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July 31, 2014

The Consumer Financial Protection Bureau, Week in Review: March 11 – March 15, 2013

The CFPB’s Funding Under Question

Rep. Jeb Hensarling (R-TX), Chairman of the U.S. House of Representatives Financial Services Committee, released a letter in which he calls into question “circumstances under which funds were transferred from the Federal Reserve to the CFPB” in light of the recent U.S. Supreme Court decision Noel Canning. The letter, dated March 8, 2013, asks Ben Bernanke, Chairman of the Federal Reserve Board of Governors, for “clarification… regarding the transfer of funds to the Bureau of Consumer Financial Protection (CFPB)1  following the recent court decision “invalidating certain presidential recess appointments”.2  Anticipating that a similar federal court ruling will soon invalidate Director Cordray’s appointment, Chairman Hensarling noted that Dodd-Frank “authorizes the Board to transfer funds to carry out the authorities of the CFPB only at the request of its director.” Chairman Hensarling explained, “[B]ecause it appears there is not presently a validly-appointed director of the CFPB, I question the circumstances under which the Board may lawfully fund the CFPB’s operations.”

Acting Deputy Director Discusses Priorities

Steve Antonakes, the Acting Deputy Director of the CFPB, spoke at the Consumer Banking Association’s meeting in Phoenix, providing key insight on issues of supervision and jurisdiction, compliance management systems and the latest mortgage and mortgage servicer rules.3

Beginning with an acknowledgment that the CFPB’s jurisdiction is substantially broader than that of traditional prudential regulators, Antonakes surmised that the Bureau’s reach to nonbank entities will likely number in the thousands. Along that line, he explained that a specific charge of the Bureau is to “level the playing field” between bank and nonbank entities relative to compliance. Consequently, making an entity’s charter or license type less relevant to its pecking order on the CFPB’s exam schedule.

Antonakes went on to tie an entity’s compliance management system’s strength to its financial and consumer compliance performance. He added that “[N]o business built on deceiving its customer base will be sustainable.”

Shifting focus to the mortgage rules under Title XIV of Dodd-Frank, Antonakes addressed the “access to credit” problem that many consumers with strong credit are currently experiencing. Antonakes expects that the ability-to-repay rule will strike a proper balance and allow lenders to make reasonable and good faith determinations of a consumer’s ability to timely pay their mortgage loan. Antonakes also addressed the mortgage servicing rules and identified two primary purposes: 1) to prevent borrowers from being taken “by surprises or getting the runaround,” and 2) to provide “special protections for borrowers who are having problems with making their mortgage payments.” And if it was not clear already, Antonakes emphasized the fact that these rules are backed by the Bureau’s full supervisory and enforcement authority.

Noel Canning on appeal

The President’s administration stated that it will seek an appeal of the D.C. Circuit Court’s decision in Noel Canning v. NLRB.4  The decision, in a nutshell, invalidated the President’s recess appointments of three members to the National Labor Relations Board made on January 4, 2012, the same date as Director Cordray’s appointment. If the U.S. Supreme Court agrees to hear the case (which it is expected that it will) it will not occur until its next regularly scheduled session which begins on October 7, 2013.
 

Notice to Small Creditors in Rural or Underserved Counties

Paul Mondor, blogging for the CFPB, wrote that the Escrow Act rule goes into effect on June 1, 2013. This rule requires that certain creditors to create escrow accounts for a minimum of five years for higher-priced mortgage loans (HPMLs), except for exempted HPMLs made by certain smaller creditors.5  The blog noted that the Bureau planned to publish the official list of rural or underserved counties for 2013 upon finalizing the Escrow rule. A preliminary list is now available via a link provided in the blog.

Director Cordray’s Nomination

The Senate Banking Committee held a hearing on the nomination of Richard Cordray to be the Director of the CFPB. Republicans have threatened to filibuster the nomination of a director until the agency is restructured to enable more oversight. Under the Dodd-Frank Act, CFPB is headed by a single Director and funded directly by the Federal Reserve. Republicans propose that CFPB be led by a multi-member commission subject to Senate confirmation and that it be funded by Congressional Appropriations.

During the hearing Sen. Mike Crapo (R-ID), the Ranking Member on the Banking Committee, stated that "the Federal Reserve has no ability to influence their decision making, no oversight capacity, nothing. The sole function of the Federal Reserve is to write a check.” He added that the CFPB needs to be “subject some kind of accountability or oversight – but in this case there is none.” Sen. Elizabeth Warren (D-MA), defended the CFPB's high level of autonomy saying, “[E]very banking regulator since the Civil War has been funded outside the appropriations process… no one in the United States Senate has held up confirmation of their directors…”

March 13, 2013

Director Cordray at the Independent Community Bankers of America meeting

Speaking to a room of community bankers, Director Cordray emphasized his appreciation for community banks, noting that he joined the CFPB with a “strong viewpoint that community banks were not among the causes of the recent financial crisis.”6  Director Cordray then focused on what the CFPB has been doing to fix the consumer financial market. In particular, Director Cordray focused on the ability-to-repay rule, servicing rules and their exemptions for smaller institutions like community banks.

In closing, Director Cordray commented that the CFPB sees the world the same way the community banks do, that is, “consumers who understand their options, weigh choices appropriately, and make sound decisions are good for responsible businesses and for the economy as a whole.” 

March 14, 2013

Nonbank Student Loan Servicers Under the CFPB Spotlight

Adding to the list of “larger participants,”7  Director Cordray announced a proposed rule that would affect any nonbank student loan servicer that handled more than one million borrower accounts. The proposed rule would give the CFPB “visibility” for the first time into the “complete cycle of student loan debt.” Under the rule proposal, the CFPB will have supervisory authority over these larger nonbank student loan servicers, which would include the seven largest student loan servicers in the country.

It is significant that the student loans covered by the proposed rule would include both student loans under federal student lending programs as well as private student loans.

Given that much of the recent attention by the Bureau towards student lending, this move is not surprising to many. For the first time, nonbank student loan servicers will be federally supervised. Citing its recent report on private student loan complaints, the CFPB highlighted recent concerns reported, perhaps providing a window into the impetus for the rule proposal.8 The three concerns that were identified in the CFPB’s press release included:

  • Confusion concerning the amount owed, unexpected fees, conflicting instructions and confusion around the terms and conditions of the loan;
  • Dead ends related to the inability to reach knowledgeable staff; and
  • Runarounds related to lost paperwork, errors and payments not being processed on a timely basis.

According to the press release, “supervision will allow the CFPB to evaluate the extent and scope of these issues by directly examining the larger student loan servicers.” The comment period on this rule proposal is open for 60 days.


 1  See Section 1017 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, PUB. L. NO. 111-203 (“Dodd-Frank”) (providing for transfers from the Board to the CFPB).
2  See Representative Hensarling’s March 8, 2013 letter to The Honorable Ben Bernanke at http://financialservices.house.gov/uploadedfiles/ltr_re_cfpb_funding_requests.pdf.
3  http://www.consumerfinance.gov/speeches/remarks-of-cfpb-deputy-director-steve-antonakes/ 
4  See President to Appeal Ruling on Recess, The Wall Street Journal, by Trottman, M., dated March 12, 2013.  
5  See Blog, Exemption from escrow requirement for small creditors in rural or underserved counties,” by Mondor, P., dated March 12, 2013, http://www.consumerfinance.gov/blog/  
6  See http://www.consumerfinance.gov/speeches/prepared-remarks-of-richard-cordray-before-independent-communitybankers-of-america/ 
7  See Section 1024 of the Dodd-Frank and Consumer Protection Act of 2010 (the “Act”). 
8  See http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-proposes-rule-to-overseenonbank-student-loan-servicers/

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About this Author

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Gil Rudolph is co-chair of the National Financial Institutions Practice. His practice focuses on the representation of  finance companies, mortgage lenders and servicers, banks, title insurance companies and other consumer financial service providers in regulatory and litigation matters. Gil also represents various alternative financial service providers including payday lenders, check cashers, pawn and auto title lenders. Gil additionally represents various participants in the credit, debit, and stored value card issuance and processing industries.

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Scott Sheehan is a business lawyer with a national practice in banking and financial institutions, and consumer and commercial financial services.  He is known for his issue advocacy and development of legal strategies for the banking and consumer finance sector, and co-authors the Texas Usury Law Handbook by West Publishing. He focuses his practice on legal and public policy issues and innovative solutions,  including new product development, legal compliance, litigation, and issue advocacy in judicial, legislative, administrative, and arbitration proceedings.  Scott...

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