The Consumer Financial Protection Bureau has announced its priorities for the next two years. There are no real surprises in it, but there is a definite expansion of what the CFPB sees as its mission. The CFPB announced four principal areas of concern and nine specific priorities that it would attack over the next two years. Personally, I was pleased as I see that I will have no lack of things to write about. The CFPBʼs areas of concern are:
- Deception, or situations where the costs and risks of a financial decision are hidden or unclear;
- Debt traps, or practices that trigger a cycle of debt where consumers rack up substantial costs over time;
- Dead ends, or situations where people cannot simply walk away when they are treated unfairly; and
- Discrimination, or unequal treatment based on characteristics such as race, gender or other factors that the law prohibits.
The nine specific areas of priority listed alphabetically are:
- Arbitration. The CFPB really does not like arbitration clauses because, in the main, they prohibit class action lawsuits. The CFPB believes that this denies consumers the ability to litigate relatively small claims. There is certainly merit to the CFPBʼs position; on the other hand, in today’s litigious world, there needs to be some counter-balance to lawyers with too much time on their hands. In any event, anticipate a rulemaking prohibiting arbitration clauses in all financial contracts.
- Consumer Reporting. A great number of the complaints that the CFPB receives are based on errors on consumer reports. Another concern that the CFPB has is that a large number of people have no consumer file. Anticipate a rulemaking increasing the penalties for providing inaccurate information to a credit bureau and for a credit bureau publishing inaccurately the information that it receives. Also, a rulemaking requiring credit bureaus to consider information received from non-traditional sources will likely be on the agenda.
- Debt Collection. This is one of the CFPBʼs hottest hot buttons because it is the number one source of complaints. The easiest way to lessen the number of complaints would be to pass a rule that consumers must pay their bills on time. Absent that, anticipate a rulemaking applying the Fair Debt Collection Practices Act restrictions on debt collectors to lenders collecting debts owed to them directly.
- Demand-Side Consumer Behavior and Household Balance Sheets. I have lumped these two together as they are sort of the different sides of the same coin. The CFPB has determined that many consumers do not understand personal finance and the consequences of financial decisions that they make. The CFPB wants to spearhead a process to educate consumers on personal finance and the use of financial products.
- Mortgages. Nothing really new here. The CFPB says it will work to implement the new HMDA rules and enforce the loan servicing rules under RESPA and the TRID rules while continuing to monitor for illegal discrimination.
- Open-use Credit. In this category, the CFPB has lumped several small dollar loan products including credit cards, auto title and payday loans, small installment loans and overdraft products. The CFPBʼs concern is for the consumer that gets trapped in the debt without the ability to repay it and consequently has to frequently renew it and pay what the CFPB believes are excessive finance charges. In the case of credit cards, the borrower can pay only the minimum at excessive interest rates. Anticipate the extension of the mortgage ability to repay rules to these type debts. Also, anticipate that the guidances published by the various agencies relative to overdraft protection products to be codified into a rulemaking.
- Small Business Lending. The CFPB will publish a rulemaking incorporating the data collection on small business loans required by Dodd Frank. Accordingly, lenders will begin collecting race, sex and ethnicity information on their small business borrowers and the CFPB will use that information to pursue its belief that there is illegal discrimination in the small business lending market.
- Student Loans. The CFPB places most of the responsibility on the problems in the student loan market on the servicers of the loans. That is the servicers are not being lenient enough with the student borrowers and too frequently requiring that the loans be repaid. I could write an entire editorial here that the problem with the student loan market is that there is too much credit available to uncreditworthy students and that maybe there should be a greater emphasis on the old-fashioned way of working your way through school.
In any event, those are the CFPBʼs announced priorities for the next two years. I suggest that financial institution executives take a few minutes and consider how any of the proposed CFPB actions will affect their business and either how to prepare or how to take advantage.