On September 15, 2011, Raj Date delivered a speech in Philadelphia entitled “Lessons Learned From the Financial Crisis: the Need for the CFPB.” Although the speech was, in some part, an effort to validate the need for the CFPB in the first place, Mr. Date’s remarks present interesting clues about the CFPB’s early priorities with regard to rulemaking, supervision, and enforcement.
The speech focused on four areas of consumer financial services: mortgage lending and servicing, credit cards, student loans, and small, short-term credit products like overdraft practices. With respect to each area, Mr. Date emphasized the CFPB’s priorities, to be advanced through a combination of supervision, rulemaking and enforcement action. Here, though, I want to concentrate on the mortgage and credit card comments.
For mortgages, the CFPB is continuing its effort to create a simpler, more streamlined disclosure document (“Know Before you Owe”), and plans to create rules to address a borrower’s ability to repay as a lender evaluates that during the underwriting process. Mr. Date also made reference to the CFPB’s desire to “develop some basic standards for mortgage servicing,” which presumably is a reference to the foreclosure documentation issues that have been in the public eye since October of 2010. The speech asserted that “it is simply not acceptable to cut corners.”
The emphasis on the disclosure document for mortgages is interesting, and I wonder how consumer groups feel about it. I frequently hear consumer advocates attack disclosures on the basis that consumers never read them. I don’t agree with this point of view, and I think it is encouraging that the CFPB is working so hard on a disclosure document for mortgages. Underlying such a project is the idea that consumers need to take responsibility for their own borrowing decisions, and should be expected to do so if the relevant information is delivered to them.
But it is clear that the CFPB’s philosophy does not revolve exclusively around disclosures. On the subject of credit cards, Mr. Date made reference to enforcement under the CFPB’s “unfair, deceptive or abusive” authority. “Make no mistake,” he said. “When we find unjustified practices that cause substantial consumer harm, we will take the necessary action to put an end to them.” This statement, coupled with the CFPB’s effort to launch a credit card complaint process on its web site, seems to foreshadow that the CFPB anticipates targeting credit card issuers under its expansive UDAP authority (although it needs a Director before it can do that). Issuers will be left to guess what kind of “unjustified practices” the CFPB might attack, which underlines the uncertainty that such a loose standard creates. If the Bureau is serious about preserving consumer access to credit cards, it should provide the industry with clear guidance about what it considers “unjustified” in advance, rather than relying on its after-the-fact enforcement positions. The same kind of easy-to-understand, clear guidance that the CFPB advocates for consumers is also necessary for financial institutions. Let’s hope that the Bureau applies this idea in both contexts.