Senators Request Justification for the CFPB’s Indirect Auto Lending Bulletin

On October 30^th, a bipartisan group of 22 Senators sent a letter to the CFPB¹  challenging the basis for the Bureau’s Bulletin 2013-02 entitled “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act.”²   The letter notes that Bulletin 2013-02 is “widely interpreted as pressuring lenders to eliminate or severely limit an auto dealer’s discretion to negotiate competitive financing for their customers” as a means of preventing ECOA violations, and instead “encourage[s] lenders to compensate auto dealers through ‘a different mechanism … such as a flat fee per transaction.’” Although the Senators assert their support for “eliminat[ing] any unlawful lending practice,” they question the disparate impact analysis that formed the basis of the bulletin’s conclusion that discrimination exists in the indirect financing market. The letter requests that the Bureau “explain its basis for this assertion” and “provide complete details concerning the statistical methodology it employs for determining whether disparate impact is present in an auto lender’s portfolio.” The letter also asks whether, prior to issuing Bulletin 2013-02, the Bureau considered the extent to which its guidance to adopt a flat fee compensation system for dealers would “affect the cost of credit for consumers, including those at the lower end of the credit spectrum.”

Notably, the letter demands that the Bureau explain a practice that has become its modus operandi as of late – its practice of discouraging industry conduct through the issuance of informal compliance bulletins rather than through the formal rulemaking process.

The House of Representatives issued a letter to the CFPB in August which requested similar information. The Senators’ letter notes that the Bureau did not respond fully to the House’s requests.

Cordray Speaks to Mortgage Bankers Association to Tout and Defend the Qualified Mortgage Rule

On October 28^th, CFPB Director Richard Cordray spoke at the Mortgage Bankers Association Annual Convention in Washington, D.C.³  Cordray’s speech touted the CFPB’s “open, inclusive, [and] transparent decision making” in crafting its Qualified Mortgage or Ability-to-Repay rule.

He sought to assuage anxiety about the impact of the rule on the mortgage industry. He noted that “the vast majority of loans made in today’s market” already meet the requirements for Qualified Mortgages. Furthermore, Cordray remarked that even loans that would not constitute Qualified Mortgages can still be “good” to the extent that they are “based on sound underwriting standards and routinely perform well over time.” As a result, he said, lenders making loans outside of the Qualified Mortgage safe harbor “that have long upheld such standards have little to fear from the Ability-to-Repay rule.” According to Cordray, “they should continue to offer the same kinds of mortgages to borrowers whom they evaluate as posing reasonable credit risk.”

Cordray also defended the Qualified Mortgage rule against critics who question its effectiveness and whether it is ripe for implementation. He dismissed a critique that the rule would not grant effective legal protections for lenders, noting that the rule, as drafted, would provide legal safe harbors for more than 95 percent of mortgage loans made in the current market. Furthermore, he noted that it draws the contours of such protection with “bright lines” to minimize opportunities for legal challenges that could erode the applicability of the rule over time.

Cordray also dismissed industry calls for more time to implement the rule, saying that the Bureau is working diligently to help industry understand and prepare for the rule. The fact that questions and concerns may still exist leading up to the effective date of the rule does not justify delaying the rule, Cordray said. Instead, Cordray asserted that the Bureau plans to continue to work closely with  industry after the rule becomes effective to iron out remaining wrinkles. Furthermore, Cordray noted that the Bureau’s “oversight of the new mortgage rules in the early months will be sensitive to the progress made by those lenders and servicers who have been squarely focused on making good-faith efforts to come into substantial compliance on time – a point that we have also been discussing with our fellow regulators.”

CFPB Releases Guide for “Managing Someone Else’s Money”

On October 29^th, the CFPB’s Office of Older Americans published a series of four guidance booklets to help financial caregivers understand how to fulfill their responsibilities, how to avoid scams and financial exploitation, and where to go for help.⁴

Each of the four booklets is tailored to persons acting in one of four different fiduciary capacities. The first applies to persons who have been granted powers of attorney to manage the finances and property of others. The second applies to persons appointed by courts to be guardians or conservators of property. The third is for persons named as trustees under revocable living trusts to manage money and property placed in such trusts. And the fourth is for those who have been appointed by government agencies to manage the use of government benefit payments, such as Social Security and Veterans Affairs checks, on behalf of the payees.

All of the booklets advise fiduciaries to fulfill four basic duties:

• Act in the person’s best interest;

• Manage money and property carefully;

• Keep money and property separate from the fiduciary’s own money and property; and

• Keep good records.

_{1 See the Senators’ Letter here.}    

_{2 See CFPB Bulletin 2013-02 here.}     

_{3 See Director Cordray’s prepared remarks here.}     

_{4 The booklets are available here.}