Raj Date says the CFPB is considering whether to impose rules on bank overdraft programs to ensure they’re being applied “in an even-handed way, according to Bloomberg. Date went on to say that U.S. regulators, including the Federal Reserve, have imposed rules on overdraft programs, and that may lead to inconsistent supervision of different kinds of financial institutions.
“We will be monitoring the impact of the recent regulatory and supervisory interventions,” he said during a Philadelphia speech today. “If we find that these interventions are not working as intended, we will adjust. And if we find that additional action is needed, we will act.”
We’ll remember this when our critics start hammering us for having an “abusive” product. From the American Banker story we just posted:
“One could argue that … financial institutions with strong or successful marketing plans always look out for the best interests of consumers, because those are the products that are going to be the most successful over time, those that are good for consumers,” Fischer said. “If you develop those types of products, price them appropriately, you’re going to do very well.”
We believe that CFSA’s Best Practices should be considered as a blueprint for responsible lending, and can be adopted for most short-term financial products. Provisions include: Full disclosure of fees, truthful advertising, right to rescind, appropriate collection practices, including no criminal action, and a requirement to be licensed in each state where the company does business.
A member will not advertise the payday advance service in any false, misleading, or deceptive manner, and will promote only the responsible use of the payday advance service.
‘Abusive’, that’s the 7-letter word that has all financial institutions on edge. At least when it comes to the CFPB and how it regulates the financial services industry. But what does it mean, and how is it different from practices that are unfair and deceptive, which are already banned? According to American Banker’s Kate Davidson, more than a year after the law’s passage, bank lawyers and Bureau officials still can’t say for sure.
“I’ve always said it’s like pornography: I’ll know it when I see it,” said Jeffrey Taft, a partner with Mayer Brown LLP. “It’s hard for you to define it. I think it will be virtually impossible for the bureau to really come out with concrete guidelines.”
So what authority does the CFPB have under Dodd-Frank?
Under Dodd-Frank, the bureau cannot declare an act or practice abusive unless it: “materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or takes unreasonable advantage of a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.”
The Catch 22:
“It creates a knife edge,” said Jo Ann Barefoot, the co-chairman of Treliant Risk Advisors. “What happens if you decide that you think that certain loans are unsuitable for proportionately more minority borrowers, or more women or more elderly, then you could be charged with not being liberal enough in your lending.”
According to the Associated Press, in remarks prepared for the hearing, Cordray said his experience as former Ohio attorney general taught him that litigation can be slow, costly, and unnecessarily acrimonious. He said he would use lawsuits “judiciously,” and noted that the bureau has other powers to resolve problems, including issuing rules, writing reports and examining large banks and many nonbank institutions.
In a bid to reach out to Republicans, Cordray also said that if confirmed, “I promise that you will have one person who will always be accountable to you for how we are carrying out the laws laid down by Congress and I will be eager to hear your thoughts about how we should do our work.”
Here’s a look at what’s on the docket for today’s hearing:
Panel 1
Ms. Patricia M. Loui
to be a Member of the Board of Directors
Export-Import Bank of the United States, Hawaii
Mr. Larry W. Walther
to be a Member of the Board of Directors
Export-Import Bank of the United States
Panel 2
Honorable Richard Cordray
to be Director
Bureau of Consumer Financial Protection
It appears that the CFPB’s new credit card complaint system is experiencing hiccups in routing some complaints to banks, according to Bloomberg.
The month-old complaint response system has failed to properly route all inquiries, a problem bureau spokeswoman Jen Howard said the agency will resolve “within a matter of weeks.” Howard didn’t say how many complaints have been held up.
Continued coverage from Bloomberg’s story:
Some banks found that their volume of complaints dropped as the bureau’s system failed to work properly, said Richard Hunt, head of the Consumer Bankers Association. The banks were concerned they might be blamed for unanswered queries, he said.
“If you’re a bank, you don’t know there has been a complaint unless the CFPB tells you,” Hunt said in an interview.
The CFPB has received some interesting letters in response to their request for comment on larger participants in the nondepository markets. One of the most unique letters that we’ve seen is the one submitted by the group Tech Progress. The letter, which was featured in the Huffington Post last week, suggested that the CFPB not only include traditional nonbank financial institutions in this group of “larger participants,” but that they oversee search engines and related online advertisers as well.
In particular, Tech Progress’ Founder Nathan Newman asks that the new agency look into services that provide online marketing for financial services based on behavioral targeting. Newman states that “the issue of behavioral targeting — delivering ads to individual consumers based on their demographic profile or search patterns — opens up whole new areas of potential abuse.” Newman’s biggest strife with the behavioral targeting industry is that too much of the process is hidden for the public. Rather than calling for significant regulation of these services, Newman is first asking for more transparency in the process. He argues that, “just publicizing how much revenue search engines like Google make from the financial industry will highlight their key role in the financial world.”
In a joint letter submitted to the CFPB in response to their request for comment on which larger participants in the nondepository market should fall under CFPB oversight, The Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) offered a number of new ideas for how the new agency should approach the issue. One suggestion that we found especially interesting:
The CFPB should require all covered persons, as defined, to be registered with the CFPB in each State in which they do business.
Exactly what this type of registration would entail remains unclear, but such a shift could mean major changes to the licensing process as we know it.
One reminder: A majority of states have chosen to meet consumer demand for payday advances with balanced, responsible regulation for their constituents. Thirty-two states have recognized the need for a small dollar, short-term credit source for their constituents and enacted legislation that protects consumers and their access to credit, while allowing law-abiding payday lenders to operate.
Warren Stephens, CEO of Stephens Inc. (a company that is an annual presenter at our Annual Meeting every year), discussed the impact of regs and rules out of Dodd-Frank and how they could impact access to credit in a recent WSJ op-ed.
“The Consumer Finance Protection Bureau has restricted—and will further restrict in the future, I believe—credit availability to people on the lower end of the credit rankings. Without access to properly priced loans, these people will not be able to buy the goods they need and want. This lack of credit will further depress demand and production.”
Stephens discusses the importance of “middle market” private and public companies, and how they are key to rebuilding our economy. Companies like our very own CFSA Members are of the 100,000 in ‘Middle America’ and who contribute to the revenues between $25 million and $1 billion. And like Stephens says, as part of Middle America, our Members contribute to the 40 percent of the U.S. GDP and the 32 million jobs.
