Much of what the CFPB has done so far is mandated by Congress. We will start to see just how far reaching its powers are when it comes to promulgating changes to regulations that aren’t mandated by Congress but harm the Bureau’s sensibilities. I’m concerned that the Bureau is asking itself how a statute would have been implemented had it only been around.
Which brings us to the CFPB’s request for information about debt collection practices under the Fair Debt Collection Practices Act (FDCPA) in a wide-ranging ANPR published in the Federal Register on November 12 (https://www.federalregister.gov/articles/2013/11/12/2013-26875/debt-collection-regulation-f). Judging by its questions and the tone of the ANPR, there is a very real risk that a new regulatory regime on debt collection practices will impose mandates similar to those already burdening mortgage servicers and originators.
Most troubling to me is how the Bureau feels that regulations have to be promulgated to curb the alleged excesses of creditors — meaning your employees who have the audacity to call up members behind on their car payments and mortgage loans. As explained by the Bureau:
Congress excluded such creditors in 1977 because it concluded that the risk of reputational harm would be sufficient to deter creditors from engaging in harmful debt collection practices.[FN51] However, experience since passage of the FDCPA suggests that first-party collections are in fact a significant concern in their own right. For instance, the FTC receives tens of thousands of debt collection complaints each year concerning creditors.[FN52] The Bureau likewise has brought a debt collection enforcement action against a creditor,[FN53] and it recently issued a supervisory bulletin emphasizing that collectors, including creditors, need to ensure that they are not engaging in unfair, deceptive, or abusive, acts and practices. . .
What kind of regulations would creditors face? Judging by the questions posed in the ANPR, virtually everything is on the table ranging from the federal registering of debt collectors to enhanced notice requirements for the debtors.
All this has been proposed in the name of protecting people who have steadfastly refused to repay their debts. Furthermore, with or without regulations, pop FDCPA into any legal database and you quickly find out that there is no shortage of lawyers willing to extend protections to debtors who are wronged by an overly aggressive debt collector.
We are just in the preliminary stages of the regulatory process and I know you have a million other thing to do. But, please do yourself a favor and weigh in on the ANPR both to educate the CFPB about how credit union creditors don’t need more regulations and how this is no time to be imposing a whole new regulatory regime on financial institutions.
People are justifiably outraged by the incompetence with which the Government has rolled out the Affordable Care Act. From cancellation notices to botched websites, the Government has played right into the hands of those who argue that it isn’t competent enough to get too involved in people’s lives.
But what I am more than a little bemused by is why the American public hasn’t saved at least a little of its outrage against the elected officials and regulators who have done next to nothing to address the core issues that led to the financial crisis. Millions of people were thrown out of work as a direct result of activities carried out by some of our largest banks and more than five years after the meltdown began, the Government has still not done enough to implement even the relatively modest reforms Congress was able to agree to.
This is not blogger hyperbole. The GAO concludes in the first of two reports it will be releasing analyzing Government support for the largest bank holding companies, that while agencies have made progress, key regulations intended to limit the “too big to fail” safety net for our largest banks have yet to be fully implemented (http://www.gao.gov/products/GAO-14-18). In addition, it is yet to be determined how effective these regulations will ultimately be even if they are implemented.
Isn’t it great that there’s more of a political consensus, at least within the Republican Party, for cutting food stamps and unemployment benefits than there is to making fundamental changes to the way our largest banks are regulated? If you really believe in the free market, then the only way to truly regulate these behemoths is to put their share holders and executives on notice that they are not too big to fail. According to the GAO, the largest four U.S. holding companies each had at least 2,000 separate legal entities as of June 30, 2013. Does anyone really think an entity that big can be effectively managed, let alone regulated? Does anyone really think that if these banks are allowed to stay this large that they will be allowed to fail if and when they mess up again?
Meanwhile, credit unions, and to be fair, many small banks, are bombarded with a never-ending supply of CFPB initiatives. Something’s not right here. I’ve said this before, and I’ll say it again. No credit union or bank should be subject to any new regulations issued by the CFPB until all the Dodd-Frank provisions and regulations intended to be imposed on the nation’s largest financial institutions are actually implemented and operational. I know this could never happen, but even getting a proposal like this introduced would show just how much the country has missed he mark with it comes to cleaning up the financial industry.
Yesterday, a colleague forwarded to me a news report from a Tuscon, AZ television station that was so disturbing at first I thought it was a joke. Unfortunately, it’s no joke and what it says about the mentality of certain corporations disturbs me. See for yourself (http://www.myfoxphoenix.com/story/23964173/2013/11/13/robbery-toy).
Just in time for the holidays, Playmobile released a 126-piece bank robbery toy set, including an armed bank robber, tellers and a crow bar to break the Automated Teller Machine (ATM). Police are, of course, sold separately. At least in the Tuscon area, Toys ‘R’ Us thinks the toy is worthy of stocking. Far from being embarrassed, the company defends their product as helping little tykes everywhere differentiate good guys from bad guys.
Somehow I don’t think the “creators” of this toy would see much educational value, let alone something worthy of being put under the Christmas tree, if they had personally had a gun stuck to their head. Somehow I don’t think they would have smiling tellers if they heard stories of terrified moms and dads being told to hand over cash as their lives were being threatened. I don’t know what it says about modern-day business that someone can come up with an idea like this and it actually becomes part of a company’s product line as opposed to a good reason for firing the lunatic before he does some real damage to the company’s reputation. Last, but not least, what the heck is Toys ‘R’ Us thinking? The space of major retailers is among the most precious commodity in business. Who at this Toys ‘R’ Us looked at this toy and said that this is the best they could do?
New York Clamps Down on Unsolicited Checks
Earlier this week, Governor Cuomo signed legislation (Chapter 467) deterring financial institutions from sending out unsolicited convenience checks to consumers. Specifically, where a consumer is sent convenience checks aligned with an existing account or granting a line of credit, he or she is not responsible for the use of those funds by a third-party. However, given the way the bill was drafted, it doesn’t actually prohibit institutions from sending these checks, so long as they are willing to gamble that the consumer will be the ultimate user (http://open.nysenate.gov/legislation/bill/A3601-2013). The bill took effect immediately.
Several trends are converging to make auto lending in general, and indirect auto lending in particular, the next battlefield for a regulatory skirmish between the CFPB, lenders and, to a lesser extent, Congress. First, the CFPB is criticizing indirect lending practices. Second, Bloomberg is reporting this morning that car underwriting standards are being lowered as lenders look for higher yields (http://www.autonews.com/article/20131113/FINANCE_AND_INSURANCE/311139989/frothy-subprime-borrowing-drives-u-s-sales-raises-alarms); and, last but not least, credit unions are more dependent than ever on auto loans (http://www.cutimes.com/2013/11/12/auto-loans-set-to-end-year-on-high-note?ref=hp).
Most importantly, the CFPB will be holding a forum tomorrow morning on indirect lending practices. I know most of you who read this blog know what that is, but this deals specifically with the situation where credit unions and banks act as third-party lenders to auto dealers who are authorized to provide loans to consumers that meet baseline criteria.
In a March guidance on the issue (CFPB Bulletin 2013-02), the CFPB was critical of policies that allow auto dealers to mark up lender-established rates. The CFPB is concerned that this discretion may have a discriminatory impact and thus run afoul of the Equal Credit Opportunity Act. This concern pre-dates the CFPB. There have been several lawsuits contending that minorities disproportionately end up with more expensive car loans when sales people are given discretion in negotiating lending terms.
In late October, a bi-partisan group of Senators wrote a letter to the CFPB (http://www.cfpbmonitor.com/files/2013/10/Auto-Finance-Letter-.pdf) asking it to explain what evidence it has that lender incentives in indirect lending have a disparate impact. As can be seen from this recent CFPB blog (http://www.consumerfinance.gov/blog/category/auto-loans/), the Bureau is not shying away from its criticism of these indirect lending programs. It is strongly encouraging lenders that enter into third-party relationships to insist that the dealerships only provide flat rate compensation to their indirect lending sales force.
This conflict has particularly important implications for credit unions. Indirect lending is tricky enough, but when credit unions engage in it, they have the added concern of making sure that the person taking the loan is eligible for and becomes a member of the credit union. In addition, whether you agree or disagree with the stance taken by the CFPB, it is correct to point out that lenders have a responsibility to clearly delineate the contractual obligations of the dealerships with whom they are entering into a third-party indirect lending relationship and to monitor these relationships on an ongoing basis.
Conversely, the lenders and dealerships have legitimate gripes as well. No one should tolerate lending discrimination, but these allegations should not be lightly tossed around. Implicitly suggesting that someone is discriminating against another person is an awfully big deal and regulators, and lawyers for that matter, should be held to a high standard when making these claims.