10 Ways the Consumer Financial Protection Bureau Will Affect CUs
The CFPB has a sweeping mandate and raises many questions.
The Consumer Financial Protection Bureau (CFPB) is to officially begin operations on July 21, 2011. That’s one year after the enactment of the Dodd-
Frank Wall Street Reform and Consumer Protection Act, which created this new federal agency. Dodd-Frank says the purpose of the CFPB is “to regulate the offering and provision of consumer financial products or services under the federal consumer financial laws.”
* The Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB)—a new federal consumer agency.
* The CFPB will oversee 17 consumer regulations.
* Board focus: Make sure you set aside ample financial resources to meet your CU’s growing compliance burden.
The Treasury Department, which is getting the bureau off the ground until the Senate confirms a director, provides further insights: “The CFPB will set and enforce clear, consistent rules that allow banks and other consumer financial service providers to compete on a level playing field and let consumers see clearly the costs and features of products and services.”
Treasury envisions the CFPB “will look out for people as they borrow money or use other financial services…” The CFPB will also monitor the financial marketplace to ensure markets “work as transparently as they can for consumers.”
This is a sweeping mandate for the CFPB and raises questions about how this new agency will affect credit unions. So here are 10 points credit unions should know about the CFPB:
1. Funding. While nominally part of the Federal Reserve System, the CFPB is an independent agency. This means it’s not subject to Federal Reserve Board oversight. Who will pay for the agency was a big question during the legislative debate in Congress last year. Some suggested the regulated entities—including credit unions—pay fees to operate the agency, something CUNA adamantly opposed.
The interesting solution was to make the CFPB part of the Fed, which covers expenses primarily from the income its large portfolio of federal government securities generates. What the Fed doesn’t spend, it returns to the Treasury. So taxpayers will pay for the CFPB operations.
Some Republicans want to repeal Dodd-Frank or at least to eliminate the CFPB, but President Obama would never sign such a bill. The new Congress, however, will have opportunities to revisit the CFPB’s funding. And CUNA will closely monitor any developments.
* Bank and nonbank supervision;
* Rule making;
* Financial education;
* Fair lending and equal opportunity;
* Financial protection for older Americans; and
* Private education loans.
Most of the new agency’s staff will transfer from existing federal agencies, most notably from the Fed’s Consumer Affairs Division—the group that already writes most of the rules implementing federal consumer protection laws. As the financial crisis unfolded, the Fed and other agencies became more active in rewriting consumer regulations, and credit unions must expect more, not fewer, consumer regulations in the next few years.
For instance, expect the new CFPB to give serious consideration to extending to all depository institutions the Federal Deposit Insurance Corp.’s (FDIC) recent “guidance” that adds restrictions on automated overdraft protection programs for FDIC-regulated banks.
3. Regulations. The Dodd-Frank Act transferred 17 consumer laws to the CFPB’s jurisdiction, including the Truth in Lending (TIL) Act, Truth in Savings (TIS) Act, Electronic Funds Transfer Act, Equal Credit Opportunity Act, Fair Credit Reporting Act, Real Estate Settlement Procedures Act (RESPA), and the SAFE Mortgage Licensing Act. This means NCUA will no longer have its own TIS or SAFE implementing regulations.
The CFPB also will have broad authority to prescribe rules to prohibit “unfair, deceptive, or abusive acts or practices”—terms Dodd-Frank defines broadly. Time will tell how, or if, the bureau will rely on this broad rule-making authority. The bureau is required not only to seek public comments but also to consult with NCUA and other federal agencies before finalizing any regulations under its jurisdiction.
While the bureau is permitted to exempt any category of financial institution (such as by asset size) from any of its regulations, it’s very unlikely that the bureau would ever choose to do so for any major regulation, deciding that a consumer deserves the same legal protections regardless of where consumers save or borrow.
This does not mean, however, that other credit unions can expect the bureau to be hands-off. The CFPB implementation team already has formally agreed with the state regulators to promote consistent examination procedures not only for banks but also for tens of thousands of “nondepository” financial service providers—including mortgage brokers, check cashers, payday lenders, finance companies, and debt adjustors—possibly under the CFPB’s jurisdiction. The CFPB will have to define exactly what “nondepository” financial entities will fall within its reach, including privately insured credit unions. Expect similar agreements on exam procedures with credit union regulators and federal banking agencies.
CFPB will have access to all examination reports, regardless of credit unions’ size or charter. This is another reason to expect consistent—and undoubtedly more detailed—consumer protection exams by NCUA and state regulators.
The law permits the CFPB to have its own examiners on a “sampling basis” accompany credit union examiners on examinations of federally insured credit unions with less than $10 billion in assets to assess compliance with consumer financial laws. At this point, no one knows what the CFPB examination corps will look like.
It’s unclear what enforcement powers the Federal Trade Commission (FTC) will continue to exercise regarding state-chartered credit unions. Today, the FTC is the enforcement agency for many major consumer protection laws—such as TIL and Equal Credit Opportunity—that apply to state-chartered credit unions (the FTC has never had staff who examine credit unions for compliance). The law instructs the CFPB and the FTC to reach some kind of agreement.
6. Complaints. The CFPB will operate a toll-free consumer hotline and website for complaints and questions about consumer financial products and services. The bureau will develop procedures with NCUA and other federal agencies on how to handle consumer complaints in a timely manner.
Expect the bureau to give a lot more attention to member complaints. CUNA will follow this process to ensure a few complaints don’t provide anecdotal evidence for revising regulations.
After the Dodd-Frank Act passed, CUNA strenuously objected as the Fed continued to issue proposed, final, and interim final regulations affecting mortgage lending compliance requirements.
CUNA urged Treasury and the Fed to declare a rule-making moratorium so the CFPB can address changes to mortgage lending requirements in a comprehensive manner.
Last month, the Fed announced it would not finalize its 2009 proposed overhaul of Reg Z’s closed-end mortgage and home equity loan rules along with its Sept. 2010 proposals that would change credit life and disability insurance disclosures and right-of-rescission rules, leaving it to the CFPB to decide how to proceed.
8. Consumer lending. Warren has said another high priority of the new bureau must be to look at credit card disclosures. Credit unions and other card issuers had to make notable changes in their credit card programs in the past two years to comply with the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act.
One provision of the CARD Act requires public disclosure on a Fed website of many credit card agreements. Warren argues that consumers don’t understand credit card disclosures, and therefore can’t adequately compare options.
So expect the CFPB to revisit certain open-end Reg Z requirements, even though they’ve already been revised more than once in recent years.
CUNA and other credit union representatives have attended numerous meetings with Warren since mid-2010. She recognizes credit unions’ consumer orientation and significant regulatory burden. She spoke these encouraging words in early 2011: “We need to make compliance easier for lenders, and this is particularly important for credit unions and community banks.”
It remains to be seen whether or not the CFPB will fulfill this objective.
KATHY THOMPSON is CUNA’s senior vice president for compliance and legislative analysis. Address compliance questions to firstname.lastname@example.org.