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Promontory Financial Group: Consumer Financial Protection Developments

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From the editors of Sightlines
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May 24, 2012

Dear Friends,

The Consumer Financial Protection Bureau bills itself on its Web site as a “new kind of federal agency,” and the site itself, which is unique among the federal financial regulators, makes a strong case for that claim.

The bureau’s site is simple and uncluttered, uses large, easy-to-read fonts, and is intuitively navigable. It stands apart from the busy, cramped, text-heavy Web presences of more established regulators.

The CFPB’s Web savvy is not happenstance, but a clear, public priority of the new bureau. Earlier this month it solicited Web developers and graphic designers for a two-year “Design+Technology Fellowship.” It also put out the call for “UX” professionals (“user experience,” for those not steeped in technology lingo).

The tone of the announcement is instructive. Applicants are urged to join the CFPB and “create a dream technology environment,” and “improve the lives of millions of Americans.” Potential applicants might “want a break from building widgets and want to spend some time making things that really matter.” Those chosen for the fellowship will get a “crash course” in the bureau’s mission and its design and development process. Following an “immersion” period, fellows will work remotely from any location they choose to “design and build products that help your partners advance their mission.” Consistent with the source-code policy the agency announced in April, the bureau tells prospective applicants it will “share every line of operational code with the public” and “your work will not be hidden behind the walls of a bureaucracy.”

We’re not accustomed to hearing regulators communicate in this manner, but the CFPB has some liberties that established regulators may not have. Web sites over time stray from their intended design as content is added and rarely removed or reconceived, and as developers try to figure out how to squeeze new functionality from legacy technologies. The CFPB has the distinct advantage of working from a blank slate, and indeed, building from a blank slate seems to be part of the bureau’s developing culture.

While the other financial regulators’ Web sites face the financial institutions they regulate as well as the public, the CFPB faces almost exclusively to consumers. Its budding regulatory library is easily consolidated in a single tab, while the other agencies struggle to present a logical taxonomy for their reams of financial data, bulletins, alerts, enforcement actions, statistical releases, proposed and final regulations, guidance, handbooks, and archived materials.

The Web sites are to some extent appropriate for their constituencies. Visitors of the other financial regulators’ Web sites tend to be repeat users who know what they are looking for and where to find it, while CFPB visitors are more likely to be first-timers looking for help and far from certain about where to get it. The bureau’s home page prominently places specific calls to action: “Submit a Complaint.” “Tell Your Story.” “Ask CFPB.” The bureau aims to use its Web site to establish a dialogue with users, rather than have it become a passive information repository. Bureau officials have said they will use the information they collect on the site to inform their supervisory efforts.

Web sites reflect the culture, vision, and attitude of the organizations they represent, and the CFPB’s Web site may prove to be a litmus test for what regulated entities should expect from the new agency: a clear sense of mission, demonstrated commitment to it, and little interest in bureaucracy and deference to the way other agencies do things. From that perspective, the design fellowship offers evidence that the bureau does not perceive its Web site as perfect, nor as a static finished product, but instead plans to experiment with it and let user feedback guide its evolution. Some financial companies have expressed apprehension about their newest regulator, but there is at least one way to develop a finer sense of the supervision and examination that awaits them: Spend some time on its Web site.

Yours truly,

Amy Friend, Managing Director
afriend@promontory.com
+1 202 384 1056

Amy Friend

Ann Jaedicke, Managing Director
ajaedicke@promontory.com
+1 202 384 1150

Ann Jaedicke

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BJ Sanford, Managing Director
bsanford@promontory.com
+1 202 384 1020

BJ Sanford

Catherine West, Managing Director
cwest@promontory.com
+1 202 384 1169

Catherine West

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Please click here to continue receiving Consumer Financial Protection Developments.

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Welcome Catherine West

Catherine West joined Promontory April 30 as a managing director. She was the CFPB’s first chief operating officer and a key architect of its start-up. She was previously president of the U.S. card business for Capital One, president of the bank, and a member of the board of directors. She was named one of Fortune’s 50 Most Powerful Women in Business and one of Washingtonian’s 100 Most Powerful Women.

CFPB Announces Proposed Rulemaking on Prepaid Cards

In a May 23 field hearing in Durham, N.C., CFPB Director Richard Cordray said the bureau willi issue a proposal to ensure safety and transparency in the general purpose reloadable (GPR) prepaid card market. “Right now prepaid cards have far fewer regulatory protections than bank accounts or debit cards or credit cards,” Cordray said. A May 23 CFPB press release clarified the bureau’s rulemaking focus: proper fees and terms disclosure; liability protection from unauthorized transactions; and additional product features, such as savings accounts and credit repair. The CFPB’s formal advance notice narrowed the scope of requested comments to commentary on Regulation E’s coverage of GPR cards, fees and disclosures, product features, and costs of compliance. Coinciding with the announcement, the CFPB also unveiled a “prepaid cards” section of its “Ask CFPB” tool.

CFPB Investigating For-Profit Colleges

Corinthian Colleges, Inc., a publicly traded corporation that owns several for-profit colleges, revealed in its most recent 10-Q filing that it was served with a Civil Investigative Demand from the CFPB on April 3. The company said the stated purpose of the demand was to determine “whether for-profit postsecondary companies, student loan origination and servicing providers, or other unnamed persons, have engaged or are engaging in unlawful acts or practices relating to the advertising, marketing, or origination of private student loans.” Separately, ITT Educational Services said in a May 18 SEC filing that it was served with a CID from the CFPB, and cited the same reason as Corinthian Colleges.

CFPB Tries to Estimate Burdens, Seeks “Generic” Clearance

Federal Register notices on information collections are typically mundane matters, but they have taken on heightened importance given the substantial scrutiny of federal agencies’ rulemaking processes and the burdens they impose on businesses. The CFPB said in a May 15 notice that it had rulemaking authority for 15 federal consumer financial laws, and that its rulemaking efforts for these laws were in various stages. It acknowledged that it was required to “consider the potential implementation and ongoing compliance activities and associated costs of the proposed rules,” but had not yet decided on a specific format to do so. It instead submitted a “Generic Clearance” for these activities, estimating 1,200 institutional respondents spending an average of up to 90 minutes in focus groups, interviews, conference calls, emails, and online surveys. Generic information collection requests are part of the Office of Management and Budget’s Open Government Directive to improve transparency and efficiency in getting public feedback.

A separate May 11 CFPB notice solicited comments on information collections related to qualitative testing of new mortgage servicing model forms and disclosures, estimating 396 respondents spending an average of 16 minutes and an aggregate annual burden of 108 hours.

GAO Recommends Better Controls at CFPB

The GAO on May 21 released its mandated audit of the CFPB’s financial statements and issued 10 recommendations “for strengthening CFPB’s internal controls and accounting procedures.” Notwithstanding the findings of shortcomings in its own internal controls, the audit did acknowledge that none of the identified issues “represent material weaknesses or significant deficiencies.” Some of the recommendations were deep in the weeds, in one instance suggesting that the bureau’s CFO “issue a memorandum to all staff on CFPB’s policy on obtaining prior written approval for all reimbursed travel expenses.”

CFPB Proposals on Mortgage Points, Fees, and Compensation

A May 9 press release from the CFPB announced that the agency is considering a set of tighter mortgage rules governing mortgage points and fees, with the aim of greater transparency. Under the proposal, the bureau would require that:

• Discount points be bona fide, i.e., that consumers receive a certain minimum reduction in the interest rate for paying the point
• Lenders offer a no-discount-point loan option so that consumers can better compare prices
• Flat origination fees are assessed rather than variable “origination points”

The bureau also said it is considering proposals on loan officers’ qualifications and compensation, including a ban on paying steering incentives to loan originators. The bureau said it would develop the proposals by engaging consumers and the industry, as well as its Small Business Review Panel. It issued a fact sheet describing the review-panel process; a list of questions and issues it expects the panel to address; and an overview of the rules under consideration. The CFPB expects to formally propose the rules this summer, and issue them in final form in January 2013.

Date on CFPB’s Intentions on Mortgages

CFPB Deputy Director Raj Date spoke at the Mortgage Bankers Association National Secondary Market Conference on May 7, saying in his prepared remarks that “mortgage reform is appropriately front and center on the CFPB’s agenda.” But he sought to dispel concerns that the bureau’s regulation would stifle the market: “The crisis has not made us, at the CFPB, doubt the value of free and competitive markets,” he said. “Quite the contrary – the failures of the mortgage market underscore just what functioning, efficient markets are supposed to look like. They’re supposed to be transparent; they’re supposed to [be] fair; they’re supposed to create financial incentives for hard work and smart decisions.”

FTC Testifies on “Do Not Track,” Data Privacy

FTC officials including Chairman Jon Leibowitz testified May 9 before the Senate Commerce Committee on consumer privacy protection efforts, particularly on implementation of a “Do Not Track” mechanism. Noting that the current time is a “critical juncture” for consumer privacy, Leibowitz described the commission’s recent privacy report and expressed optimism toward a final “Do Not Track” implementation: “While work remains to be done on Do Not Track, the Commission believes that the developments to date, coupled with legislative proposals, provide the impetus towards an effective implementation of Do Not Track,” he said. The FTC said in a related press release that it urged Congress to “consider enacting general privacy legislation, and that it enact data security and breach notification legislation and targeted legislation to address data brokers.”

DoD, CFPB Team on HAMP Changes, Lending Principles

A May 9 blog post from the CFPB (cross-posted on the Department of the Treasury’s blog) touted recent HAMP revisions that will allow military homeowners and their families to remain qualified as owner-occupants for mortgage assistance purposes even if service obligations displace them. Borrowers will qualify if they:

• Are displaced due to an out-of-area job transfer such as PCS orders
• Intend to return to the home
• Do not own any other single-family real estate.

The changes go into effect June 1.

Separately, the Department of Defense and the CFPB at a May 4 Pentagon ceremony signed a joint statement of shared principles to protect the finances of servicemembers. “The statement says the department and bureau will work together to monitor market trends directed at service members and their families, coordinate consumer protection measures, identify risky small-dollar loans, and identify ways to improve laws related to financial protection of military members and their families,” said the DoD’s announcement of the signing.

FTC, CFPB File Joint Brief on FCRA

The FTC announced on May 8 that it had joined the CFPB in filing a brief in support of a provision in the Fair Credit Reporting Act that bars consumer reporting agencies from disclosing information in individuals’ criminal records that is more than seven years old. Those who say the provision is not constitutional cite a recent Supreme Court case, Sorrell v. IMS Health, Inc. But “the test the Supreme Court established over thirty years ago in Central Hudson Gas and Electric Corp. v. Public Service Commission of New York, 447 U.S. 557 (1980), still applies to laws like § 1681c that restrict commercial speech. Section 1681c passes this test, and nothing in Sorrell suggests otherwise,” said the agencies in their memorandum.

Cordray Articulates Vision

Director Cordray gave a May 3 speech in New York in which he laid out his overarching vision for the agency, beginning with an “evidence-based and data-driven” foundational approach to policymaking. He also outlined a two-pronged approach to closing the gap between consumers’ grasp of financial concepts and the understanding they need to participate effectively in consumer finance markets: Educate consumers and reduce complexity. He followed up on some of those themes in a May 10 speech at the White House Financial Capability and Empowerment Summit: “We want to see integrated curricula in our schools – where the benefits of compound interest are understood in math class; where economic costs and risks are taught in social studies class; where an essay in English class explains how we can take control of our financial lives to achieve our goals,” he said. He also touted three of the agency’s recent initiatives: “Ask CFPB,” “Know Before You Owe” mortgage disclosures, and the “Financial Aid Comparison Shopper.”

New OMWI Director at CFPB

The CFPB’s newly appointed Director of the Office of Minority and Women Inclusion, Stuart Ishimaru, introduced himself in an April 30 blog posting and outlined the office’s priorities: developing standards of equal employment and assessment of regulated entities’ diversity policies; advising on the impact of CFPB policies on minority- and women-owned businesses; and implementing solutions to civil-rights violations. Director Cordray lauded Ishimaru’s appointment in a speech the same day in Washington, D.C.: “Stuart’s extensive work in promoting diversity makes him the perfect person for the job. He has worked on behalf of underserved communities. He has a commitment to transparency. And, he has a strong understanding of both the federal hiring and contracting processes.”

FDIC’s Consumer Newsletter

The FDIC released the Spring 2012 edition of its Consumer Newsletter. Articles include risks in purchasing market-linked CDs, how to avoid CD scams, keeping student-loan costs down, securing an auto loan, and “Do You Have a Complaint About a Bank? Here's How to Get Started.”

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Promontory's Consumer Protection Group includes:

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Konrad Alt, Managing Director
kalt@promontory.com
+1 415 986 4160

Jeff Brown, Managing Director
jbrown@promontory.com
+1 202 384 1040

Jeanine Catalano, Special Adviser
jcatalano@promontory.com
+1 415 321 6408

Michael Dawson, Managing Director
mdawson@promontory.com
+1 202 384 1080

Susan Eckert, Director
seckert@promontory.com
+1 202 384 1125

Jennifer Faulkner, Director
jfaulkner@promontory.com
+1 202 384 1126

Amy Friend, Managing Director
afriend@promontory.com
+1 202 384 1056

David Gibbons, Managing Director
dgibbons@promontory.com
+1 847 615 1728

Jonathan Gould, Director
jgould@promontory.com
+1 202 384 1018

Ann Jaedicke, Managing Director
ajaedicke@promontory.com
+1 202 384 1150

Chris Lewis, Director
clewis@promontory.com
+1 415 321 6406

Simon McDougall, Managing Director
smcdougall@promontory.com
+44 207 377 2367

BJ Sanford, Managing Director
bsanford@promontory.com
+1 202 384 1020

Catherine West, Managing Director
cwest@promontory.com
+1 202 384 1169

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Promontory Financial Group, L.L.C.
801 17th Street, N.W.
Suite 1100
Washington, DC 20006

Copyright © 2012 Promontory Financial Group. All rights reserved.

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