Pursuant to federal rules, the CFPB (Bureau) has posted its 2016 Rulemaking Agenda for America’s financial industries. The financial oversight agency routinely declares its intent to place controls on existing and evolving economic sectors to deter potential unethical or illicit money market behaviors. Structured into five stages (pre-rule, proposed, final, long-term and completed), the CFPB’s rule making processes put industry sub-sectors on notice when it is reviewing and potentially redirecting their financial enterprise activities.
The newest agenda includes information on CFPB initiatives that are currently underway:
Overdraft Protection for Checking Accounts
There are often penalties applied for attempting to withdraw more funds than a checking account holds. In 2013, the CFPB released a white paper that detailed how financial institutions can affect the incidence and consequence of overdrafts by how they calculate existing funds, apply coverage limits and post transactions, among other activities. In 2013, data was gathered on the prevalence of overdraft and “non-sufficient funds” (NSF) transactions in accounts where consumers had “opted in” to coverage protections versus those who had “opted out.” Based on the data and in conjunction with ongoing research, the CFPB is evaluating the opt-in process in anticipation of developing applicable rules.
Notice of Proposed Rules
Arbitration is frequently used to decide consumer disputes, but sometimes corporations can impose arbitration restrictions in inappropriate circumstances. The CFPB is considering banning arbitration agreements in consumer class action suits, and requiring disclosure of certain information revealed during financially based arbitration discussions. Research is ongoing.
Payday, Auto Title and Similar Loan Products
This emerging market has been under CFPB scrutiny for at least three years, and research has determined that some lender’s debiting practices are harming consumers. Apparently, some lenders fail to establish that their customer can repay the loan before issuing the funds, setting that borrower up to default on the loan, which can then trigger a worsening downward financial cycle. Inappropriate collection practices are also raising CFPB eyebrows. With input from industry stakeholders, the Bureau intends to issue new rules in the coming weeks.
“Know Before You Owe” Mortgage Disclosures
As part of the Bureau’s broader mortgage information initiative, this summer it will release clarifications and guidance regarding the integration and streamlining of mortgage disclosures that are mandated by the Dodd-Frank Act (DFA). Lenders must provide the revised disclosures to consumers when they apply for or close on a mortgage loan.
The debt collection industry generates more consumer complaints than any other single financial sector industry. Although federal law prohibits collectors from engaging in “unfair, deceptive, abusive, and other unlawful collection practices,” until the establishment of the CFPB, there was no oversight or enforcement mechanism. Since 2013, the Bureau has been collecting data and engaging with industry stakeholders to determine what consumers should know about collections and who should provide that information to them.
These days, many consumers are using prepaid accounts such as pre-loaded cards in place of checking accounts. Some of these accounts include credit features or overdraft services, both of which are regulated by federal banking laws. In November 2014, the Bureau proposed to bring these products into the realm of the banking laws and to create new provisions within those laws to regulate these new financial products. The final rules regarding the proposal are expected to be released this summer.
The recent mortgage industry crisis revealed numerous, onerous lender activities that added to the financial and emotional burden of mortgage borrowers. In 2014, the Bureau proposed amendments that addressed lender requirements to mitigate losses and improve their compliance with regulations when borrowers present specific circumstances, such as being in bankruptcy. This summer, the Bureau will issue its final rule pursuant to its proposed amendment.
Technology has created the opportunity for scores of new financial enterprise models, many of which are “non-banks” and therefore outside the purview of the CFPB regulating authority. However, because many of the practices of these institutions have negatively impacted consumers, the need for regulation and oversight of them has become apparent. The Bureau is investigating the activities of these newly emerging financial product providers in anticipation of creating rules for their governance in the future.
These entities frequently issue high-interest consumer installment loans or lend money using car titles as collateral. Now unregulated, the CFPB is considering how to best supervise their activities to protect their highly vulnerable consumers.
Women- and Minority-Owned Businesses
The DFA requires financial institutions to collect credit application data submitted by women- and minority-owned businesses. Moving forward, the Bureau will conduct research to gather that data and develop rules to ensure that those entities receive appropriate privacy and procedural protections.
Other Mortgage Rules
Since 2013, the Bureau has been addressing many of the factors that contributed to the Great Recession of 2007-2009. In the mortgage industry, the Bureau has issued regulations affecting loan originations, servicing, disclosures and reporting requirements to ensure that all players have the information necessary to make appropriate financial decisions. As those rules play out in the markets, additional issues are often revealed, and new rules or rule modifications become necessary. The Bureau is maintaining its attention to, and investment in, this industry that is so critical to the growth of the American economy.
In Fall 2015, the Bureau released its long-term initiatives, which include attention to both student loan servicing and credit reporting.