Tag Archives: Committee on Financial Services

Protecting the CFPB’s Overdraft Fee Rule

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Punch Cartoon

I am a signatory to a letter being sent to the House’s Committee on Financial Services, in opposition to H.J. Res. 59 (Hill), CRA Resolution to Overturn CFPB Rule on Overdraft Lending: Very Large Financial Institutions. The letter states,

The undersigned 278 consumer, civil rights, labor, legal services and community organizations and academics write to urge you to oppose H.J. Res. 59 (Hill) and any other effort to overturn the Consumer Financial Protection Bureau’s overdraft fee rule, which will reduce most overdraft fees from $35 to $5, stop manipulative practices by big banks, improve transparency, and put $5 billion back into the pockets of everyday people and their families. The public widely views current overdraft fee practices as unfair.

The overdraft fee rule closes a paper-check era loophole that has allowed big banks to trick people into paying excessive overdraft fees and earn billions in profits off of the most vulnerable families. The rule lowers most so-called “courtesy” overdraft fees from $35 to $5, saving households that pay overdraft fees an average of $225 a year. The rule gives big banks a variety of options to cover overdrafts, including safer, more transparent overdraft lines of credit with no price limit and the same disclosure requirements as credit cards. The rule only applies to very large institutions with over $10 billion in assets, many of which have already adopted similar protections. Smaller banks and credit unions are completely exempt.

We urge you to stand with everyday people over big banks. Banks should not profit off the struggles of working families through excessive, back-end overdraft junk fees. Please oppose H.J. Res. 59.

 

Watt’s Happening with Fannie and Freddie?

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FHFA Director Watt

Federal Housing Finance Agency Director Watt testified before the House Committee on Financial Services today and gave a good overview of the decade-long conservatorship of Fannie and Freddie.  He also gave some sense of the urgency of coming up with at least a stopgap measure before the two companies’ capital buffer drops to zero at the end of the year pursuant to the terms of the Senior Preferred Stock Purchase Agreements (PSPAs) that govern the two companies’ relationship with the Treasury. He stated that it would

be a serious misconception for members of this Committee, or for anyone else, to consider any actions FHFA may take as conservator to avoid additional draws of taxpayer support either as interference with the prerogatives of Congress, as an effort to influence the outcome of housing finance reform, or as a step toward recap and release. FHFA’s actions would be taken solely to avoid a draw during conservatorship.

This signifies to me that he is planning on doing something other than reducing the capital buffer to $0.  As far as I can tell, Watt is playing a game of chicken with Congress — if you do not act, I will.

It is not clear to me clear how much authority Watt has or thinks he has to change the rules relating to the capital buffer. Does he think that he could act inconsistent with the PSPAa and withhold capital?  I have not seen a legal argument that says he could.  Is he willing to do it and be sued by Treasury?  These are speculative questions, but I do think that he has laid the groundwork for taking action if Congress and Treasury do not.

It does not seem to me that he was much wiggle room according to the terms of the PSPAs themselves, except perhaps to delay making the net worth sweep at the end of this year by converting it to an annual sweep or by some other mechanism.  That will be a short-term fix.

Given his strong language — “FHFA’s actions would be taken solely to avoid a draw during conservatorship” — I think he might be prepared to take an action that is inconsistent with the plain language of the PSPAs in order to act in a way that he thinks is consistent with his duty as the conservator.  This is less risky than it sounds because the only party that would seem to have standing to sue would be the Treasury, the counter-party to the PSPAs.  One could imagine that the Treasury would prefer to negotiate a response with the FHFA or await Watt’s departure rather than to have a judge decide the issue.  One could also imagine that Treasury would go along with the FHFA without explicitly condoning its actions, particularly if its actions soothed a turbulent market for Fannie and Freddie mortgage-backed securities.

Watt has consistently signaled that he will act if no other responsible party does and he emphasized that again today.