CFPB Student Loan Ombudsman Issues Warning on Debt

On November 18^th, CFPB Student Loan Ombudsman Rohit Chopra spoke at the Federal Reserve Bank of St. Louis about rising student loan debt.¹  He warned that “[r]ising student debt burdens may prove to be one of the more painful aftershocks of the Great Recession, especially if left unaddressed.” He stated that the problems created by these burdens “may require very significant attention from financial regulators and the financial services industry.” According to statistics reported by the CFPB, there is approximately $1.2 trillion in student loan debt outstanding, a number that has doubled since 2007.

CFPB Issues Report on Financial Education

On November 18^th, the CFPB issued a report studying the amount of money spent educating consumers about financial products in comparison to the amount spent marketing financial products. ² The report covers a one-year period of spending on financial education in the United States. The report found that for every dollar spent on financial education, $25 is spent on financial marketing. The CFPB reasoned that this can make it difficult for consumers to find objective information. The CFPB highlighted its efforts at improving financial education, citing its “Ask CFPB” online database and “Paying for College” tool.

CFPB’s Petraeus Testifies on Lending to Military Servicemembers

On November 20^th, Holly Petraeus, Assistant Director in the CFPB’s Office of Servicemember Affairs, testified at a hearing before the Senate Committee on Commerce, Science & Transportation.³   Petraeus discussed lending issues affecting servicemembers, and specifically the Military Lending Act (MLA). The MLA, enacted in 2006, provides servicemembers with various protections, such as an express interest rate cap, in certain consumer credit transactions. The Department of Defense, responsible for issuing implementing regulations, defined the term “consumer credit transaction” narrowly. Petraeus voiced concerns that this has enabled lenders to evade the MLA’s requirements. She stated: “The original rule was effective for those products that it covered, but over the past six years we have seen significant changes in the type of products offered and the contours of state law, and I think it’s critically important to ensure that the MLA protections keep up. I believe that any approach that has strict definitions that define individual products will fall victim to the same evasive tactics that are plaguing the current rule. And I know this is a shared concern with the [Department of Defense].”

OCC and FDIC Issue Guidance Regarding Deposit Advance Products

On November 21^st, the Office of the Comptroller of Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) separately issued guidance on deposit advance loans.⁴ The guidance establishes numerous expectations for institutions that offer such products. It covers matters such as consumer eligibility, capital adequacy, fees, compliance, management oversight, and third-party relationships. Under the guidance, the OCC and FDIC expect regulated institutions to only offer the products to customer who (i) have at least a six month relationship with the bank; (ii) do not have any delinquent or adversely classified credits; and (iii) meet specific ability-to-repay standards. Among other restrictions, the guidance also provides that each loan should be repaid in full before the extension of a subsequent loan. It also provides for a “cooling-off period” before advancing another loan.

The OCC and FDIC’s final guidance is substantially the same as the proposed guidance issued by the agencies in April. One clarification is that the eligibility and underwriting expectations do not require the use of credit reports. The Federal Reserve Board did not issue guidance, but instead made a policy statement.

Despite these restrictions, the FDIC still encouraged institutions to continue to offer the “properly structured products,” acknowledging that demand for these types of products exists.

CFPB Director Cordray Speaks at Clearing House Conference

On November 21^st, CFPB Director Richard Cordray spoke at the Clearing House Annual Conference.⁵  He addressed CFPB concerns about consumers “who find unexpected debits on their bank statements, or are victimized by third parties who may take inappropriate advantage of the efficiency and trust on which [electronic payment] systems are built.” This statement follows recent action by other regulators to curb access to the ACH network by payday lenders and other businesses that the CFPB considers a threat to consumers. In his remarks, Cordray referenced NACHA’s recent proposed rule changes, which are aimed at improving ACH network functioning.⁶

On Party Line Vote, House Financial Services Committee Passes Six Bills Aimed at Restructuring the CFPB

On November 21^st, the House Financial Services Committee passed six bills aimed at bringing oversight, accountability and transparency to the CFPB. Committee Chairman Jeb Hensarling (R-TX) called the bills “common-sense bills that bring a modicum of accountability and transparency to the CFPB.” He continued: “We know that this is an agency that was designed to be unique, if not perhaps rogue; it is an agency like no other. Arguably it is the single most powerful and least accountable Federal agency in the history of our nation.”

All six bills were approved by the Committee on a straight partisan line, with Republicans voting in favor and Democrats against. Congresswoman Maxine Waters (D-CA), Ranking Member of the Committee, strongly criticized the measures as efforts to weaken the CFPB’s ability to be an effective, independent advocate for consumers. Waters said the “legislative proposals purportedly designed to ‘reform’ the Consumer Financial Protection Bureau. But behind this smoke screen, we all know the true purpose of this hearing is to give my Republican colleagues another chance to push for legislation to dismantle an effective and important agency by undermining its leadership, autonomy, and funding.”

• H.R. 2446, the Responsible Consumer Financial Protection Regulations Act of 2013 – Replaces the CFPB’s singular director with a bipartisan, five-member commission appointed by the president.

• H.R. 3519, the Bureau of Consumer Financial Protection Accountability and Transparency Act – Subjects the CFPB to regular Congressional oversight through the appropriations process.

• H.R. 2385, the CFPB Pay Fairness Act of 2013 – Places CFPB employees on the General Services salary scale to achieve pay parity with comparable federal regulatory agencies. Currently CFPB salaries are set and adjusted by the CFPB Director.

• H.R. 3193, the Consumer Financial Protection Safety and Soundness Act of 2013 – Requires CFPB to consider the safety and soundness of financial institutions in its rulemaking.

• H.R. 2571, the Consumer Right to Financial Privacy Act of 2013 – Prohibits CFPB from collecting personal financial information about consumers without their knowledge or consent.

• H.R. 3183 – Provides consumers with a free annual disclosure of information the CFPB maintains on them.

CFPB Issues Report on Impact of Regulations at Financial Institutions

On November 22^nd, the CFPB issued a report studying the impact of its regulations on financial institutions.⁷  The study was limited in scope, looking at ongoing operational activities at seven banks, ranging in asset size from under $1 billion to more than $100 billion. It analyzed these banks’ ongoing operational cost of complying with certain regulations applicable to retail checking accounts, savings accounts, debit cards and overdraft services. The rules examined in the study were Regulations DD (implementing the Truth in Savings Act), E (Electronic Fund Transfer Act), P (Gramm-Leach-Bliley Act financial privacy requirements) and V (Fair Credit Reporting Act).

In conducting the study, the CFPB interviewed approximately 200 employees and executives at the seven participating banks. The interviews focused on identifying all of the banks’ operational activities and processes to comply with the regulations in question. According to the report, the study showed that implementation activities among the institutions were most concentrated in operations and IT business functions. Human resources, compliance, and retail were also impacted more than other operational functions.

_{¹  See Chopra’s remarks here.}     

_{²  See the report here. See Cordray’s remarks here.}    

_{³   See Petraeus’ testimony here.}    

_{⁴    See the OCC’s guidance here. See the FDIC’s guidance here.}    

_{⁵    See Cordray’s remarks here.}     

_{⁶    See NACHA’s proposed rule here.}     

_{⁷  See the report here.}