CFPB: Brace for Impact
CUs must continue to watch the volume, complexity, and novelty of new consumer regulations.
Some people accuse us Midwesterners of watching corn grow for fun. Actually, these days we have something way more fun to watch—the actions of the Consumer Financial Protection Bureau (CFPB).
With the appointment of Director Richard Cordray, the agency is hitting its stride in carrying out its mission.
A good way to understand the CFPB’s priorities is by visiting its website. On the home page, you will find very prominently where consumers can lodge complaints about mortgages or credit cards.
The agency is taking very seriously its role as protector of consumers against abusive credit card providers and mortgage lenders.
You will also find information about “Know Before You Owe,” which aims to improve consumers’ understanding of student loans, mortgages, and credit cards.
This program is intended to find the right balance of providing sufficient information for consumers while ensuring the rules are not so opaque that no lender can possibly know if it is complying with the rules. This is a difficult task.
We’re beginning to see rules from CFPB, so we’re getting an idea of what that balance may look like. From the rules and sample disclosures I’ve seen, we don’t know yet what the overall direction might be.
But, based on my quarter century dealing with all types of consumer regulations and their impact on credit union operations, I will continue to watch three things:
1. Volume. We have a good indication that the volume of new rules will be great. How do we know? The Dodd-Frank Wall Street Reform and Consumer Protection Act requires many hundreds of rules to be written.
Thus, we know we’ll continue to see an extraordinary barrage of rules on a myriad of issues. We have already seen a final rule, accompanied by a proposed rule regarding remittances. So if your credit union does international automated clearinghouse or wire transactions, these rules will apply to you.
We have seen a renumbering of existing consumer rules. For example, the rules for the Truth-in-Lending Act (Regulation Z) were renumbered as “1026.” While that may not seem like a big deal, consider that all of your training manuals are now inaccurate.
2. Complexity. Based on what CFPB has issued, the rules appear to be complex. The aforementioned remittance rules provide for the different treatment of transactions that are initiated electronically in the U.S., but are then completed either electronically or by issuance of a paper check.
In one case, the rule applies. In the other, it doesn’t.
3. Novelty. Many of the rules we’ll likely see from CFPB will be either completely new (remittance rules) or entire rewrites of existing rules so they are, in essence, new rules.
For example, the “Know Before You Owe” sample documents are entirely unlike existing disclosures for Truth-in-Lending or the Real Estate Settlement Procedures Act.
These samples, if promulgated as rules, will require a brand new disclosure regimen with all the concomitant expense that goes with new rules.
Prepare for new rules
We will see a flood of rules from CFPB. They will be complex. They will be rules we have never seen before.
How can we prepare?
• Pay attention. Of all the credit union staff I speak with, almost none are aware of the remittance rules or that they likely will apply to their credit union.
There are many excellent resources to track what a credit union’s staff will face. Make sure staff are knowledgeable.
• Focus staff and management. Compliance is part of what we have to do to follow the law and protect our members. It will require staff to focus on implementing changes. This should be a main part of their duties and not an afterthought.
Just as staff needs to be focused, management needs to plan for changes. Allocate funds and time to the tasks.
• Prepare your members. The rules will make you change processes—and your members may not like or understand the changes.
Educate your members as to why you are making changes. They are, after all, rules put in place to protect the consumer.