complaints related to incorrect information on a credit report, while very few complaints related to identity protection or credit monitoring services. The report reviews the complaint handling process, and indicates that companies have resolved approximately 91 percent of the complaints submitted to them.
House Financial Services Committee Ranking Member Seeks Scrutiny Of Servicing Rights Transfers
On February 19, House Financial Services Committee Ranking Member Maxine Waters (D-CA) sent a letter asking Comptroller of the Currency Thomas Curry and National Mortgage Settlement Monitor Joseph Smith to “carefully scrutinize the sale of mortgage servicing rights from banks to nonbanks” to ensure nonbank servicers have the capacity to handle increased loan volume and that borrowers are not harmed. Representative Waters explained that consumer advocates are concerned that when a bank subject to the National Mortgage Settlement transfers MSRs to a nonbank not subject to the National Mortgage Settlement, the transferred loans are not afforded the same protections as they would be under that agreement. Ms. Waters is concerned that the CFPB rules that would apply to such transferred loans offer fewer protections than those in the National Mortgage Settlement. She also requested that the Comptroller and/or the Monitor examine the extent to which servicing transfers are potentially being used to “evade the modification of loans for borrowers who would benefit most from the terms of the Settlement.” Ms. Waters joins other policymakers, including the CFPB’s Deputy Director and New York’s banking regulator, who recently raised concerns about the impact on borrowers from the transfer of mortgage servicing rights.
CFPB Deputy Director Promises Vigilant Supervision, Enforcement Of Mortgage Servicing Rules
On February 19, CFPB Deputy Director Steve Antonakes spoke at the Mortgage Bankers Association’s annual servicing conference and detailed the CFPB’s expectations for servicers as they implement the new servicing rules that took effect last month.
Mr. Antonakes’s remarks about the CFPB’s plans to supervise and enforce compliance with the new rules are the most assertive to date. Until now, the CFPB’s public position has been that “in the early months” after the rules took effect, the CFPB would not look for strict compliance, but rather would assess whether institutions have made “good faith efforts” to come into “substantial compliance.”
Mr. Antonakes clarified this position, stating that “[s]ervicers have had more than a year now to work on implementation” of “basic practices of customer service that should have been implemented long ago” and that “[a] good faith effort . . . does not mean servicers have the freedom to harm consumers.” He went on to state that “[m]ortgage servicing rule compliance is a significant priority for the Bureau. Accordingly, we will be vigilant about overseeing and enforcing these rules.”
Default Servicing and Foreclosures
Specifically, the CFPB expects that, “in these very early days,” servicers will (i) identify and correct “technical issues”; (ii) “conduct outreach to ensure that all consumers in default know their options”; and (iii) “assess loss mitigation applications with care, so that consumers who qualify under [a servicer’s] own standards get the loss mitigation that saves them – and the investor – from foreclosure.” Mr. Antonakes acknowledged that “foreclosures are an important part of the business, but they shouldn’t happen unless they’re necessary and they must be done according to relevant law. We expect the new rules to go a long way to reduce consumer harm for all consumers with mortgages, especially as these rules work in concert with the existing prohibition against unfair, deceptive, and abusive practices.”
Servicing Transfers
Mr. Antonakes specifically detailed expectations concerning mortgage servicing rights transfers. He stated that the CFPB expects servicers to “pay exceptionally close attention to servicing transfers and understand [that the CFPB] will as well. . . . Our rules mandate policies and procedures to transfer ‘all information and documents’ in order to ensure that the new servicer has accurate information about the consumer’s account. We’re going to hold you to that. Servicing transfers where the new servicers are not honoring existing permanent or trial loan modifications will not be tolerated. Struggling borrowers being told to pay incorrect higher amounts because of the failure to honor an in-process loan modification – and then being punished with foreclosure for their inability to pay the incorrect amounts – will not be tolerated. There will be no more shell games where the first servicer says the transfer ended all of its responsibility to consumers and the second servicer says it got a data dump missing critical documents.”
CFPB Publicly Announces Changes to Exam Reports, Identifies Mortgage Servicing Exam Findings
On January 30, the CFPB issued a new Supervisory Highlights report. The report publicly announces changes to the CFPB’s examination reports and supervisory letters. Beginning in January 2014 the CFPB is changing the format of the Examination Reports and Supervisory Letters (collectively referred to as reports) that it sends to supervised entities after conducting compliance reviews. The changes to the report templates aim to: (i) facilitate drafting by examiners; (ii) simplify reports and reduce repetition; and (iii) facilitate follow-up reporting by supervised entities about actions they take to address compliance management weaknesses or legal violations found at CFPB reviews.
The primary template changes include:
- Elimination of Recommendations. Any recommendations for improving currently satisfactory processes will be provided orally when examiners are on-site.
- Elimination of the list of CFPB team members participating in a review. Reports will continue to be signed by the Examiner in Charge and provide regional management contact information.
- Creation of a single section in the report that includes all of the items that the CFPB expects the entity to address when the review identifies violations of law or weaknesses in compliance management. This entire section will be referred to as “Matters Requiring Attention,” regardless of whether the CFPB is requiring specific attention by an entity’s Board of Directors. The CFPB will no longer include additional “Required Corrective Actions.” The entity receiving the report will be expected to furnish periodic progress reports to the CFPB about all Matters Requiring Attention. The frequency of reporting will be tailored to the specific matters in a report.
The report also provides “supervisory observations,” which are limited to mortgage servicing. In a section on non-public supervisory actions the report states recent supervisory activities have resulted in at least $2.6 million in remediation to consumers, and that these non-public supervisory actions generally have been the product of CFPB examinations, either through examiner findings or self-reported violations during an exam.
CFPB Director Defends Mortgage Rules, Discusses Plans In Other Markets
On January 28, the House Financial Services Committee held a lengthy hearing with CFPB Director Richard Cordray in connection with the CFPB’s November 2013 Semi-Annual Report to Congress, which covers the period April 1, 2013 through September 30, 2013. The hearing came a day after the Committee launched a CFPB-like “Tell Your Story” feature through which it is seeking information from consumers and business owners about how the CFPB has impacted them or their customers. The Committee has provided an online submission form and also will take stories by telephone. Mr. Cordray’s prepared statement provided a general recap of the CFPB’s recent activities and focused on the mortgage rules and their implementation. It also specifically highlighted the CFPB’s concerns with the student loan servicing market.
The question and answer session centered on the implementation and impact of the CFPB’s mortgage rules, as well as the CFPB’s activities with regard to auto finance, HMDA, credit reporting, student lending, and other topics. Committee members also questioned Mr. Cordray on the CFPB’s collection and use of consumer data, particularly credit card account data, and the costs of the CFPB’s building construction/rehabilitation.
Mortgage Rule Implementation / Impact
Generally, Director Cordray pushed back against charges that the mortgage rules, in particular the ATR/QM rule, are inflexible and will limit credit availability. He urged members to wait for data before judging the impacts, and he suggested that much of the concerns being raised are “unreasoned and irrational,” resulting from smaller institutions that are unaware of the CFPB’s adjustments to the QM rule. He stated that he has personally called many small banks and has learned they are just not aware of the rule’s flexibility. He repeatedly stated that the rules can be amended, and that the CFPB will be closely monitoring market data.
The impact of the mortgage rules on the availability of credit for manufactured homes was a major topic throughout the hearing, On the substance of the issue, which was raised by Reps. Pearce (R-NM), Fincher (R-TN), Clay (D-MO), Sewell (D-AL), and others, Director Cordray explained that in his understanding, the concerns from the manufactured housing industry began with earlier changes in the HOEPA rule that resulted in a retreat from manufacture home lending. He stated that industry overreacted and now lenders are coming back into the market. Mr. Cordray has met personally with many lenders on this issue and will continue to do so while monitoring the market for actual impacts, as opposed to the “doomsday scenarios that are easy to speculate on in a room like this.” Still, he committed to work on this issue with manufacturers and lenders, as well as committee members.
Several committee members, including Reps. Sherman (D-CA), and Huizenga (R-MI) raised the issue of the requirement that title insurance from affiliated companies must be counted in the QM three percent cap. Mr. Cordray repeated that the CFPB believes Congress made a determination to include affiliate title protections in numerous places in the Dodd-Frank Act. That said, the CFPB is looking at the data on the impacts and meeting with stakeholders. Rep. Huizenga was most forceful, stating that while the CFPB has sought to limit the impact of the three percent cap, it is not enough. He raised again his bill, HR 1077, Rep. Meeks’ HR 3211, and ongoing work with Senators Vitter (R-LA) and Manchin (D-WV). He cited a survey conducted by the Real Estate Settlement Providers Council that found the inclusion of title charges causes 60 percent of loans under $60,000 to fail as qualified mortgages, and such loans actually become high-cost HOEPA loans. The survey also found that 45 percent of affiliated loans between $60,000 and $125,000 failed to qualify as qualified mortgages, and that 97 percent of the loans that failed as QMs were under $200,000 simply due to the inclusion of title insurance. Director Cordray did not have time to respond in full, but indicated the CFPB is waiting to see data on the actual impact.
Rep. Capito focused on the QM rule impact on Habitat for Humanity and other 501(c)(3) entities. Director Cordray stated that he spoke with the Habitat CEO prior to the hearing and believes the CFPB can address all of that organization’s concerns through rule amendments. He added that the CFPB already amended the rule to address Habitat’s first set of concerns, and that its latest concerns are new.
HMDA Rule Amendments & Small Business Fair Lending Rule
As she has done several times in the past, Rep. Velazquez (D-NY) raised the status of rulemaking required by Dodd-Frank Act section 1071 regarding small and minority/women-owned business lending. As he has in the past, Director Cordray explained that the CFPB is having difficulty addressing this rule given it is the only area in which the CFPB is required to address business lending. He added that the CFPB has determined that as it moves forward with the rule to amend HMDA data collection, which is underway now, the Bureau will attempt to fold the small business lending element into that process. He stated that the CFPB is working with the Federal Reserve Board on “overhauling that whole [HMDA] database” and “it feels to me that the right spot for this, and we've talked to a number of folks both from industry and consumer side on this, is to make [the small business lending requirements] part of the later stages of that, so it's coming, but not immediate.”
Auto Finance
Rep. Bachus (R-AL) asked Director Cordray to specify appropriate dealer compensation alternatives. Mr. Cordray responded that the CFPB does not know all the mechanisms yet that would be satisfactory. It is “open to auto lenders and others bringing those to [the CFPB’s] attention, but [the CFPB] did say flat fees are one possibility. A flat percentage of the loan might be a possibility. Some combination of that with different durations of the loan, different levels, and potentially other things that [the CFPB has not] thought of but others in the industry may think of and bring to [its] attention. So [the CFPB is] open-minded on that.”
Reps. Scott (D-GA) and Barr (R-KY) also were critical of the CFPB’s auto finance guidance and suggested the CFPB should have met with industry stakeholders in advance or should have conducted a rulemaking. Mr. Scott asserted that auto credit is tighter and more expensive now. Mr. Cordray defended the guidance, as he has in the past, as a restatement of existing law. He does not believe the guidance has impacted or will impact the health of the auto market.
Rep. Beatty (D-OH) raised a recent proposal from the National Association of Auto Dealers on alternative dealer compensation models. Mr. Cordray acknowledged having seen it, and said that as long as all parties agree that the CFPB is respecting its jurisdictional lines in the auto context, the Bureau is willing to sit down with dealers and others to work on a “broader solution.”
Credit Reporting
Rep. Velazquez (D-NY) asked for an update on the CFPB’s efforts to regulate consumer credit reporting agencies. Director Cordray described the CFPB’s efforts to, for the first time, provide federal supervision of the major credit reporting agencies. He stated that those agencies are not used to such supervision and that, in his view, it has been an adjustment for them. The CFPB has had examination teams into each of the three largest credit reporting agencies and is discussing “various issues” with them and areas of concern. He informed the committee that as a result of the CFPB’s efforts the credit reporting agencies, for the first time, are forwarding the documentation that consumers send them about problems and potential errors in their credit reports to the furnishers to be evaluated. The CFPB still is concerned about errors and error resolution.
Prepaid & Overdraft
In response to an inquiry from Rep. Maloney (D-NY), Mr. Cordray stated that the CFPB is continuing to work on the prepaid card proposed rule to address “a hole in the fabric” of consumer protection. He said the rule likely will address disclosures and add new protections. On overdraft, he acknowledged the CFPB is not as far along—the agency is still studying the market.
Payday & Internet Lending
Rep. Luetkemeyer (R-MO) stated the FDIC and DOJ have admitted to working to shut down online lending. He confirmed that the Oversight Committee is considering investigating DOJ on Operation Choke Point (its payment processor investigations). He asked Director Cordray to support, perhaps with a letter of some sort, legitimate online lending businesses and processors. Mr. Cordray agreed that there is plenty of appropriate online lending, but declined to offer specific help absent further context.
Rep. Murphy (D-FL) later suggested that the CFPB look at the “good regulation and great enforcement” in Florida. Director Cordray responded that the CFPB is looking at “a number of states that have developed different provisions on short-term, small-dollar payday lending” including Florida, Colorado, and Washington.
Rep. Heck (D-WA) inquired as to the status of proposed Military Lending Act regulations. Director Cordray explained that the CFPB has been “actively engaged” on writing new rules with the Department of Defense, the Federal Reserve, the FDIC, the OCC, Treasury Department, and the FTC. It stated that it has been difficult to get multiple agencies to work together, and asked Congress to “keep our feet to the fire and make it clear that you want to see that quickly.”
Mobile Payments & Emerging Products/Providers
Rep. Ellison (D-MN) asked about the CFPB’s views on emerging financial service providers, citing recent reports about T-Mobile’s efforts. Mr. Cordray stated that the CFPB is watching very closely and trying to keep up with the rapidly changing products and markets. He stated that it will present challenges to the current regulatory structure, particularly when phone companies are involved, and that the CFPB will need to coordinate with other regulators and probably will need legislation from Congress. Rep. Heck asked the CFPB to conduct a front-end in-depth analysis of consumer protection issues across various emerging mobile payments platforms. Mr. Cordray did not commit.
Student Lending
Rep. Peters (D-MI) raised his FAIR Student Credit Act bill, HR 2561. The bill, which is co-sponsored by Reps. Bachus (R-AL), Capito (R-WV), and seven other Republicans and 11 Democrats, would amend FCRA with respect to the responsibilities of furnishers of information to consumer reporting agencies. It would provide for the removal of a previously reported default regarding a qualified education loan from a consumer report if the consumer of the loan meets the requirements of a loan rehabilitation program, where the number of consecutive on-time monthly payments are equal to the number of payments specified in a default reduction program under the Higher Education Act of 1965. The bill would limit such rehabilitation benefits to once per loan. Rep. Peters indicated the Committee will consider the legislation, and that he has met with lenders who stated they could start offering rehabilitation immediately after the bill is enacted. Director Cordray stated that without having read the bill, it sounded promising, and that he would ask Rohit Chopra to work with the Congressman.