Consumer Compliance Outlook
News from Washington: Regulatory Updates
Section 1024(a)(1)(E) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) provided the CFPB with examination and supervisory authority for payday lenders. On January 19, 2012, the CFPB conducted a hearing in Birmingham, Alabama, to gather information about the payday lending market to inform its supervisory authority. Richard Cordray, the CFPB's director, presided. A video of his presentation is available at: http://1.usa.gov/cordray-payday. On a related note, the CFPB issued its payday lender examination procedures, which are available at: http://bit.ly/payday-exam.
Section 1073 of the Dodd-Frank Act created new consumer protections for remittance transfers to foreign countries. On January 24, 2012, the CFPB announced a final rule amending Regulation E to implement §1073. The rule requires providers of remittance transfers, including depository institutions, to make disclosures to a consumer before the consumer pays for a remittance transfer. The information that must be disclosed includes the exchange rate, fees, and the amount of money to be delivered. Providers must also supply a receipt or proof of payment that repeats the information in the disclosure and informs consumers of the date on which the money will arrive. Generally, the disclosures must be in English, but sometimes providers must also make the disclosures in other languages. The rule becomes effective in January 2013.
The CFPB also issued a rulemaking proposal seeking public comments on changes to the final rule that would ease the compliance burden in certain cases. Specifically, the CFPB proposed to exempt from coverage small entities that do not routinely provide remittance transfer services. The proposal would also give remittance providers some flexibility in complying with disclosure rules when consumers authorize transfers in advance. The CFPB's announcement and the two Federal Register notices are available at http://1.usa.gov/CFPB-remittance.
On January 5, 2012, the CFPB launched the first federal nonbank supervision program, as authorized by §1024 of the Dodd-Frank Act. The program is an extension of the bank supervision program that began last July and will ensure that banks and nonbanks comply with federal consumer financial laws. The announcement is available at http://1.usa.gov/CFPB-nonbank.
On December 19, 2011, the federal bank regulatory agencies announced the annual adjustment to the asset-size thresholds used to define small bank, small savings association, intermediate small bank, and intermediate small savings association under the Community Reinvestment Act (CRA) regulations. Financial institutions are evaluated under different CRA examination procedures based on their asset-size classification. Institutions that fall under the small and intermediate small asset-size thresholds are not subject to the reporting requirements applicable to large banks. Annual adjustments to these asset-size thresholds are based on the change in the average of the consumer price index (CPI) for urban wage earners and clerical workers, not seasonally adjusted, for each 12-month period ending in November. The definitions of small and intermediate small institutions for CRA examinations will change as a result of the 3.43 percent increase in the CPI index for the period ending in November 2011. Effective January 1, 2012, the asset-size thresholds are as follows: “Small bank” or “small savings association” means an institution that, as of December 31 of either of the prior two calendar years, had assets of less than $1.160 billion, while “intermediate small bank” or “intermediate small savings association” means a small institution with assets of at least $290 million as of December 31 of both of the prior two calendar years, and less than $1.160 billion as of December 31 of either of the prior two calendar years. The agencies' joint announcement and the Federal Register notice are available at http://1.usa.gov/2012-cra.
On December 7, 2011, the CFPB launched a new “Know Before You Owe” project aimed at simplifying credit card agreements so that the prices, risks, and terms are easier for consumers to understand. The CFPB is soliciting public comment on a prototype credit card agreement that is shorter, is written in plain language, and explains key features upfront. The prototype agreement is designed to make it easier for consumers to understand their credit cards. The CFPB will also host an online database of many existing credit card agreements where consumers can compare their existing agreement with the prototype. Under the Credit CARD Act, card issuers are required to provide copies of their credit card agreements to the CFPB for inclusion in a public database that consumers can access to view their card agreements. The announcement is available at http://1.usa.gov/CFPB-cards.
On November 30, 2011, the CFPB issued a report discussing its first three months of collecting credit card complaint data, during which time it received more than 5,000 credit card complaints. Of these complaints, companies reported resolving more than 3,100, with consumers disputing the adequacy of the responses in only 400 cases, or less than 13 percent of the time. The report provides a breakdown of complaints by type and their progress through the complaint-handling system. The report also includes three observations about the complaint data: many consumers struggle to understand the terms of credit cards and associated products like debt protection services; some consumers are reporting instances of allegedly fraudulent charges to their credit cards by third parties; and many complaints involve factual disputes between the consumer and the card issuer. The CFPB's announcement and the report are available at http://1.usa.gov/CFPB-complaints.
On November 29, 2011, the CFPB announced that it is seeking public input on ways to streamline regulations that the agency inherited from seven different federal agencies under the Dodd-Frank Act. The notice and request for information ask the public to identify provisions of the inherited regulations that the agency should make the highest priority for updating, modifying, or eliminating because they are outdated, unduly burdensome, or unnecessary. The CFPB also seeks suggestions for practical measures it could take to make complying with the regulations easier. Opportunities for streamlining rules and facilitating compliance may include simplifying regulations that have become unnecessarily difficult to understand and comply with over time; standardizing definitions of common terms across regulations where statutes permit; updating regulations that are outdated or unnecessary due to changing technologies; or removing unnecessary restrictions on consumer choice or business innovation. The CFPB will also consider practical measures to make it easier for firms, especially smaller ones, to comply with the inherited regulations. Comments were due by March 5, 2012. The announcement is available at http://1.usa.gov/cfpb-streamline.
Section 1077 of the Dodd-Frank Act requires the CFPB and the Department of Education, in consultation with the Department of Justice and the Federal Trade Commission, to prepare a report on private education loans and lenders. In support of the study, the CFPB on November 16, 2011 published a notice and request for information to collect data on a series of issues affecting private student loans from origination to servicing to collection. The notice asked the public, students, families, the higher education community, and the student loan industry (lenders and servicers) to voluntarily provide information about the role of schools in the marketplace, underwriting criteria, repayment terms and behavior, impact on choice of field of study, career choice, servicing, loan modification, financial education, and default avoidance. The CFPB will use the information to prepare its report on private education loans and lenders and to prioritize its own regulatory and education work. Comments were due by January 17, 2012. The CFPB's announcement and the Federal Register notice are available at http://1.usa.gov/cfpb-pel.