Tag Archives: Bureau

Fintech and Mortgage Lending

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image by InvestmentZen, www.investmentzen.com

The Trump Administration released its fourth and final report on Nonbank Financials, Fintech, and Innovation in its A Financial System That Creates Economic Opportunity series. The report differs from the previous three as it does not throw the Consumer Financial Protection Bureau under the bus when it comes to the regulation of mortgage lending.

The report highlights how nonbank mortgage lenders, early adopters of fintech, have taken an immense amount of market share from traditional mortgage lenders like banks:

Treasury recognizes that the primary residential mortgage market has experienced a fundamental shift in composition since the financial crisis, as traditional deposit-based lender-servicers have ceded sizable market share to nonbank financial firms, with the latter now accounting for approximately half of new originations. Some of this shift has been driven by the post-crisis regulatory environment, including enforcement actions brought under the False Claims Act for violations related to government loan insurance programs. Additionally, many nonbank lenders have benefitted from early adoption of financial technology innovations that speed up and simplify loan application and approval at the front-end of the mortgage origination process. Policymakers should address regulatory challenges that discourage broad primary market participation and inhibit the adoption of  technological developments with the potential to improve the customer experience, shorten origination timelines, facilitate efficient loss mitigation, and generally deliver a more reliable, lower cost mortgage product. (11)

I am not sure that the report has its causes and effects exactly right. For instance, why would banks be more disincentivized than other financial institutions because of False Claims Act lawsuits? Is the argument that banks have superior lending opportunities that are not open to nonbank mortgage lenders? If so, is that market segmentation such a bad thing? 

That being said, I think the report is right to highlight the impact of fintech on the contemporary mortgage lending environment. Consumers will certainly benefit from a shorter and more streamlined mortgage application process.

Taking Apart The CFPB, Bit by Bit

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graphic by Matt Shirk

Mick Mulvaney’s Message in the CFPB’s latest Semi-Annual Report is crystal clear regarding his plans for the Bureau:

As has been evident since the enactment of the Dodd-Frank Act, the Bureau is far too powerful, and with precious little oversight of its activities. Per the statute, in the normal course the Bureau’s Director simultaneously serves in three roles: as a one-man legislature empowered to write rules to bind parties in new ways; as an executive officer subject to limited control by the President; and as an appellate judge presiding over the Bureau’s in-house court-like adjudications. In Federalist No. 47, James Madison famously wrote that “[t]he accumulation of all powers, legislative, executive, and judiciary, in the same hands … may justly be pronounced the very definition of tyranny.” Constitutional separation of powers and related checks and balances protect us from government overreach. And while Congress may not have transgressed any constraints established by the Supreme Court, the structure and powers of this agency are not something the Founders and Framers would recognize. By structuring the Bureau the way it has, Congress established an agency primed to ignore due process and abandon the rule of law in favor of bureaucratic fiat and administrative absolutism.

The best that any Bureau Director can do on his own is to fulfill his responsibilities with humility and prudence, and to temper his decisions with the knowledge that the power he wields could all too easily be used to harm consumers, destroy businesses, or arbitrarily remake American financial markets. But all human beings are imperfect, and history shows that the temptation of power is strong. Our laws should be written to restrain that human weakness, not empower it.

I have no doubt that many Members of Congress disagree with my actions as the Acting Director of the Bureau, just as many Members disagreed with the actions of my predecessor. Such continued frustration with the Bureau’s lack of accountability to any representative branch of government should be a warning sign that a lapse in democratic structure and republican principles has occurred. This cycle will repeat ad infinitum unless Congress acts to make it accountable to the American people.

Accordingly, I request that Congress make four changes to the law to establish meaningful accountability for the Bureau :

1. Fund the Bureau through Congressional appropriations;

2. Require legislative approval of major Bureau rules;

3. Ensure that the Director answers to the President in the exercise of executive authority; and

4. Create an independent Inspector General for the Bureau. (2-3)

Mulvaney gets points for speaking clearly, but a lot of what he says is wrong and at odds with how the federal government has operated for nearly one hundred years. He is wrong in stating that the CFPB Director acts without judicial oversight. The Director’s decisions are appealable and his predecessor’s have, in fact, been overturned. And his call to a return to the federal government of the type recognizable to the Framers has a hollow ring since at least 1935 when the Supreme Court decided Humphrey’s Executor v. United States.

I would think that it should go without saying that the federal government has grown exponentially since its founding in the 18th century. The Supreme Court has acknowledged as much in Humphrey’s Executor which held that Congress could create independent agencies.  Independent agencies are now fundamental to the operation of the federal government.

Mulvaney and others are seeking to chip away at the legitimacy of the modern administrative state. That is certainly their prerogative. But they should not ignore the history of the last hundred years and skip all the way back to 18th century if they want their arguments to sound like anything more than a bit of sophistry.

Ditching the CFPB’s System of Adjudication

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photo by Mike Licht

Mick Mulvaney is continuing his work of dismantling the Consumer Financial Protection Bureau as we have known it. His latest is the issuance of a Request for Information Regarding Bureau Rules of Practice for Adjudication Proceedings.

Section 1053 of the Act authorizes the Bureau to conduct administrative adjudications. The Bureau in the past has brought cases in the administrative setting in accordance with applicable law. The Bureau understands, however, that the administrative adjudication process can result in undue burdens, impacts, or costs on the parties subject to these proceedings. Members of the public are likely to have useful information and perspectives on the benefits and impacts of the Bureau’s use of administrative adjudications, as well as existing administrative adjudication processes and the Rules. The Bureau is especially interested in receiving suggestions for whether it should be availing itself of the administrative adjudication process, and if so how its processes and Rules could be updated, streamlined, or revised to better achieve the Bureau’s statutory objectives; to minimize burdens, impacts, or costs on parties subject to these proceedings; to align the Bureau’s administrative adjudication Rules more closely with those of other agencies; and to better provide fair and efficient process to individuals and entities involved in the adjudication process, including ensuring that they have a full and fair opportunity to present evidence and arguments relevant to the proceeding. (83 F.R. 5055-56, Feb. 5, 2018)

The Bureau requests that comments include, first and foremost, “Specific discussion of the positive and negative aspects of the Bureau’s administrative adjudication processes, including whether a policy of proceeding in Federal court in all instances would be preferable.” (83 F.R. 5056)

This Request for Information is the second of a series. The first RFI addressed Civil Investigative Demands and Associated Processes. I will blog about the third one, the Request for Information Regarding Bureau Enforcement Processes, at a later date.

Mulvaney appears to be using these RFIs to provide the consumer financial services industry with an opportunity to provide broad direction to the Bureau as to what changes they would like to see, now that pro-consumer Director Cordray has stepped down. This would be consistent with this RFI’s focus on minimizing “burdens, impacts, or costs on parties subject to these proceedings . . .”

Comments are due April 6, 2018 so get crackin’.

The “Humbled” Consumer Financial Protection Bureau

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photo by Lilla Frerichs

The Consumer Financial Protection Bureau is changing directions in a big way under the leadership of Mick Mulvaney as seen in its Strategic Plan for FY 2018-2022. In his opening message to the Plan, Mulvaney writes that the Plan

presents an opportunity to explain to the public how the Bureau intends to fulfill its statutory duties consistent with the strategic vision of its new leadership. In reviewing the draft Strategic Plan released by the Bureau in October 2017, it became clear to me that the Bureau needed a more coherent strategic direction. If there is one way to summarize the strategic changes occurring at the Bureau, it is this: we have committed to fulfill the Bureau’s statutory responsibilities, but go no further. Indeed, this should be an ironclad promise for any federal agency; pushing the envelope in pursuit of other objectives ignores the will of the American people, as established in law by their representatives in Congress and the White House. Pushing the envelope also risks trampling upon the liberties of our citizens, or interfering with the sovereignty or autonomy of the states or Indian tribes. I have resolved that this will not happen at the Bureau.

So how do we refocus the Bureau’s efforts to better protect consumers? How do we succinctly define the Bureau’s unique mission, goals, and objectives? Fortunately, the necessary tools are already set forth in statute. We have drawn the strategic plan’s mission statement directly from Sections 1011 and 1013 of the Dodd-Frank Act: “to regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws” and “to educate and empower consumers to make better informed financial decisions.” We have similarly drawn the strategic plan’s first two strategic goals and its five strategic objectives from Section 1021 of the Dodd-Frank Act. By hewing to the statute, this Strategic Plan provides the Bureau a ready roadmap, a touchstone with a fixed meaning that should serve as a bulwark against the misuse of our unparalleled powers. Just as important, it provides clarity and certainty to market participants. (2)

The subtext of this change in direction is not that “sub” at all. The Trump Administration wants to rein in the Bureau after it aggressively pursued financial services companies for violating a broad range of consumer protection statutes.

The Plan says that the Bureau will now act “with humility and moderation.” What that means is that the it will now be cutting financial services firms a lot of slack. Let’s see how a humbled Bureau works out for consumers.

The CFPB Makes Its Case

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CFPB Director Cordray

The Consumer Financial Protection Bureau released its Semi-Annual Report. Given that the Bureau is under attack by Republicans in Congress and in the Trump Administration, one can read this as a defense (a strong defense, I might editorialize) for the work that the Bureau has done on behalf of consumers. The core of the Bureau’s argument is that it levels the playing field for consumers when they deal with financial services companies:

The Bureau has continued to expand its efforts to serve and protect consumers in the financial marketplace. The Bureau seeks to serve as a resource on the macro level, by writing clear rules of the road and enforcing consumer financial protection laws in ways that improve the consumer financial marketplace, and on the micro level, by helping individual consumers get responses to their complaints about issues with financial products and services. While the various divisions of the Bureau play different roles in carrying out the Bureau’s mission, they all work together to protect and educate consumers, help level the playing field for participants, and fulfill the Bureau’s statutory obligations and mission under the Dodd-Frank Act. In all of its work, the Bureau strives to act in ways that are fair, reasonable, and transparent.

*     *     *

When Federal consumer financial protection law is violated, the Bureau’s Supervision, Enforcement, and Fair Lending Division are committed to holding the responsible parties accountable. In the six months covered by this report, our supervisory actions resulted in financial institutions providing approximately $6.2 million in redress to over 16,549 consumers. During that timeframe, we also have announced enforcement actions that resulted in orders for approximately $200 million in total relief for consumers who fell victim to various violations of consumer financial protection laws, along with over $43 million in civil money penalties. We brought numerous enforcement actions for various violations of the Dodd-Frank Act and other laws, including actions against Mastercard and UniRush for breakdowns that left tens of thousands of economically vulnerable RushCard users unable to access their own money to pay for basic necessities; two separate actions against CitiFinancial and CitiMortgage for keeping consumers in the dark about options to avoid foreclosure; and against three reverse mortgage companies for deceptive advertisements, including claiming that consumers who obtained reverse mortgages could not lose their homes. We also brought two separate actions against credit reporting agencies Equifax and TransUnion for deceiving consumers about the usefulness and actual cost of credit scores they sold to consumers, and for luring consumers into costly recurring payments for credit products; and an action against creditor reporting agency Experian for deceiving consumers about the usefulness of credit scores it sold to consumers. The Bureau also continued to develop and refine its nationwide supervisory program for depository and nondepository financial institutions, through which those institutions are examined for compliance with Federal consumer financial protection law. (10-11, footnotes omitted)

Anyone who was around during the late 1990s and early 2000s would know that consumers are much better off with the Bureau than without it. This report provides some of the reasons why that is the case.

Assessing The Ability-to-Repay and Qualified Mortgage Rule

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photo by Alan Levine

The Consumer Financial Protection Bureau has issued a Request for Information Regarding Ability-to-Repay/Qualified Mortgage Rule Assessment. Dodd-Frank

requires the Bureau to conduct an assessment of each significant rule or order adopted by the Bureau under Federal consumer financial law. The Bureau must publish a report of the assessment not later than five years after the effective date of such rule or order. The assessment must address, among other relevant factors, the rule’s effectiveness in meeting the purposes and objectives of title X of the Dodd Frank Act and the specific goals stated by the Bureau. The assessment also must reflect available evidence and any data that the Bureau reasonably may collect. Before publishing a report of its assessment, the Bureau must invite public comment on recommendations for modifying, expanding, or eliminating the significant rule or order. (82 F.R. 25247)

The Bureau invites the public to submit the following:

  1. Comments on the feasibility and effectiveness of the assessment plan, the objectives of the ATR/QM Rule that the Bureau intends to emphasize in the assessment, and the outcomes, metrics, baselines, and analytical methods for assessing the effectiveness of the rule as described in part IV above;
  2. Data and other factual information that may be useful for executing the Bureau’s assessment plan, as described in part IV above;
  3. Recommendations to improve the assessment plan, as well as data, other factual information, and sources of data that would be useful and available to execute any recommended improvements to the assessment plan;
  4. Data and other factual information about the benefits and costs of the ATR/ QM Rule for consumers, creditors, and other stakeholders in the mortgage industry; and about the impacts of the rule on transparency, efficiency, access, and innovation in the mortgage market;
  5. Data and other factual information about the rule’s effectiveness in meeting the purposes and objectives of Title X of the Dodd-Frank Act (section 1021), which are listed in part IV above;
  6. Recommendations for modifying, expanding, or eliminating the ATR/QM Rule. (82 F.R. 25250)

As with the RESPA Assessment, this ATR/QM Assessment provides “consumers and their advocates, housing counselors, mortgage creditors and other industry representatives, industry analysts, and other interested persons” with the opportunity to help shape how the ATR/QM Rule should work going forward. (Id.)

Comments must be received on or before July 31, 2017.

Surveying Financial Well-Being

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photo by Sean MacEntee

The Consumer Financial Protection Bureau has issued a notice and request for comment on the Financial Well-Being National Survey. The CFPB is asking for comments on

(a) Whether the collection of information is necessary for the proper performance of the functions of the Bureau, including whether the information will have practical utility; (b) The accuracy of the Bureau’s estimate of the burden of the collection of information, including the validity of the methods and the assumptions used; (c) Ways to enhance the quality, utility, and clarity of the information to be collected; and (d) Ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. (81 F.R.13778)

The first question is of great importance and it is great that the CFPB is asking it. As I have frequently noted, financial education efforts have not been all that successful.  Moreover, efforts to improve financial literacy have often had perverse results.

My first instinct is that there is no harm in conducting the Financial Well-Being National Survey. It asks questions such as “How would you assess your overall financial knowledge?” and “How confident are you that the way you are managing money today is getting you to the results you want?” (5)

The key question that remains, however, is will the answers to such questions actually help shape consumer protection policy in a productive way? The CFPB should be sure that the answer to that question is yes before proceeding with the Survey.

Comments are due soon, on April 14th.  Get crackin’!