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CFPB Releases Study on Credit Visible Consumers
On June 7, the CFPB published analysis of how consumers transition out of credit invisibility. “Credit invisibility” refers to an individual who lacks a credit record at any of the three nationwide credit reporting agencies. The report, entitled CFPB Data Point: Becoming Credit Visible, highlights the results of its latest study of the credit reporting industry, finding that consumers in low-income areas are more likely to gain credit visibility in negative ways such as through an account in collection or some form of public record. In a previous study, the CFPB estimated approximately 26 million Americans were credit invisible with an additional 19 million consumers having “unscorable” credit files—i.e. files that contain insufficient or too brief credit history. (See previous InfoBytes coverage here.) Without such a record, lenders find it more difficult to assess a consumer’s creditworthiness, resulting in credit invisible individuals having a harder time accessing credit.
The report notes that credit invisibility can present a “Catch-22” scenario, whereby a consumer needs credit history to get access to credit but cannot establish a credit history without first being extended credit. However, the report concludes that because 91 percent of consumers acquire a credit record before turning 30, it is possible to avoid a “Catch-22” situation.
The Bureau highlighted the following key findings:
- Most consumers – almost 80 percent – become credit visible before age 25, but Consumers in low- and moderate-income neighborhoods are likely to be older when they establish a credit history.
- Members of all age groups and income levels most commonly use credit cards to establish credit history, with student loans ranking second.
- Approximately 1-in-4 consumers first establish credit history through an account either held by another responsible party—i.e. becoming an “authorized user”—or with a co-borrower. This trend is more common among higher-income groups.
- Consumers in lower-income neighborhoods, however, are more likely to establish a credit history through “non-loan items,” which usually convey negative information (e.g., third-party collections, delinquent utility bills, child support payments, etc.).
- In recent years, more consumers create a credit history using a credit card, except within the under 25 age group. The report attributed the trend in the under 25 age group to a number of factors including increased student loans and the restrictions of the Credit Card Accountability Responsibility and Disclosure Act, which made credit cards less available to young consumers.
CFPB Fines Mortgage Servicer for RESPA Violations
On June 7, the CFPB ordered a mortgage servicer to pay up to $1.15 million in restitution for failing to provide borrowers with required foreclosure protections when handling loss-mitigation applications. The consent order alleges the servicer violated RESPA by failing to send critical information to consumers who were applying for foreclosure relief, and, in some circumstances, beginning foreclosure proceedings on borrowers who had submitted completed applications. Pursuant to the consent order, in addition to restitution, the servicer is required to provide borrowers the opportunity to pursue foreclosure relief, must cease its illegal practices, and develop policies and procedures to ensure compliance with mortgage servicing rules.
Cordray Speaks at Consumer Advisory Board Meeting; Extends Comment Period for RFI on Small Business Lending Market
On June 8, CFPB Director Richard Cordray delivered prepared remarks at the Consumer Advisory Board Meeting in Washington, DC announcing, among other things, that the Bureau has extended the comment period of the “Request for Information Regarding the Small Business Lending Market” an additional 60-days. As previously covered in InfoBytes, the RFI—which was issued May 10—will provide feedback on various aspects of the small business lending market. Cordray noted the CFPB is “mindful of the potential complexity and cost of small business data collection and reporting” and that it plans to “explore ways to fulfill this duty in a balanced manner, seeking to provide timely data with the highest potential to meet the statutory objectives, while minimizing the burdens for both industry and the Bureau.” Allowing for more time to receive “quality responses from the public,” Cordray extended the comment period.
Additionally, Cordray discussed three other topics: (i) the Bureau’s emphasis on encouraging credit card market transparency to reduce consumer risk; (ii) updates to the Bureau’s continued “credit invisibility” research; and (iii) the need to formulate new rules governing the debt collection market.
House Passes Financial CHOICE Act of 2017
On June 8, by a vote of 233-186 with no Democrats voting in favor of the bill and one Republican voting against, the House passed the Financial CHOICE Act of 2017 (H.R. 10), as amended, which would repeal or modify provisions of Dodd-Frank and restructure the CFPB. Committee Report 115-163 accompanying House Resolution 375, which provided for consideration H.R. 10 and recommended that the resolution be adopted, outlines the provisions introduced to overhaul existing financial regulations. Included were five additional amendments incorporated into H.R. 10 introduced by members of Congress:
- Rep. Jeb Hensarling (R-Tex.): “Revises provisions subjecting certain FDIC and National Credit Union Association functions to congressional appropriations, relating to appointments of positions created by [H.R. 10], and providing congressional access to non-public [Financial Security Oversight Council] information”;
- Rep. Joseph Hollingsworth (R-Ind.): “Allows closed-end funds that are listed on a national securities exchange, and that meet certain requirements to be considered ‘well-known seasoned issuers’”;
- Rep. Lloyd Smucker (R-Pa.): “Expresses the sense of Congress that consumer reporting agencies and their subsidiaries should implement stronger multi-factor authentication procedures when providing access to personal information files to more adequately protect consumer information from identity theft”;
- Rep. Martha McSally (R-Ariz.): “Requires the Department of Treasury” to submit a report to Congress regarding its efforts to work with Federal bank regulators, financial institutions, and money service businesses to ensure that legitimate financial transactions along the southern border move freely”; and
- Rep. Ken Buck (R-Colo.), “Requires the [General Services Administration] to study the [Consumer Law Enforcement Agency’s] real estate needs due to changes in the Agency’s structure. It would then authorize the GSA to sell the current CLEA building if CLEA’s real estate needs have changed and there is no government department or agency that can utilize the building.”
See previous InfoBytes here and here for additional coverage.
The bill now advances to the Senate where it is unlikely to pass in its current form—a fact acknowledged by both Democrats and Republicans.
White House Issues Statement Supporting Substitute Amendment to H.R. 10; CBO Releases Cost Estimate
On June 6, the White House Administration issued a statement supporting the Substitute Amendment to the Financial CHOICE Act of 2017. In the statement, the White House announced it is “committed to reforming the Nation’s financial system” and believes the substitute amendment drafted by House Financial Services Committee Chairman, Jeb Hensarling (R-Tex.) reflects the Administration’s Core Principles in a number of ways. Specifically, the Administration supports the following provisions outlined in H.R.10: (i) eliminating taxpayer bailouts; (ii) simplifying regulations and holding regulators accountable; (iii) facilitating capital formation to encourage economic growth; (iv) allowing identified financial institutions to “opt out of certain regulatory requirements”; (v) reducing the independence of the CFPB; (vi) increasing the use of cost-benefit analysis by financial regulators; and (vii) easing regulatory burdens for community banks.
“The administration supports these provisions, and looks forward to working with Congress to undo additional mandates from the Dodd-Frank law that unnecessarily raise costs and limit choices for consumers,” the White House asserted in the statement.
On the same day the White House issued its statement, the Congressional Budget Office (CBO) released a requested analysis of Hensarling's amendment for H.R. 10. The CBO discovered that the changes from the version the House Financial Services Committee initially approved would reduce deficits by an additional $9.5 billion, for a total reduction of $33.6 billion over the 2017-2027 period. CBO stated the majority of the budgetary savings comes from “eliminating the FDIC’s authority to use the Orderly Liquidation Fund and changing how the [CFPB] and certain other regulators are funded.” However, CBO noted it would cost an estimated $11.6 billion over the referenced time period to implement the bill.
CFPB Monthly Complaint Snapshot Highlights Complaints from Older Consumers
On May 31, the CFPB released Vol. 23 of its Monthly Complaint Report. This month’s report highlights complaints from “older consumers” defined as those who voluntarily report their age as 62 or older. Since it began accepting complaints, the Bureau has received over 1 million complaints—more than 100,000 from older consumers. The report focuses on these complaints, with some of the most common in 2017 including:
- Reverse mortgage servicing issues, which are unique to this group of consumers. Many of the complaints surround older consumers attempting to stay in their home after the death of the borrowing spouse, occasionally ending in foreclosure;
- Financial scams and identity theft issues are often difficult to recover from—especially for consumers on fixed-incomes;
- Credit card issues such as introductory offers may cause confusion for older consumers in understanding credit terms and conditions or the difference between zero interest and deferred interest. Additionally, many older consumers struggle with billing disputes, unwanted subscription services and credit monitoring; and
- Escrow issues, especially when the consumer is trying to benefit from tax relief programs.
The graph shown in a blog on the Bureau’s website compares complaints from consumers 62 and older with complaints from consumers under 62. Although both groups of consumers reported complaints for many of the same products, the graph shows that mortgages, debt collection and credit cards, in that order, are the top three products for those 62 and older—whereas debt collection, mortgages and credit reporting are the top three for those under 62. Additionally, the report reveals that almost a quarter of all complaints from older consumers came from residents of California, Texas, and Florida.
Cordray Discusses Youth Financial Education, CFPB Responsibilities
Recently, CFPB Director Richard Cordray delivered prepared remarks at the Financial Literacy and Education Commission Meeting in Washington, DC on May 24 and at the People and Places Conference in Arlington, VA on May 31.
Financial Literacy and Education Commission (Commission). Coordinated by the Treasury Department’s Office of Financial Security, the Commission presented results from the 2015 Programme for International Student Assessment study on financial education in the U.S. and how it compares to other countries. Cordray’s opening remarks stressed the-importance of providing financial resources and educational tools empowering young people and outlined efforts the CFPB has underway, such as the Youth Financial Education resource page, the online Money as You Grow tool, and other community outreach education programs.
People and Places Conference. A keynote speaker at the conference, Cordray outlined the three main components of the CFPB’s work: (i) supervision and enforcement; (ii) implementing common-sense rules; and (iii) hearing and addressing consumer complaints to help keep companies accountable. Regarding supervisory and enforcement actions, Cordray stated that the Bureau’s activities serve to help change institutions’ practices for the better by (i) providing consistent supervision; (ii) initiating public enforcement actions to serve as a deterrent to “bad behavior”; and (iii) upholding “laws that ban unfair, deceptive, or abusive acts or practices.” Cordray asserted that by setting expectations financial institutions must meet in their own compliance work, similar violations can be avoided. Cordray spoke next about the need to establish “common-sense rules of the road” in order to protect consumers. He used the mortgage industry as an example of how the Bureau responded to Congress’s directive for developing “much-needed reforms” by “implementing rules to govern underwriting, servicing, and loan originator compensation” and “temper[ed] these regulations for small creditors so as to ease regulatory burdens on community banks and credit unions.” Furthermore, Cordray stated the Bureau’s ability to receive and process consumer complaints is crucial to identifying, understanding, and prioritizing problems.
FTC Submits Annual Report on 2016 Enforcement Actions to CFPB
On June 1, the FTC announced that it submitted its 2016 Annual Financial Acts Enforcement Report to the CFPB. The report—requested by the Bureau for its use in preparing its 2016 Annual Report to Congress—covers the FTC’s enforcement activities related to compliance with Regulation Z (Truth in Lending Act or TILA), Regulation M (Consumer Leasing Act), and Regulation E (Electronic Funds Transfer Act or EFTA), as well as its initiatives to engage in research and consumer education.
According to the report, the FTC’s enforcement actions in 2016 concerning TILA involved automobile purchasing and financing, payday loans, and financing of consumer electronics. Regarding mortgage-related credit activity, the report highlights continued litigation in two cases involving mortgage assistance relief services involving “forensic audit scams.” Furthermore, the FTC continued its consumer and business education efforts on issues related to consumer credit transactions in the following areas: military lending, auto sales and financing, payday lending, marketplace lending, and consumer disclosures and testing.
Regarding the Consumer Leasing Act, the report noted the FTC had issued a final administrative consent order for deceptive advertising practices and failure to disclose key lease offer terms. The FTC also filed two federal court actions against automobile dealers. The FTC also engaged in research and policy development and educational activities in this area.
Concerning the EFTA, the FTC reported six new or ongoing cases, including four cases alleging violations in the context of “negative option” plans, in which a consumer agrees to “receive various goods or services from a company for a trial period at no charge or at a reduced price” but later incurs unauthorized recurring charges after the end of the trial period, in violation of the EFTA. The remaining two cases involved payday lending and consumer electronics financing. The FTC also engaged in rulemaking, research, policy development, and educational activities involving the EFTA.
Financial Services Associations Comment on CFPB’s HMDA Proposal
As previously covered in an InfoBytes Special Alert, the CFPB issued a request for comment on its proposal to amend the 2015 HMDA rule, which would incorporate changes primarily for the purpose of clarifying data collection and reporting requirements. The request, which closed for public comment on May 25, received 46 public comments from several banking and credit union industry associations.
Mortgage Bankers Association (MBA). On May 25, the MBA—a national association representing the real estate financial industry—submitted a comment letter outlining outstanding issues and calling upon the Bureau to provide clarifying and technical corrections to Regulation C, which implements HMDA. The MBA outlined the following points, among others, for consideration:
- delay the effective date of the Final Rule and amendments pending completion of key actions in the following areas: “HMDA data collection portals; publication and implementation of data quality edits; geocoder production release and integration specs; data privacy concerns; resubmission expectations; updated filing instructions guides; guidance on reporting and collection issues; impacts of the proposed amendments; uniform residential loan application; government monitoring information”;
- address recommendations pertaining to multifamily lending: (i) “multifamily loans should not be subject to HMDA reporting”; (ii) “purchases and assumptions of multifamily loans should be exempt from introductory rate period reporting”; (iii) “the CFPB should accept simplified reporting from smaller-volume HMDA reporters, particularly smaller-volume multifamily reporters”; and (iv) “further consideration and clarification of the multifamily definition is needed”; and
- a one-year delay would allow the CFPB to address privacy concerns that “might dictate that certain data not be disclosed publicly,” thereby giving the Bureau time to “reconsider whether the many data points required under Dodd-Frank . . . should be required.”
According to the CFPB’s request for comment, most of the amendments in the Final Rule are to go into effect January 1, 2018; however, the MBA noted that data collection must commence in 2017 for loan applications that may become reportable in 2018. Therefore, the MBA urged the Bureau to delay implementation for at least one year to allow sufficient time for data collection and reporting which would give the CFPB “time to provide much-needed information and materials, and to allow HMDA reporters more time to finalize and implement the changes effectively.”
American Bankers Association (ABA). Separately, on May 25, the ABA submitted a comment letter opining that many of the Bureau’s “technical corrections, clarifying amendments or minor changes” are “substantive in nature” and require a more comprehensive and formal process to “identify industry questions and proposed solutions.” Specifically, among other things, the ABA emphasized the following recommendations:
- the January 1, 2018 effective date of the Final Rule should be “suspended immediately” in order to “promote the orderly, coordinated, and thorough consideration and resolution of all the interrelated issues presented and to make sure that all of the privacy and security issues are adequately addressed”;
- the CFPB should consider updating, rather than discontinuing, its reference tool for lenders entitled A Guide to HMDA: Getting it Right;
- several categories require further clarification: loans in process or loans originated before but purchased after the rule’s effective date; multifamily dwellings; home improvement loans; temporary financing; the threshold for reporting; counteroffers; applicant or borrower’s reported income; the annual percentage rate; rate spreads and rate set dates; reporting when there are no closing disclosures; corrected disclosures; the unique loan identifier; the geocoding tool’s use; and information pertaining to ethnicity and race; and
- pending guidance on error resolution and software required for reporters should be finalized “as soon as possible,” and regulations on privacy and data security should be proposed “with the utmost speed.”
“Piecemeal corrections based on informal and anecdotal evidence only adds to regulatory burden, which adds costs to borrowers and reduces access to mortgage credit,” the ABA noted.
CFPB Seeks Public Comment on its Plans for Assessing the Ability-to-Repay/Qualified Mortgage Rule
On May 25, the CFPB issued a request for comment on its plans for assessing the 2014 Ability-to-Repay/Qualified Mortgage Rule’s effectiveness in meeting the purposes and objectives outlined in the Dodd-Frank Act, which requires the Bureau to assess each significant rule or order it adopts under Federal consumer financial laws. According to the request for comment, and a May 25 blog post on the CFPB’s website, the self-assessment will focus on objectives to ensure that: (i) consumers are provided with timely and understandable information to make responsible decisions about financial transactions; (ii) consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination; (iii) outdated, unnecessary, or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens; (iv) federal consumer financial law is enforced consistently, without regard to the status of a person as a depository institution, in order to promote fair competition; and (v) markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.
The Dodd-Frank Act established new standards for mortgage lending and created a class of “qualified mortgage” (QM) loans. The standards required lenders to assess consumers’ ability to repay (ATR). Dodd-Frank also provided for a class of QM loans that must not have “certain risky product features and are presumed to comply with the ATR requirement.”
The CFPB issued rules to make ATR and QM standards “clear and effective” in January 2013. As previously covered in a Special Alert, the rule and its amendments that took effect on January 10, 2014 provide a mechanism for curing point-and-fees overages on QM loans as well as more minor amendments to its mortgage origination and servicing rules.