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On May 16, the House Committee on Oversight and Reform’s Subcommittee on Economic and Consumer Policy held a hearing to examine the CFPB’s proposal to repeal parts of its “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (the Rule). (See previous InfoBytes coverage on the proposed repeal here.) Thomas Pahl, Policy Associate Director of the Research, Markets and Regulations Division at the Bureau, testified on the Bureau’s rulemaking and its position on the Rule. Committee Chairman Raja Krishnamoorthi (D-IL) opened the hearing by discussing the Bureau’s five years of research on the payday loan industry, which resulted in the issuance of the Rule in 2017. Krishnamoorthi claimed that Americans overwhelmingly support the requirement that lenders must determine a borrower’s ability to repay before making payday, title, and other high-cost installment loans, and provided an example of a consumer’s experience in this industry.
In his opening remarks, Pahl stressed that a complete picture of the Bureau’s activities concerning payday lenders requires understanding the use of the CFPB’s range of tools provided under the Dodd-Frank Act, such as its (i) consumer financial education initiatives; (ii) supervision of payday lenders to ensure compliance with federal statutes and regulations; and (iii) enforcement actions that target bad actors. Pahl emphasized that enforcement remains a key part of the Bureau’s consumer protection efforts, and highlighted five consent orders as well as two final judgments obtained against payday lenders. According to Pahl, the “payday loan cases are a testament to the agency’s commitment to use its enforcement tool to take decisive action against wrongdoers and send a clear message to the marketplace that should deter unlawful behavior and support a level playing field.” Pahl next discussed the Rule, stating that the Mandatory Underwriting Provisions rest on a determination that it is an unfair and abusive practice to make covered high-interest rate, short-term loans or covered longer-term balloon payment loans without reasonably determining that the consumer has the ability to repay. According to Pahl, the Bureau found that these provisions would lead to a decrease in the number of payday loans of between 51 and 52 percent (short-term vehicle title loans would decrease between 89 and 93 percent) and a decrease in revenue of between 67 and 68 percent, resulting in a contraction in the number of payday and vehicle title lenders. Pahl discussed the Bureau’s February 6 notice of proposed rulemaking (NPRM), which sought comments on repealing the ability-to-repay provision (see InfoBytes coverage here), since the Bureau “has come to have serious doubts as to whether the appropriate legal standards were applied and whether the evidence was sufficiently robust and reliable to support the Bureau's determination that small dollar lenders engage in an unfair or abusive act or practice if they make loans without making a reasonable determination that consumers can repay them.” A second NPRM was issued the same day to delay the Rule’s compliance date, and Pahl commented that the Bureau has begun to evaluate the comments received on both NPRMs.
During the hearing, Krishnamoorthi also questioned Pahl as to whether there is a threshold at which point an interest rate on a payday loan would be considered unfair and abusive or unconscionable. Pahl responded that the Dodd-Frank Act prohibits the Bureau from imposing any usury requirements and that “unconscionability is a matter of state law traditionally.”
As covered in last week’s InfoBytes, on May 4 the House Financial Services Committee approved the revised Financial CHOICE Act of 2017, H.R. 10, in a party-line vote, 34-26. In a May 3 letter to House Oversight and Government Reform Committee Chairman Jason Chaffetz, Rep. Elijah Cummings (D-Md.), the Ranking Minority Member on that Committee, urged the Committee “not to waive its jurisdiction over the Financial CHOICE Act, H.R. 10”—which he argues includes “numerous provisions that clearly fall within the legislative jurisdiction of the Committee.” Rep. Cummings also states in his letter that the proposed legislation would “destroy key financial regulations and consumer protections” and “place our economy at greater risk of another crisis.” Accordingly, he argues that “[i]t is imperative that the Committee review and vote on [H.R. 10’s] dangerous proposals.”
On April 27, the House passed (by a vote of 425 to 0), the Fannie and Freddie Open Records Act of 2017 (H.R. 1694). The proposed measure—sponsored by House Oversight and Government Reform Committee Chairman Jason Chaffetz (R-UT)—would subject Fannie Mae and Freddie Mac to the transparency requirements applicable to federal agencies under the Freedom of Information Act (“FOIA”) for the duration of the time the enterprises remain under FHFA conservatorship. Pursuant to FOIA, the public has presumptive access to agency records unless the material falls within any of FOIA’s nine categories of exception. Having passed in the House, the bill was subsequently forwarded on to the Senate, where it has been assigned to the Senate Judiciary committee. An April 24 Committee Report on the bill provides some explanatory background on the issue addressed by the bill and the bill’s intentions.
House Oversight and Investigations Subcommittee Explores Dodd-Frank’s “Too Big to Fail” Designation Process
On March 28, the House Oversight and Investigations Subcommittee held a hearing that examined the processes used by the Financial Stability Oversight Council to designate nonbank financial companies under Section 113 of Dodd-Frank. As discussed in a memorandum issued prior to the hearing by the House Financial Services Committee, the hearing was also scheduled to go over the findings of a recent Financial Services Committee Staff Report, including concerns over whether FSOC has acted inconsistently in exercising its power to designate certain nonbank companies as “too big to fail.” During the hearing, the subcommittee heard from the following witnesses:
- Dr. Douglas Holtz-Eakin, President, American Action Forum
- Dr. Paul Kupiec, Resident Scholar, American Enterprise Institute
- Professor David Zaring, Associate Professor, Legal Studies and Business Ethics, The Wharton School, University of Pennsylvania
- Mr. Alex J. Pollock, Distinguished Senior Fellow, R Street Institute
In a press release available on the Financial Services Committee webpage following the hearing, the majority members of the subcommittee identified the “Key Takeaways from the Hearing,” as: (i) “[t]he Dodd-Frank Act created an arbitrary threshold that the FSOC uses to designate systemically important financial institutions (SIFIs); (ii) “FSOC’s process for designating SIFIs in essence codifies "too big to fail" and poses a threat to the U.S. economy”; (iii) “[t]he Financial CHOICE Act, the Republican plan to replace Dodd-Frank and promote economic growth” would “end ‘too big to fail’ and bank bailouts.”
On March 16, the U.S. House of Representatives Subcommittee on Oversight and Investigations announced it will hold a hearing on Tuesday, March 21, at 10:00 a.m., entitled “The Bureau of Consumer Financial Protection’s Unconstitutional Design.” According to a March 16 Committee Memorandum, the hearing—which will be held in room 2128 of the Rayburn House Office Building—will examine, among other things, “whether the structure of the CFPB (Bureau) violates the Constitution as well as structural changes to the Bureau to resolve any constitutional infirmities.” The following witnesses are scheduled to testify:
- The Honorable Theodore Olson, Partner, Gibson, Dunn & Crutcher LLP
- Professor Saikrishna Prakash, James Monroe Distinguished Professor, University of Virginia School of Law
- Mr. Adam White, Research Fellow, Hoover Institution
- Ms. Brianne Gorod, Chief Counsel, Constitution Accountability Center
On July 24, House Oversight Committee Chairman Darrell Issa (R-CA) sent a letter to Attorney General Holder raising questions about the DOJ’s “inclination to enter into settlement agreements with respect to mortgage securities fraud” claims. The Chairman notes that large RMBS settlements to date have been predicated on violations of FIRREA, which allows the DOJ to initiate lawsuits seeking civil money penalties. The letter suggests the DOJ’s decision not to litigate or secure a criminal plea diverges from the agency’s strategy in other contexts. Chairman Issa asks the DOJ to produce, by August 14, all documents and communications since January 2011 referring or relating to two recent major RMBS settlements, as well as any policies in effect during that time governing the decision to conclude pre-suit negotiations.
On June 9, Darrell Issa (R-CA), Chairman of the House Oversight Committee, and Jim Jordan (R-OH), an Oversight subcommittee chairman, sent a letter to FDIC Chairman Martin Gruenberg that seeks information regarding the FDIC’s role in Operation Choke Point and calls into question prior FDIC staff statements about the agency’s role. The letter asserts that documents obtained from the DOJ and recently released by the committee demonstrate that, contrary to testimony provided by a senior FDIC staff member, the FDIC “has been intimately involved in Operation Choke Point since its inception.” The letter also criticizes FDIC guidance that institutions monitor and address risks associated with certain “high-risk merchants,” which, according to the FDIC, includes firearms and ammunition merchants, coin dealers, and payday lenders, among numerous others. The letter seeks information to help the committee better understand the FDIC’s role in Operation Choke Point and its justification for labeling certain businesses as “high-risk.” For example, the letter seeks (i) all documents and communications between the FDIC and the DOJ since January 1, 2011; (ii) all FDIC documents since that time that refer to the FDIC’s 2012 guidance regarding payment processor relationships; and (iii) all documents referring to risks created by financial institutions’ relationships with firearms or ammunition businesses, short-term lenders, and money services businesses.
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- Amanda R. Lawrence to discuss "Navigating the challenges of the latest data protection regulations and proven protocols for breach prevention and response" at the ACI National Forum on Consumer Finance Class Actions and Government Enforcement
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference