CFPB Supervision

  • Supervisory highlights: On May 22nd, the CFPB published its Spring 2014 “Supervisory Highlights” for the announced purpose of providing, “information to ensure their operations remain in compliance with federal consumer financial law.”  The report’s first section describes supervisory observations in the following areas:
    • Consumer reporting;
    • Debt collection;
    • Short-term, small-dollar lending;
    • Fair lending; and
    • Remedial actions.

The report’s subsequent section reviews supervision program developments, including:

  • Updated examination procedures;
  • Recent guidance on both the FCRA and social media; and
  • Rulemaking regarding remittance transfers.

CFPB Operations

  • Credit scores / medical debt: On May 20th, the CFPB published a “data point” report on medical debt and credit scores, concluding that, “credit scoring models may underestimate the creditworthiness of consumers who owe medical debt in collections,” and, “may not be crediting consumers who repay medical debt that has gone to collections.”  Through a study of 5 million anonymized credit records from September 2011 through September 2013, the CFPB found that scoring models, “generally do not differentiate between medical collections and the other debts that are reported by third-party collection agencies,” and do not differentiate between, “collections that have been fully repaid and those that remain unpaid.”  Finally, the CFPB estimated that credit scores may underestimate   creditworthiness by ten points for consumers owing medical debt, and by 16-22 points for those who subsequently paid off their medical debt.  On a press call, CFPB Director Richard Cordray referenced consumer complaints indicating that many consumers are unaware of a medical debt in collection until consumers see it on their credit report or are contacted by a collector; he reiterated the CFPB’s recommendation that credit card companies provide credit scores to their customers monthly.
  • Student loans / credit reporting: On May 19th, Director Cordray delivered prepared remarks at the Boulder Summer Conference on Consumer Financial Decision Making.  Cordray discussed several salient developments in consumer finance over recent generations, and spoke primarily about student loan debt, referencing, “countless stories from consumers about how student loan debt is impeding people’s lives and having a domino effect on the broader economy.”  Cordray cited CFPB and third-party research exploring the “domino effect” of student loan burdens on home, auto, and other credit markets.  In his remarks, Cordray also noted the development of “large credit reporting companies” that have, “facilitated the consumer credit boom by permitting underwriting and risk assessment at a more sophisticated level than ever before,” but increasingly influence the availability and price of credit, as well as, “people’s prospects for employment, rental housing, or insurance, with credit checks growing more common as part of background checks that may factor into those decisions.”
  • Financial literacy: On May 20th, the CFPB published a blog post encouraging young people to use summer jobs to build financial skills.  The CFPB referenced several of its efforts to increase youth financial literacy, and several lessons it has learned in its work so far. “Without the necessary financial knowledge and skills,” the CFPB stated, “many will not develop money management habits, trapping them in a future with limited savings, high debt, or compromised credit.”
  • CAB meeting: On May 21st, the CFPB announced that its Consumer Advisory Board will hold a public meeting on June 18th in Reno (NV) on, “trends and themes in the mortgage market and new resources available to consumers looking to buy a home.”  Director Cordray is scheduled to speak.  The meeting will be the first public meeting of the Board or Council, both of which will live stream and allow public attendance at future meetings.  In a May 20th announcement, the CFPB referenced “some stakeholders,” generally, who had requested transparency at Board and Council meetings.  Most recently, and most prominently, House Financial Services Committee Chairman Jeb Hensarling (R-TX) issued a press release in March requesting that the CFPB’s advisory groups permit public attendance (previously reported).

CFPB & Congress

  • Industry compliance: On May 15th, Rep. Bill Posey (R-FL) introduced H.R. 4662, the “[CFPB] Advisory Opinion Act,” which would require the CFPB Director to respond within 90 days to compliance inquiries made by covered persons concerning whether that covered person’s proposed conduct, “would, for purposes of [the CFPB’s] enforcement policy, violate federal consumer financial law.”  The bill would require the CFPB to keep confidential both the submitted inquiries and its responses, and exempt such documents from FOIA disclosure.  Finally, the bill provides for the CFPB Director to establish the procedure for submitting such inquiries, including consultations with prudential and other federal regulators as well as a procedure for public notice and comment period.
  • CFPB Reform: On May 21st, the House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit held a hearing on legislative proposals affecting the CFPB, including the following seven bills and four discussion draft bills:
    • H.R. 3389, the “CFPB Slush Fund Elimination Act of 2013”;
    • H.R. 3770, the “CFPB-IG Act of 2013”;
    • H.R. 4262, the “[CFPB] Advisory Commission Transparency Act”;
    • H.R. 4383, the “[CFPB] Small Business Advisory Board Act”;
    • H.R. 4539, the “[CFPB] Research Transparency Act”;
    • H.R. 4604, the “CFPB Data Collection Security Act”;
    • H.R. 4662, the “[CFPB] Advisory Opinion Act”;
    • Discussion draft of the “[CFPB] Arbitration Fairness Act”;
    • Discussion draft of the “[CFPB] Guidance Transparency Act”;
    • Discussion draft of the “Preventing Regulatory Abuse Act of 2014”; and
    • Discussion draft of the “[CFPB] Examination Fairness Act.”

At the hearing, the Subcommittee heard testimony from:

  • Andrew Pincus, Partner, Mayer Brown LLP;
  • Hester Peirce, Senior Research Fellow, George Mason University’s Mercatus Center;
  • Rob Chapman, President, American Land Title Association; and
  • Ed Mierzwinski, Consumer Program Director, U.S. PIRG.
  • Employee management: On May 21st, the House Financial Services Committee’s Subcommittee on Oversight and Investigations held a hearing entitled, “Allegations of Discrimination and Retaliation Within the [CFPB], Part Two,” to hear the subpoenaed testimony of two CFPB officials and a National Treasury Employees Union (NTEU) representative. Liza Strong, CFPB Director of Employee Relations, and Ben Konop, Executive Vice President of the NTEU (Chapter 335) and an enforcement attorney in the CFPB’s Office of Supervision, Enforcement, and Fair Lending, each testified. Strong stated that prior CFPB employee allegations before the Subcommittee in April testimony (previously reported), “are not consistent with what I have observed during my time at the [CFPB].” Konop described examples he witnessed in which CFPB management “struggle[d], at times, to live up to the mission, ideals, and achievements of the CFPB, notably in regards to Performance Management Review.”  Member questioning focused heavily on a September 30, 2013, Deloitte Consulting report that the CFPB commissioned and that corroborated a number of the allegations two CFPB employees made at the April hearing.  Strong and Konop each stated that they were not aware of the Deloitte report prior to this week.

CFPB  Rulemaking

  • Remittance transfers: On May 16th, the CFPB published a notice in the Federal Register (79 FR 23233) to extend the comment period on its proposed rule on remittance transfers (previously reported) to June 6, 2014.