The Consumer Financial Protection Bureau has recently published its Fall 2015 Rule Making Agenda. It is proposing a pretty aggressive slate of proposals that cover the gamut of consumer relationships with financial institutions. Almost all of its proposals are open for comment. He who does not comment (like he who does not vote) should not object to the results. The main thrust of the CFPB’s proposals is as follows:
An arbitration clause allows either party to a contract to require that a dispute be resolved by arbitration rather than by judicial action. One of the advantages of arbitration to a lender is that it precludes an aggrieved borrower from bringing a class action suit. Dodd Frank precludes arbitration clauses in residential mortgage loans, but they are still allowed in other consumer type loans. The CFPB has determined that many consumer claims involve relatively small amounts. Because of that, without the availability of a class action, often a consumer cannot find an attorney that will take the case, and the cost of pursuing it individually outweighs the potential award. The CFPB is considering regulations that would continue to allow arbitration clauses but would forbid the clause to prohibit class action claims.
Vehicle title, payday and other short-term loans
The CFPB is considering requiring that a lender making a loan secured by a vehicle title (other than a purchase money loan), a payday loan or any other short-term loan (a loan with a term of 45 days or less) would have to determine the borrower’s ability to repay the loan. The CFPB is concerned that borrowers utilizing these products are getting themselves into a financial hole from which they cannot escape. On the second and third renewals of the loan, there would be a presumption that the borrower did not have an ability to repay; on the fourth renewal, there would be a conclusive presumption that the borrower does not have the ability to repay. Most community banks do not offer these products; so, the effect on the banking industry would probably be negligible.
Reloadable prepaid cards
A prepaid card is not an account under either regulations E or DD; however, there are certain disclosures you must provide the purchaser of a prepaid card. A reloadable prepaid card is somewhat of a different animal. Because of the reloadable feature, it has many of the aspects of an account. The CFPB is, therefore, in the process of finalizing a proposed amendment to Regulations E that it published last year, which will extend many of the consumer protections of Regulation E to prepaid cards, including initial disclosures, access to account information and error resolution.
The CFPB is considering expanding the overdraft protection “opt- in” requirements of Regulation E to checks written on a deposit account. Basically, it would require that if a bank or credit union has an automated overdraft protection system, a depositor would have to opt-in to his or her insufficient funds items being paid by the system before it could be applied to the consumer’s account. The CFPB is also considering adding to the regulations certain of the suggested overdraft protection best practices of the OCC and the FDIC. Apparently, the CFPB does not sufficiently understand the difference between the rejection of an electronic debit and the return of an overdraft check. The rejection of the electronic debit does not cause any fee to be charged to the consumer’s account. On the other hand, if there is an insufficient fund check that is returned unpaid, then, an NSF fee is charged to the account, and the consumer must also pay any return item fee that the payee of the check may charge as well as undergoing the inconvenience and embarrassment of redeeming the item. On the other hand, if the check is paid into overdraft, an overdraft fee is charged, which is normally the same amount as the NSF fee charged for the unpaid return of the item. Consumers uniformly appreciate having their insufficient funds checks paid into overdraft. There are already provisions under the best practices to notify consumers who are abusing the system. The CFPB should not allow its revulsion to the automated overdraft systems to cloud their advantage to consumer depositors.
The CFPB gets more complaints about debt collectors than any other area that it regulates. While there are fairly strict rules under the Fair Debt Collection Practices Act, I am sure that they are broken or stretched pretty often. Give me a stack of debts to collect and a commission on how much I collect, and I will probably abuse the rules to make a buck. The CFPB is considering adding to the rules and increasing the penalties for their violation. More important, it is considering extending some of the rules to lenders collecting their own debts. To date, the owner or servicer of a loan has been exempt from the FDCPA rules although the CFPB has indicated that some collection activities by lenders could constitute UDAAP violations.
The CFPB is making its presence felt. The TRID rules are in place, and the HMDA rules have been finalized. Based on its fall rule making agenda, there is a lot more coming down the pike, none of which appear to be fixing the errors, ambiguities or omissions of what they have already written, especially on TRID.