The Consumer Financial Protection Bureau: Key Developments and Regulatory Impact Going Forward. May 8, 2013

Transcription

1 The Consumer Financial Protection Bureau: Key Developments and Regulatory Impact Going Forward May 8, 2013

2 Housekeeping Turn electronic devices to mute or vibrate Return completed CLE credit request forms and evaluations to the registration desk Please feel free to ask questions at the end of the presentation 2

3 Today s Schedule 8:00 8:30 a.m. REGISTRATION / BREAKFAST 8:30 8:35 a.m. WELCOME 8:35 9:10 a.m. The Consumer Financial Protection Bureau: Beginnings & Background of a New Cop on the Beat Topics: Genesis of a Movement Dodd-Frank Wall Street Reform and Consumer Protection Act Architecture of the CFPB CFPB Divisions & Key Players 9:10 9:25 a.m. The Consumer Financial Protection Bureau: Implementation & Interaction Topics: Timeline: From Dodd-Frank to Present Navigating the CFPB Website 9:25 9:45 a.m. Dissecting the CFPB s Regulations Topics: Consumer Complaint Process Civil Investigative Demands 9:45 10:10 a.m. The Consumer Financial Protection Bureau: Prospective Topics: Oversight & Rules Cordray Nomination Fight Potential Opportunities: Lobbying & Regulatory 10:10 10:35 a.m. Concluding Notes / Q&A Panel 3

4 The Consumer Financial Protection Bureau: Beginnings & Background of a New Cop on the Beat

5 How We Got Here October 2008 Troubled Asset Relief Program March 2010 Affordable Care Act signed into law, significant expansion of government oversight Obama Administration Cass Sunstein Administrator of Office of Information and Regulatory Affairs in the Executive Office of the President (Sept Aug. 2012) J. Thomas Rosch Commissioner of Federal Trade Commission (Jan Sept. 2012) CFPB Elizabeth Warren (June 2007) Unsafe at Any Rate (2007); Making Credit Safer (2008) Academic Research Counsel (Sept. 2012) ( Behaviorally Flavored ) Richard Thaler, Christine Jolls, Justine Hastings Research, Markets & Regulations Division (May 2011) Sendhil Mullainathan 5

6 Genesis of a Movement: Background Prospect Theory (1979) Representativeness Availability Adjustment / Anchoring Libertarian Paternalism (2003) an approach that preserves freedom of choice but that authorizes both private and public institutions to steer people in directions that will promote their welfare. 10,000 Foot View of Behavioral Model Identify Normative Models of Neoclassical Economists Document Departures ( Anomalies ) from Rational Choice Model Estimate Social Costs of Specific Departure, i.e. Those Not Attributable to Subjects Confusion or Transaction Costs Develop Alternative Model Test Alternative Model: Cost-Benefit Analysis of Corrective Action 6

7 Genesis of a Movement: Public Policy CFPB s Adoption of the Behavioral Model Data Compilation Identifying Systemically Irrationally Behavior Access to 9 Largest Credit-Card Issuers Records Consumer Complaint Database Issuance of Data Requests Data Interpretation Distinguishing Rational Behavior from Error/Costs Research, Markets & Regulations & Academic Research Council Intervention Promulgate Rules & Regulations ( Choice Architecture ) Supervision, Enforcement, and Fair Lending & Equal Opportunity & Research, Markets & Regulations Consumer Assistance Consumer Education & Engagement 7

8 Dodd-Frank: By the Numbers $2,900,000,000 cost of Dodd-Frank implementation over the next 5 years $1,800,000,000 implementation cost for commodities traders and more than $1 trillion in broader economic costs. 383,013 words in Dodd-Frank 2,600 new positions at regulatory agencies 2,319 pages in the final bill (vs. 2,409 for Healthcare Reform). 533 new regulations 243 rules created by Dodd-Frank (Sarbanes-Oxley created 16) 94 reports 67 studies required by Dodd-Frank (Sarbanes-Oxley requires 6) Number of Pages in Financial Reform Bills Securities Act of 1933 Securities Exchange Act of 1934 Sarbanes- Oxley Dodd-Frank 8

9 Dodd-Frank: Rulemakings & Studies Agency Rulemaking Studies Commodity Futures Trading Commission 61 6 Consumer Financial Protection Bureau 24 4 Financial Stability Oversight Council 56 8 Federal Deposit Insurance Corporation 31 3 Federal Reserve 54 3 Federal Trade Commission 2 0 Government Accountability Office 0 23 Office of the Comptroller of the Currency 17 2 Office of Financial Research 4 1 Securities and Exchange Commission Treasury Department 9 1 Total

10 Dodd-Frank: 13 New Regulators, 533 New Regulations Created 13 new regulatory agencies and offices while eliminating only one Established by Dodd-Frank 1. Consumer Financial Protection Bureau 2. Financial Stability Oversight Council 3. Federal Insurance Office 4. New Offices of Minority and Women Inclusion 5. Investor Advisory Committee 6. Office of Investor Advocate 7. Office of Credit Ratings 8. Credit Rating Agency Board 9. Office of Financial Literacy 10. Office of Financial Research 11. Office of Housing Counseling 12. Office of Fair Lending and Equal Opportunity 13. Office of Financial Protection for Older Americans Eliminated by Dodd-Frank 1. Office of Thrift Supervision 10

11 Dodd-Frank Wall Street Reform and Consumer Protection Act Title X Bureau of Consumer Financial Protection Subtitle A Bureau of Consumer Financial Protection Subtitle B General Powers of the Bureau Subtitle C Specific Bureau Authorities Subtitle D Preservation of State Law Subtitle E Enforcement Powers Subtitle F Transfer of Functions and Personnel; Transitional Provisions Subtitle G Regulatory Improvements Subtitle H Conforming Amendments 11

12 Dodd-Frank Wall Street Reform and Consumer Protection Act (cont.) Title XIV Mortgage Reform and Anti-Predatory Lending Act Subtitle A Residential Mortgage Loan Origination Standards Subtitle B Minimum Standards For Mortgages Subtitle C High-Cost Mortgages Subtitle D Office of Housing Counseling Subtitle E Mortgage Servicing Subtitle F Appraisal Activities Subtitle G Mortgage Resolution and Modification Subtitle H Miscellaneous Provisions 12

13 Architecture of the CFPB: Powers Supervise, Examine & Enforce Insured Depository Institutions (Banks and Thrifts) and Insured Credit Unions with $10 billion in assets (extends to affiliates and service providers of any size) Any nonbank entity in Residential Mortgage, Private Education & Payday Lending Markets Larger Participants in consumer financial products or services markets Consumer Reporting & Consumer Debt Collection (2012) Student Loan Servicing (2013) Any nonbank entity it considers to be a risk to consumers or who engages in unfair, deceptive, or abusive practices. Enforce CFPA, enumerated consumer laws, including fair lending (disparate impact) Penalties Up to $1,000,000 per day Rule Promulgation Collect Consumer Complaints Credit cards, mortgages, bank products / services, consumer loans, student loans, & credit reporting Conduct Original Research Undergirds rulemaking and enforcement activity 13

14 Architecture of the CFPB: Funding & Oversight Funding Fixed percentage of Federal Reserve s operating budget $356 million 2012 and projected $448 million 2013* Not subject to Congressional appropriation process Congressional Oversight Financial Stability Oversight Council: May overrule CFPB regulation if pose[s] risk to the financial system Must provide Congress with annual financial reports; bi-annual budget justification; bi-annual testimony from director Subject to GAO audit; provide forecast to OMB Many have criticized the CFPB s single-director structure and lack of Congressional oversight. Several bills were introduced and passed by the House Financial Services Committee and the full U.S. House (along a party-line vote) to make changes to the CFPB. These bills never came to a vote in the Senate. 14

15 15 CFPB Divisions & Key Players

16 CFPB Divisions & Key Players (cont.) Enforcement & Supervision 100 enforcement attorneys by Jan President s 2014 Budget contemplates 500 new CFPB hires Enforcement attorneys attend supervisory exams Fair lending reviews can result in enforcement actions Memorandums of Understanding Federal Trade Commission State Attorneys General Conference of State Bank Supervisors Prudential Regulators Department of Justice Navajo Nation 16

17 CFPB Divisions & Key Players (cont.) Office of Director Richard Cordray (Jan. 2012) Ombudsman Wendy Kamenshine (May 2012) Senior Advisor and Counselor to Director Len Kennedy (June 2012) Senior Counsel Chris Lipsett (August 2012) 17

18 CFPB Divisions & Key Players (cont.) Supervision, Enforcement, and Fair Lending & Equal Opportunity Director of Enforcement Kent Markus (Jan. 2012) Assistant Director of Supervision Examinations Paul Sanford (Dec. 2012) Assistant Director of Supervision Policy Peggy Twohig (Dec. 2012) Assistant Director of Fair Lending and Equal Opportunity Patrice Ficklin (May 2011) 18

19 The Consumer Financial Protection Bureau: Implementation & Interaction

20 Timeline: From Dodd-Frank to Present: 2011 Elizabeth Warren, Fighting to Protect Consumers (September 17, 2010) Elizabeth Warren Priorities for the New Consumer Financial Protection Bureau Remarks at Consumer Federation of America (CFA) Financial Services Conference (December 2, 2010) Treasury Department Announces Launch of Beta Consumer Financial Protection Bureau Website (February 3, 2011) Building the CFPB: a progress report (July 18, 2011) Official Launch & Begins Taking Credit Card Complaints (July 21, 2011) CFPB Issues Company Portal Manual (September 20, 2011) Supervision and Examination Manual Version 1.0 (October 13, 2011) Raj Date Written Statement The First 100 Days Before Subcommittee on Financial Institutions and Consumer Credit (Committee on Financial Service) U.S. House of Representatives (November 2, 2011) 20

21 Timeline: From Dodd-Frank to Present: 2012 President Obama appoints Richard Cordray as Director (January 4, 2012) Bulletin (Service Providers) (April 13, 2012) Proposed Rule on Procedural Rules to Establish Supervisory Authority over Certain Nonbank Covered Persons Based on Risk Determination (May 25, 2012) CFPB launches Consumer Complaint Database (June 19, 2012) CFPB proposes Know Before You Owe mortgage forms (July 9, 2012) CFPB probe into Capital One credit card marketing results in $140 million consumer refund (July 18, 2012) CFPB proposes rules to bring greater accountability to mortgage market (August 17, 2012) Federal Deposit Insurance Corporation and Consumer Financial Protection Bureau Order Discover to Pay $200 Million Consumer Refund for Deceptive Marketing (September 24, 2012) CFPB orders American Express to pay $85 million refund to consumers harmed by illegal credit card practices (October 1, 2012) CFPB report highlights problems in market discovered through supervisory actions (October 31, 2012) CFPB halts alleged nationwide mortgage loan modification scams (December 11, 2012) 21

22 Timeline: From Dodd-Frank to Present: 2013 Statement by Consumer Financial Protection Bureau Director Richard Cordray on re-nomination (January 24, 2013) CFPB warns mortgage servicers about legal protections for consumers when transferring loans (February 11, 2013) CFPB lays out implementation plan for new mortgage rules (February 13, 2013) Department of Urban Housing and Development Final Rule on Disparate Impact (February 15, 2013) Carter Dougherty, Consumer Bureau Said to Warn Banks of Auto Lending Suits (February 21, 2013) Office of Management and Budget Sequestration Report (March 1, 2013) 22

23 23 Navigating the CFPB Website

24 24 Navigating the CFPB Website (cont.)

27 The Consumer Financial Protection Bureau: Dissecting the Regulations

28 Dissecting the Regulations: Consumer Complaint Database The CFPB launched its consumer complaint database in June 2012, and on March 28, 2013, it published more than 90,000 complaints online. The CFPB does not verify complaints before publishing them. After the CFPB receives a consumer complaint, they route the information to the financial institution in question, giving it 15 days to acknowledge that the person is a customer. If the company confirms the relationship or if it does not respond by the deadline, the information goes live online. Complaint Intake & Review Metrics July December ,210 January September ,087 October 2012 February ,913 July 21, 2011 February 28, ,300 91,000 in 2012 credit card and mortgage 70% of all 2012 and 72% of all through February 28, 2013 (approximately 94,300) 28

29 Dissecting the Regulations: Consumer Complaint Process Complaint Procedure Complaint Submission telephone, mail, , and fax CFPB Review within primary enforcement authority, whether complete (not necessarily factually accurate), and whether duplicate submission. Forward to Company notification and view in portal 15 calendar days to respond 60 calendar days to resolve Consumer Response accept or dispute Implications of Complaint & Database Trigger CFPB scrutiny Trigger scrutiny by other agency, e.g. FTC, DOE, State AG Consumer Sentinel Network Repeat Offenders Against Military (ROAM) Database Database use by plaintiff s bar 29

30 Dissecting the Regulations: Civil Investigative Demands 12 C.F.R et seq. Scope. documents and tangible things, written reports, interrogatories, and oral testimony. Production under oath Timing. Meet and confer within 10 days / Petition within 20 days / CID outlines production deadline Requests for Extension of Time. Assistant Director of Enforcement may grant (requests disfavored). Conferral & Petition Substance. Privilege, confidentiality and factual/legal objection, including arguments, affidavits, and supporting documents. 30

31 Dissecting the Regulations: Civil Investigative Demands (cont.) September 20, 2012 Denies PHH Corp CID petition determine whether mortgage lenders and private mortgage insurance providers or other unnamed persons have engaged in, or are engaging in, unlawful acts or practices in connection with residential mortgage loans in violation of the [Dodd- Frank] and [RESPA]. Objected to as overly broad, unreasonable and irrelevant Warn financial institutions that decision should be guide in developing [their] expectations about how they should handle the CID process. October 5, 2012 Denies Next Generation CID petition Untimely (not within 20 days) No meet and confer attempt (within 10 days) Substantive defenses and/or compliance with laws not valid defense to CID 31

32 The Consumer Financial Protection Bureau: Prospective

33 State of Play to Date As of April 1, 2013, a total of 279 Dodd-Frank rulemaking requirement deadlines have passed. This is 70.1% of the 398 total rulemaking requirements, and 99.6% of the 280 rulemaking requirements with specified deadlines. Of these 279 passed deadlines, 176 (63.1%) have been missed and 103 (36.9%) have been met with finalized rules. Regulators have not yet released proposals for 65 of the 176 missed rules. Of the 398 total rulemaking requirements, 148 (37.2%) have been met with finalized rules and rules have been proposed that would meet 121 (30.4%) more. Rules have not yet been proposed to meet 129 (32.4%) rulemaking requirements. 33

34 Student Loans The CFPB made student loans an early priority. Financial Aid Shopping Sheet : a model disclosure required for all student loan providers when providing loan information to prospective borrowers. The CFPB has recently expanded its authority to oversee student loan servicers. 34

35 Auto Lending On March 21, 2013, the CFPB announced that it would start evaluating potentially discriminatory activity in auto lending. Although the CFPB does not have the authority to oversee auto lenders, it is using its authority to oversee their lending partners, or indirect auto lenders to regulate the industry. 35

36 Mortgage Rules On January 10, 2013, the CFPB set the ability to repay standard in defining a qualified mortgage. The rule establishes a safe harbor for prime loans and creates a maximum 43 percent debt-to-income ratio on loans. The rule takes effect in January The CFPB also issued high-cost mortgage standards on the same day. The standards ban high fees and certain risky features. 36

37 Foreclosure Rules On January 17 th, 2013, the CFPB issued final rules on foreclosure procedures. The rule limits dual-tracking foreclosures and negotiating loan modifications. 37

38 Loan Origination On January 18, 2013, the CFPB issued final rules on loan originators. The rules will grant access to appraisal reports and special appraisals for high-priced mortgages. The origination rules prohibit loan officers from receiving compensation that varies with loan terms. 38

39 CFPB Structure On March 21, 2013, the U.S. House of Representatives approved a budget resolution that would subject the CFPB to Congressional appropriations. On February 1, 2013, Rep. Bill Posey (R-FL), introduced H.R. 450, which would subject the CFPB to Congressional appropriations. 39

40 Cordray Nomination Fight: Background July 21, 2010, Dodd-Frank & Appointment Senate Committee on Banking, Housing and Urban Affairs Schedules Cordray Appointment Hearing for August 4, 2011 at 2 PM Senate Committee on Banking, Housing and Urban Affairs Re-Schedules Cordray Appointment Hearing for September 6, 2011 at 2 PM October 5, 2011, Senate Banking Committee party-line vote (12-10) to confirm Cordray as first Director of the CFPB. December 2011 January 2012, Senate pro forma sessions January 4, 2012, Cordray Installation January 8, 2013, Noel Canning v. NLRB, 2013 U.S. App. LEXIS 1659 (D.C. Cir. 2013) February 1, 2013, Senatorial Letter to Obama Regarding Cordray Nomination February 7, 2013, Kent Markus Remarks at DBA Annual Conference That is a case in one court, about the NLRB. It is a not a case about the CFPB. It is not a decision that is done, necessarily, being litigated in any way so our view is that we have a director, we have our authority, we have our responsibility to American consumers and American businesses and we intend to proceed. 40

41 Cordray Nomination Fight Senate Republicans have repeatedly refused to support any nominee for CFPB Director until these structural issues are addressed After his nomination stalled in the Senate for six months, President Obama used his recess appointment powers to install Cordray as Director on January 4, The President also appointed two Members of the NLRB on the same day. 41

42 Cordray Nomination Fight On January 25, 2013, a panel of the U.S. Court of Appeals for the District of Columbia Circuit ruled that President Obama's NLRB recess appointments were invalid as they were not made during an intersession recess of the Senate. It further concluded that the Recess Appointments Clause only permitted the President to fill a vacancy if it arose during an intersession recess of the Senate, and the President moved to fill it during the same recess. 42

43 Cordray Nomination Fight Amid concerns that the recess appointment would not survive a Constitutional challenge, On January 24, 2013, President Obama re-nominated Cordray to serve as Director. On February 13, of 55 Senate Democrats signed a letter to President Obama calling for Cordray s confirmation. 43 of 45 Republicans signed a separate letter opposing the nomination until the agency is restructured. 43

44 Cordray Nomination Fight On March 19, 2013, the Senate Banking Committee approved Richard Cordray s nomination to serve as Director of the CFPB. The appointment is not expected to come to a vote before the full Senate. 44

45 Noel Canning v. NLRB Holding: Obama s recess appointments invalid Reasoning: Defining recess When vacancy occurs Facts: Terrence F. Flynn, Sharon Block, and Richard F. Griffin Jr. (and Crodray) nominated for Senate confirmation during the first session of 112 th Senate never confirms the President s nominees Jan. 4, 2012, President states Senate in recess despite pro forma, and stresses need for a fully functioning CFPB and NLRB appoints all four Administrative decision against Noel Canning (a Pepsi distributor and bottler) in Feb. 2012, ruling that company violated NLRA by failing to reduce to writing collective bargaining agreement with a local Teamsters Union Take-Away (for CFPB) De Facto Officer Doctrine Transfer of Regulations & Orders Newly Created Authority Actions Taken to Date State National Bank of Big Spring v. Geithner CFPB v. Chance Edward Gordon 45

46 What if the Appointment Were Struck Down? Precedent suggests that many of the CFPB s actions under Director Cordray could be at risk. In 1989, following the creation of the Office of Thrift Supervision (OTS), which was created by President George H.W. Bush and led by a director who had not be confirmed by the Senate. 46

47 What if the Appointment Were Struck Down? An OTS regulation was challenged in the U.S. District Court of the District of Columbia and Judge Lamberth found that the company raising the challenge was subject to regulation only by individuals with legal authority to act. The case went on to state, Because the director was not properly appointed, he has no more power or right to exercise the director's powers than this court does. 47

48 Potential Opportunities: Legislative (Lobbying) House Republicans are expected to continue to use their oversight authority to scrutinize the CFPB and pursue legislation that will impose limits on the Bureau. Senate Democrats will continue their defense of Dodd-Frank and work to protect the Bureau and Director Cordray. Expect hearings to continue in the House Financial Services Committee, the Senate Banking Committee, and the House and Senate Appropriations Committees. 48

49 Potential Opportunities: Legislative (Lobbying) The CFPB has accepted certain legislative changes to Dodd-Frank. For example, in early 2012, the CFPB promulgated rules clarifying that it will honor attorney-client privilege. The House and Senate passed legislation to clarify that sharing privileged information with the CFPB does not waive attorney-client privilege. 49

50 Potential Opportunities: Executive (Regulatory) The CFPB has demonstrated a willingness to meet with stakeholders both in Washington, D.C. and through field hearings being held nationwide. Significant opportunities exist to work with the CFPB as it continues to promulgate rules. The CFPB has been very transparent about actions it has taken, but has not been nearly as forthcoming about actions it intends to take. Access to inside information can give clients the tools they need to be proactive with the CFPB and influence regulations, rather than simply complying with them. 50

51 Conclusion We do not anticipate [the CFPB] writing a rule around UDAAP. Asked in a follow up question whether his statement meant that people will mostly have to look at your actions as the model for how this new term is defined, Mr. Cordray is reported to have responded I think that s probably right. - Richard Cordray March 22, 2013 Briefing No one will know until this is actually in place how it works. Senate Banking Committee Chairman Senator Chris Dodd (D-CT) June

52 Concluding Notes Questions? 52

53 APPENDIX CFPB Division Key Players Organizational Chart Details 53

54 54 CFPB: Operations

55 55 CFPB: Consumer Education & Engagement

56 56 CFPB: Supervision, Enforcement & Fair Lending

57 57 CFPB: Research, Markets, & Regulations

58 58 CFPB: External Affairs

59 59 CFPB: Legal, General Counsel