Clearly the industry is “disappointed” that the Consumer Financial Protection Bureau earlier this week issued a final rule prohibiting the use of class action waivers in arbitration clauses. The American Financial Services Association, the National Independent Automobile Dealers Association and the American Bankers Association all used that specific adjective when relaying their reaction to the CFPB’s actions.
And the Consumer Bankers Association also didn’t cheer the decision made by the bureau, which announced a new rule to ban dealerships and auto finance companies from using mandatory arbitration clauses “to deny groups of people their day in court.”
AFSA asserted the CFPB has finalized a rule on arbitration that ignores its own research and harms consumers, while enriching plaintiff’s attorneys.
“We are disappointed that the bureau has decided to move forward with a final rule,” said Bill Himpler, executive vice president with AFSA. “The bureau has ignored its mandate under the Dodd-Frank Wall Street Reform and Consumer Protection Act to limit arbitration only if such a prohibition is in the public interest and for the protection of consumers.”
AFSA, along with many other trade associations, has submitted a comment letter on the CFPB’s proposed arbitration rule, advocating for alterations in the best interest of both consumers and the industry.
“Numerous reports, including the CFPB’s own study, show the value that consumers derive from arbitration, especially when compared to class-action lawsuits. The CFPB’s study clearly demonstrates that the winner in class-action litigation is almost always the plaintiff’s attorneys, who pocket millions of dollars and leave the consumer with little to no financial compensation,” Himpler said.
NIADA pointed out that the CFPB’s study on arbitration found consumers receive on average more than $5,000 in arbitration hearings compared to roughly $32 in class-action litigation — if they receive anything at all.
“We are disappointed that the bureau has decided to adopt this ill-conceived rule,” NIADA chief executive officer Steve Jordan said. “Today’s action shows the CFPB has decided to put the interests of class-action lawyers above those of the very consumers the bureau is mandated to protect.
“Arbitration has proven to be a faster, less expensive and more effective means of resolving consumer disputes than class-action lawsuits. And consumers who receive an award in arbitration almost always receive more than they would in a class-action lawsuit, a point proven by the CFPB’s own research,” Jordan continued.
“This rule will force small businesses to bear additional costs in defending class-action litigation, particularly meritless suits,” Jordan went on to say. “Those costs will ultimately be borne by consumers, and in the case of those who are credit-challenged, it could prove to be too much.”
ABA president and CEO Rob Nichols also cited the disparity in monies consumers often receive via arbitration versus litigation. Nichols also agreed with the premise that attorneys are likely to receive the greatest windfall via the bureau’s decision.
“We’re disappointed that the CFPB has chosen to put class action lawyers — rather than consumers — first with today’s final rule,” Nichols said. “Banks resolve the overwhelming majority of disputes quickly and amicably, long before they get to court or arbitration. The Bureau’s own study found that arbitration has significant benefits over litigation in general and class actions in particular. Arbitration is a convenient, efficient and fair method of resolving disputes at a fraction of the cost of expensive litigation, which helps keep costs down for all consumers.
“Despite acknowledging these benefits in its own study, the Bureau has chosen to write a rule that would essentially eliminate arbitration — and force consumers into court — by requiring companies to face a flood of attorney-driven class action lawsuits from which consumers receive virtually nothing. Under this final rule, consumers lose,” he continued.
“As Congress considers changes to the CFPB’s structure and accountability, we also urge lawmakers to overturn this rulemaking,” Nichols went on to say.
NIADA senior vice president of legal and government affairs Shaun Petersen said the association will work with congressional leaders to address the arbitration issue legislatively.
“From the outset of this rulemaking process, NIADA has voiced concern about the poor policy reflected in this proposal to both the CFPB and to members of Congress,” Petersen said. “As Congress considers CFPB reform, we will be urging lawmakers to overturn this anti-consumer rule.”
No matter the organization, CBA president and CEO Richard Hunt spelled out the argument representatives are likely to make before federal lawmakers.
“Arbitration has long provided a faster, better and more cost-effective means of addressing consumer disputes than litigation or class action lawsuits. The CFPB’s own study shows the average consumer receives $5,400 in cash relief when using arbitration and just $32 through a class action suit,” Hunt said.
“The real benefactors of the CFPB’s arbitration rule are not consumers but trial lawyers, who pocket over $1 million on average per class action lawsuit. By only using fuzzy math is the CFPB able to interpret these figures as favorable to consumers. Given the longstanding benefits of arbitration, we encourage Congress to move swiftly and overturn this anti-consumer rule,” Hunt went on to say.
Editor’s note: SubPrime Auto Finance News reached out to multiple legal experts to collect their observations on how the industry can move forward. Their assessment will be published in a future report.
Check those installment contracts. Arbitration appears to be no longer an option for dealerships and finance companies to settle conflicts with consumers.
On Monday, the Consumer Financial Protection Bureau announced a new rule to ban companies from using mandatory arbitration clauses “to deny groups of people their day in court.” Bureau officials insisted many consumer financial products accounts have arbitration clauses in their contracts that prevent consumers from joining together to sue their bank or financial company for wrongdoing.
The CFPB explained that “by forcing consumers to give up or go it alone — usually over small amounts — companies can sidestep the court system, avoid big refunds and continue harmful practices.” The CFPB contends its new rule will deter wrongdoing by restoring consumers’ right to join together to pursue justice and relief through group lawsuits.
“Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong,” CFPB director Richard Cordray said.
“These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up. Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together,” Cordray went on to say.
The bureau calculated that hundreds of millions of contracts for consumer financial products and services have included mandatory arbitration clauses. These clauses typically state that either the company or the consumer can require that disputes between them be resolved by privately appointed individuals (arbitrators) except for individual cases brought in small claims court.
While these clauses can block any lawsuit, the CPFB believes that companies almost exclusively use them to block group lawsuits, which are also known as “class action” lawsuits. With group lawsuits, a few consumers can pursue relief on behalf of everyone who has been harmed by a company’s practices.
Bureau officials insisted that almost all mandatory arbitration clauses “force” each harmed consumer to pursue individual claims against the company, no matter how many consumers are injured by the same conduct.
“However, consumers almost never spend the time or money to pursue formal claims when the amounts at stake are small,” the bureau said.
The Dodd-Frank Wall Street Reform and Consumer Protection Act required the CFPB to study the use of mandatory arbitration clauses in consumer financial markets. Congress also authorized the bureau to issue regulations that are in the public interest, that are for the protection of consumers, and which are based on findings that are consistent with the bureau’s study of arbitration.
Released in March 2015, officials recapped that the study showed that credit card issuers representing more than half of all credit card debt and banks representing 44 percent of insured deposits used mandatory arbitration clauses. Yet three out of four consumers the bureau surveyed did not know whether their credit card agreement had an arbitration clause.
“These clauses are not only common and unknown; they are also bad for consumers,” bureau officials said.
By blocking group lawsuits, the CFPB insisted that companies are able to:
—Deny consumers their day in court: The study showed that few consumers ever bring — or consider bringing — individual actions against their financial service providers either in court or in arbitration. Only about 2 percent of consumers with credit cards surveyed said they would consult an attorney or consider formal legal action to resolve a small-dollar dispute. As a result, the real effect of mandatory arbitration clauses is to insulate companies from most legal proceedings altogether.
—Avoid paying out big refunds: Individual actions get less overall relief for consumers than group lawsuits because companies do not have to provide relief to everyone harmed. According to the study, group lawsuits succeed in bringing hundreds of millions of dollars in relief to millions of consumers each year. The study showed that more than 34 million consumers received payments, and that $1 billion was paid out to harmed consumers over the five-year period studied. Conversely, in the roughly 1,000 cases in the two years that were studied, arbitrators awarded a combined total of about $360,000 in relief to 78 consumers.
—Continue harmful practices: Individual actions might recoup previous individual losses, but they do nothing to stop the harm from happening again or to others. Resolving group lawsuits often requires companies to not only pay everyone back, but also change their conduct moving forward. This saves countless consumers the pain and expense of experiencing the same harm. The Bureau’s study found that in 53 group settlements covering over 106 million consumers, companies agreed to change their business practices or implement new compliance programs. Without group lawsuits, private citizens have almost no way, on their own, to stop companies from pursuing profitable practices that may violate the law.
CFPB arbitration rule
Officials explained the CFPB rule restores consumers’ right to file or join group lawsuits. By so doing, the rule also deters companies from “violating the law.”
The bureau continued by stating, “When companies know they are more likely to be held accountable by consumers for any misconduct, they are less likely to engage in unlawful practices that can cause harm. Further, public attention on the practices of one company can more broadly influence their business practices and those of other companies.”
Under the rule, the CFPB pointed out that companies can still include arbitration clauses in their contracts. But companies subject to the rule may not use arbitration clauses to stop consumers from being part of a group action. The rule includes specific language that companies will need to use if they include an arbitration clause in a new contract.
Officials went on to emphasize the rule also makes the individual arbitration process more transparent by requiring companies to submit to the CFPB certain records, including initial claims and counterclaims, answers to these claims and counterclaims, and awards issued in arbitration.
The bureau said it will collect correspondence companies receive from arbitration administrators regarding a company’s non-payment of arbitration fees and its failure to follow the arbitrator’s fairness standards.
“Gathering these materials will enable the CFPB to better understand and monitor arbitration, including whether the process itself is fair,” officials said. “The materials must be submitted with appropriate redactions of personal information."
The bureau intends to publish these redacted materials on its website beginning in July 2019.
The new CFPB rule applies to the major markets for consumer financial products and services overseen by the bureau, including those that lend money, store money, and move or exchange money.
Congress already prohibits arbitration agreements in the largest market that the bureau oversees — the residential mortgage market.
In the Military Lending Act, Congress also has prohibited such agreements in many forms of credit extended to servicemembers and their families. The rule’s exemptions include employers when offering consumer financial products or services for employees as an employee benefit; entities regulated by the Securities and Exchange Commission or the Commodity Futures Trading Commission, which have their own arbitration rules; broker dealers and investment advisers overseen by state regulators; and state and tribal governments that have sovereign immunity from private lawsuits.
In October 2015, the bureau published an outline of the proposals under consideration and convened a Small Business Review Panel to gather feedback from small companies. Besides consulting with small business representatives, the bureau sought comments from the public, consumer groups, industry and other interested parties before continuing with the rulemaking.
Last May, the bureau issued a proposed rule that included a request for public comment. The CFPB said it received more than 110,000 comments.
The rule’s effective date is 60 days following publication in the Federal Register and applies to contracts entered into more than 180 days after that.
More information about the CFPB’s arbitration rule is available https://www.consumerfinance.gov/arbitration-rule.
Here’s a change of pace: An auto finance industry participant supporting an action by the Consumer Financial Protection Bureau.
FactorTrust said that it backs the CFPB for examining findings that bring to light the plight of credit invisibles in their transition to establish credit.
Earlier this month, CFPB released a study on the transition to credit visibility that found that the way consumers establish credit history can differ greatly based on economic background. The bureau indicated consumers in lower-income areas are more likely than those in higher-income areas to become credit visible due to negative records such as a debt in collection. Consumers in higher-income areas are more likely than those in lower-income areas to establish credit history by using a credit card or relying on someone else.
The study also found that the percentage of consumers transitioning to credit visibility due to student loans more than doubled in the last 10 years.
“It is no secret that lower-income consumers face challenges in the financial marketplace,” CFPB director Richard Cordray said. “Today’s study shows that even at the beginning of their financial lives, they are faced with higher hurdles to gain access to credit, which hinders them from turning their version of the American dream into reality.”
In 2015, CFPB estimated that 11 percent of adults in the United States, or about 26 million people, are credit invisible with no credit history at one of the three nationwide credit reporting companies. Traditionally, a credit history reflects whether payments are made on time, what debt a consumer owes, and whether they have a debt or bill in collection.
Finance companies use a consumer’s credit history to decide whether to extend credit and how much the credit will cost. Without a sufficient credit history, consumers can face barriers to accessing credit or higher costs.
The CFPB asserted this issue disproportionately impacts consumers who are African American or Hispanic, and people who live in low-income neighborhoods. It can also impact some recent immigrants, young people just getting started, and people who are recently widowed or divorced.
FactorTrust has long provided alternative credit data, analytics and risk scoring information that finance companies need to make informed decisions about underbanked consumers (less than 700 credit scores) and credit invisibles, which the CFPB identifies as about 11 percent of U.S. adults (or 26 million people) — with no credit history at the Big 3 credit bureaus.
In its recent comment to the CFPB’s request for information (RFI) on the use of alternative data and modeling techniques in the credit process, FactorTrust contends, however, that consumers can become equally visible with positive payment behaviors not reported to the Big 3 bureaus.
For instance FactorTrust found that 57 percent of underbanked consumers had a comprehensive debt to income (DTI) ratio of less than 50 percent. For these consumers, less than half of their income was earmarked for loan payments. Lower DTI typically indicates a lower-risk consumer who is better positioned to responsibly take on new financial obligations.
Furthermore, FactorTrust noted that consumers with lower DTI, had a higher share of debt payments residing outside of the Big 3 bureaus, in alternative credit bureaus like FactorTrust.
“The data we collect from alternative lenders is not reported to the Big 3 bureaus and enables visibility into the creditworthiness of underbanked consumers,” FactorTrust chief executive officer Greg Rable said. “Not only can we look to data points in our database to outline positive payment scenarios, but we can collect it in real-time, versus the monthly timeframe of the Big 3 bureaus.
Alternative lending tends to have shorter loan terms than traditional lending options, which makes reporting of on-time payments and other data accessible around the clock to lenders, enabling them to make smarter, faster decisions about the creditworthiness of credit invisibles,” Rable continued.
The CFPB study also looked at how consumers first establish credit history by reviewing de-identified credit records of more than 1 million consumers who became credit visible. The bureau examined when consumers transition out of credit invisibility and the means by which they do so.
The study found that almost 80 percent of transitions occur before age 25 and that credit cards are the most common way consumers establish credit. The study also found that the way consumers establish credit history — taking out a credit card, relying on a co-borrower or having negative records — can differ greatly based on economic background.
The entire CFPB study can be found here.
A debt collection expert explained the importance of the rule-making pivot the Consumer Financial Protection Bureau evidently is making when it comes to finance companies and other credit providers looking to collect from consumers who defaulted.
CFPB director Richard Cordray shared the details during his prepared remarks during last week’s consumer advisory board meeting.
Cordray told meeting attendees — which included Joann Needleman, who is the leader of consumer financial services regulatory and compliance practice group at Clark Hill — about the feedback the bureau has received since rolling out its debt collection rules overall proposal last August.
“One thing became clear,” Cordray said. “Writing rules to make sure debt collectors have the right information about their debts is best handled by considering solutions from first-party creditors and third-party collectors at the same time.
“First-party creditors like banks and other lenders create the information about the debt, and they may use it to collect the debt themselves. Or they may provide it to companies that collect the debt on their behalf or buy the debt outright,” he continued.
“Either way, those actually collecting on the debts need to have the correct and accurate information. All of these parties must work together to ensure they are collecting the right amount of debt from the right consumer,” Corday added.
Cordray went on to elaborate about how the CFPB’s initial proposal triggered other potential issues and how bureau officials are responding.
“But breaking the different aspects of the informational issues into pieces in two distinct rules was shaping up to be troublesome in various ways. So we have now decided to consolidate all the issues of ‘right consumer, right amount’ into the separate rule we will be developing for first-party creditors, which will now cover these intertwined issues for third-party collectors and debt buyers as well,” Cordray said. “That way, we can address this entire set of considerations, market-wide.
“In the meantime, we will be able to move forward more quickly with a proposed rule focused on the remaining issues,” he continued. “These issues, again, are information third-party collectors must disclose to people about the debt collection process and their rights as consumers, and ensuring that third-party collectors treat people with the dignity and respect they deserve.
“Once we proceed with a proposed rule on these issues, we will return to the subject of collecting the right amount from the right consumer, which is a key objective regardless of who is collecting the debt. And we will take care to get it right,” Cordray went on to say.
After hearing the CFPB’s latest position, Needleman collaborated with her Clark Hill colleague Jane Luxton for a blog post to explain the implications of the bureau’s actions. Needleman and Luxton declared that, “The CFPB’s decision is a win for a debt collection industry that sees few victories.”
So the industry simply doesn’t rest and savor this win for too long, Needleman and Luxton offered recommendations on what finance companies and other industry participants should do next with regard to debt collections.
“For first-party creditors, the time is now to consider issues of data integrity and effective collaboration with debt collectors they hire,” Needleman and Luxton wrote. “Creditors will now have to consider documentation issues at the front end of the initiation of the loan in order to substantiate it on the back end.
“Proactive efforts in advance of the upcoming rulemaking on a first- and third-party substantiation program should begin now,” they continued. “The CFPB appears to be moving toward the realization that we all live in a credit based eco-system and a holistic approach, involving all stakeholders in the debt collection market, is warranted.”
Coming on the heels of the U.S. House of Representatives passing H.R. 10, the Financial CHOICE Act, in an effort to modify the Consumer Financial Protection Bureau among other objectives, the U.S. Department of the Treasury late on Monday issued its first in a series of reports to President Trump examining the U.S. financial regulatory system and detailing executive actions and regulatory changes that can be immediately undertaken to provide “much-needed” relief.
The report detailed the following findings:
—Community financial institutions — banks and credit unions — are critically important to serve many Americans.
—Capital, liquidity and leverage rules can be simplified to increase the flow of credit.
—Ensure banks are globally competitive.
—Improving market liquidity is critical for the U.S. economy.
—The Consumer Financial Protection Bureau must be reformed.
—Regulations need to be better tailored, more efficient and effective.
—Congress should review the organization and mandates of the independent banking regulators to improve accountability.
“Properly structuring regulation of the U.S. financial system is critical to achieve the administration’s goal of sustained economic growth and to create opportunities for all Americans to benefit from a stronger economy,” Treasury Secretary Steven Mnuchin said.
“We are focused on encouraging a market environment where consumers have more choices, access to capital and safe loan products — while ensuring taxpayer-funded bailouts are truly a thing of the past,” Mnuchin continued.
During the past four months, the department indicated Mnuchin and other Treasury officials met with hundreds of stakeholders across the financial ecosystem, including community, independent, regional and large banks, regulators, Financial Stability Oversight Council (FSOC) members, consumer advocates, academics, analysts and investors. These listening sessions provided what officials called a “very clear picture” of redundancy, fragmentation and inefficiency in regulatory framework.
“We congratulate the House on passing the Financial CHOICE Act. The report we are releasing today focuses on solutions the executive branch can execute through regulatory changes and executive actions. We look forward to working on a parallel track with Congress to provide swift relief, particularly to community banks,” Mnuchin said.
Officials summarized the 149-page report that can be downloaded here by pinpointing five recommendations to structure new regulatory framework, including
• Improving regulatory efficiency and effectiveness by critically evaluating mandates and regulatory fragmentation, overlap, and duplication across regulatory agencies.
• Aligning the financial system to help support the U.S. economy.
• Reducing regulatory burden by decreasing unnecessary complexity.
• Tailoring the regulatory approach based on size and complexity of regulated firms requiring greater regulatory cooperation and coordination among financial regulators.
• Aligning regulations to support market liquidity, investment and lending in the U.S. economy.
As a next step, officials from the Treasury and the Trump administration said they will begin working with Congress, independent regulators, the financial industry and trade groups to implement the recommendations advocated in the report through changes to statutes, regulations and supervisory guidance.
The department went on to mention this Treasury report is the first in a series of reports examining the U.S. financial regulatory system. Subsequent reports will be issued over the coming months and will focus on markets, liquidity, central clearing, financial products, asset management, insurance and innovation, among other key areas.
Banking groups cheer report
Leaders of both the American Bankers Association (ABA) and Consumer Bankers Association (CBA) applauded the Treasury Department for this report, each using the phrasing that the action was an “important step.”
ABA president and chief executive officer Rob Nichols said, “Today’s Treasury report is an important step to refine financial regulations to ensure that they are supporting — not inhibiting — economic expansion. We applaud Secretary Mnuchin for recognizing that we need regulatory reform to boost economic growth, and we expect this report will serve as a catalyst in that effort. We’re committed to working with the administration and regulators on these recommendations to allow banks to better serve their customers and communities, without compromising safety and soundness.
Nichols pointed out that many recommendations for regulatory reform highlighted by the Treasury Department also have been previously endorsed by ABA such as changes to the Volcker Rule as well as adjustments to regulations surrounding liquidity and stress testing
“While we applaud these efforts toward regulatory reform, we know there is more to do,” Nichols said. “We urge regulators and Congress to take up these recommendations expeditiously, and to consider additional changes so banks can continue to play their important role in accelerating economic growth.”
CBA president and CEO Richard Hunt took a similar path in assessing the Treasury Department’s analysis, reiterating points about how the CFPB should operate.
“The Treasury Department’s report is an important first step in recognizing how a duplicative and onerous regulatory environment harms banks, the economy, and, more importantly, consumers,” Hunt said. “It is imperative to right-size regulation to better promote the strengths of the banking industry, which contribute to economic growth, access to credit and consumer choice.
“We especially applaud Secretary Mnuchin and the Department for suggesting reforms to the CFPB’s governing structure, as CBA believes a bipartisan commission at the bureau is paramount to creating long-term stability and certainty for the industry. In addition, we are also encouraged by the department’s recommendation to provide a process over federal regulators to streamline regulatory efforts,” Hunt continued.
“We appreciate the department’s report, as it offers pragmatic solutions in line with today’s economic needs,” Hunt went on to say.
While lawmakers from opposing parties either cheered or jeered the vote tally, industry advocates from the banking, financial services and dealership communities on Thursday all applauded the U.S. House of Representatives for passing H.R. 10, the Financial CHOICE Act.
The measure is a comprehensive financial reform bill that includes what one group called “significant and much-needed reforms” to the Consumer Financial Protection Bureau (CFPB).
The CHOICE Act passed the House by a 233-186 vote with party lines primarily dividing the representatives on this matter, which now will be in the hands of the upper chamber beginning with the U.S. Senate Banking Committee.
In a statement sent to SubPrime Auto Finance News, the American Financial Services Association (AFSA) said it especially congratulates House Financial Services Committee Chairman Jeb Hensarling, a Republican from Texas and all the members who worked on the CHOICE Act for their “hard work and dedication to ensuring that American consumers have access to the credit they need and deserve.”
AFSA continued by stating, “The CHOICE Act would make important strides in reining in the (CFPB) and significantly reducing the regulatory burden placed on financial services by the Dodd-Frank Wall Street Reform and Consumer Protection Act.”
AFSA added that it submitted a letter of support in May and will continue to work with Congress as the bill moves to the Senate.
In another statement sent to SubPrime Auto Finance News, the National Automobile Dealers Association appreciated the House’s actions and those “significant and much-needed reforms” because the organization believes changes will bring relief for consumers facing the prospect of higher costs for financing vehicle purchases.
NADA highlighted the measure’s advancement would nullify the CFPB's guidance on indirect auto financing, which the association said attempted to eliminate a dealer’s ability to discount credit in the showroom. The also requires the bureau to:
— Provide public notice and comment before issuing any additional auto-financing guidance
— Make publicly available all studies, data, methodologies or other information relied upon to produce the guidance
— Study the costs and impacts of the guidance.
NADA also pointed out the CHOICE Act brings the CFPB under the regular congressional appropriations process for the first time, which is another reform NADA has long supported.
“Access to affordable credit is essential to customers and their dealers,” NADA president and chief executive officer Peter Welch said. “Chairman Hensarling, members of the House Financial Services Committee, and the members of Congress who supported H.R. 10 and worked to include these vital consumer protections should be commended for their efforts to keep auto financing affordable and available to consumers everywhere. I look forward to the Senate taking timely actions to help cement these consumer protections into law.”
NADA chairman Mark Scarpelli added, “America’s franchised new-car dealers have always been on the side of our customers, which is why we have so strenuously opposed the CFPB’s anti-consumer guidance that would have raised the cost of car and truck loans, and pushed otherwise-creditworthy customers out of the auto credit market altogether.
“And we will continue to be on the side of our customers by urging Congress to get this legislation across the finish line, and by continuing to promote the voluntary NADA/NAMAD/AIADA Fair Credit Compliance Program that effectively manages fair-credit risk while preserving discounts on credit for consumers,” Scarpelli went on to say.
The measure also has been a primary focus of the National Independent Automobile Dealers Association’s advocacy efforts and was one of NIADA's top legislative priorities as part of its annual Day on the Hill during the National Leadership Conference and Legislative Summit in Washington D.C. last September.
“NIADA and its members have long advocated for the need to reform the over-burdensome regulatory framework created by the Dodd-Frank Act, including the unaccountability and overreach of the Consumer Financial Protection Bureau,” NIADA chief executive officer Steve Jordan said.
“We applaud the efforts of the House of Representatives, especially Chairman Hensarling, to bring about these necessary changes. We look forward to working with lawmakers in the Senate to move the bill forward,” Jordan went on to say.
More upbeat assessments of Thursday’s developments came from the banking world, too. Rob Nichols is president and CEO of the American Bankers Association.
“(Thursday’s) House vote is an important step toward making much-needed regulatory reforms that will allow banks to better serve their customers and communities. We applaud Chairman Hensarling and members of the House Financial Services Committee for their continuing efforts to fix financial rules that are holding back the U.S. economy, and doing little to enhance safety and soundness. We look forward to working with lawmakers in the House and Senate as this process moves forward,” Nichols said.
“While the Financial CHOICE Act contains a number of reforms ABA members have long supported, it would have been much stronger had a provision to repeal the Durbin Amendment been retained in the bill. We will continue to let lawmakers know that a vote to keep the Durbin Amendment on the books is a vote for government price controls and against consumers,” Nichols continued.
Consumer Bankers Association president and CEO Richard Hunt also was glad the measure passed in the House, but he reiterated his concerns about the matter, as well.
“We appreciate the House of Representatives’ effort to provide regulatory reform via the Financial CHOICE Act and thank House Financial Services Committee Chairman Jeb Hensarling for remaining committed to making relief a priority. We also appreciate the reforms the CHOICE Act made to section 1071 of the Dodd-Frank Act and to arbitration,” Hunt said. “CBA and its members, who represent the nation’s largest retail banks, still believe any reforms made to the CFPB should begin with the restructuring of the bureau’s leadership.
“In order to provide balance and stability to consumers and the economy, the CFPB should be led by a five-person bipartisan commission to ensure it is protected from potential political influence,” Hunt continued. “Congress has support from constituents, as a recent Morning Consult poll we commissioned shows voters prefer a bipartisan commission over a single director by a 3-1 margin.”
“We are hopeful the Senate will now take up financial regulatory reform and strongly urge the consideration of the benefits of a commission at the CFPB. Congress can provide relief by implementing policies geared toward growing the economy and boosting consumer confidence,” Hunt went on to say.
Lawmaker reaction
Not surprisingly, Hensarling was quite pleased with Thursday’s outcome since he’s been pushing the Financial CHOICE Act for more than a year.
“Every promise of Dodd-Frank has been broken,” Hensarling said. “Fortunately there is a better, smarter way. It’s called the Financial CHOICE Act. It stands for economic growth for all, but bank bailouts for none. We will end bank bailouts once and for all. We will replace bailouts with bankruptcy. We will replace economic stagnation with a growing, healthy economy.”
“We will make sure there is needed regulatory relief for our small banks and credit unions, because it’s our small banks and credit unions that lend to our small businesses that are the jobs engine of our economy and make sure the American dream is not a pipe dream,” Hensarling added.
Meanwhile, Rep. Maxine Waters, a California Democrat and ranking member of House Financial Services Committee, continued her vehement opposition to this measure.
“It's shameful that Republicans have voted to do the bidding of Wall Street at the expense of Main Street and our economy. They are setting the stage for Wall Street to run amok and cause another financial crisis. I urge my colleagues in the Senate not to move on this deeply harmful bill,” Waters said.
At least one Senate member agrees with Waters. That’s Sen. Sherrod Brown, an Ohio Democrat and ranking member of the Senate Banking Committee. Brown criticized Republicans who “rammed the bill through” the House Financial Services Committee on a party-line vote last month to trigger Thursday’s actions.
“This partisan, dangerous legislation would once again leave families, seniors, and servicemembers at the mercy of predatory lenders, and put taxpayers back on the hook to pay for Wall Street’s greed and recklessness,” Brown said. “Democrats have shown we’re willing to work with Republicans to tailor the rules where it makes sense, but not if it means killing the reforms that have made the financial system safer and fairer.”
During a Senate Banking Committee hearing conducted on the same day as the Financial CHOICE Act passed through the House, Sen. Mike Crapo, an Idaho Republican who chairs the committee, didn’t mention the bill by name, but discussed the topic since the hearing was entitled: “Fostering Economic Growth: The Role of Financial Institutions in Local Communities.”
Crapo cited a Harvard University study that he said, “appropriately described community banking by stating, ‘Their competitive advantage is a knowledge and history of their customers and a willingness to be flexible.’ Unfortunately, the operating landscape facing these institutions has changed dramatically over the last several years.
“The industry has become increasingly concentrated, and that concentration has accelerated since the passage of Dodd-Frank,” Crapo continued. “The regulatory rules dictated from Washington are often contradictory, complex and confusing, and they sharply restrict community lenders’ ability to be flexible.
“I am concerned that in a rush to implement new regulation, regulators have often ignored the cumulative effect of the rules, and that there is a lack of coordination among them,” he went on to say. “We want our nation’s financial institutions to be well-capitalized and well-regulated, but they should not be drowned by unnecessary compliance costs. Financial regulation should promote safety and soundness while enabling a vibrant and growing economy.”
More opposition to House actions
While industry advocates saw passage of the Financial CHOICE Act as a positive development, a host of consumer organization frowned on the development. Here are a couple of examples:
— Vanita Gupta, president and CEO of The Leadership Conference on Civil and Human Rights: “This is the wrong choice act. It’s wrong for consumers, and wrong for our economy. It is nothing more than a repackaging of Republican efforts over the past six years to deregulate the financial services industry, enable payday lending and other predatory services, and unlearn the lessons of the 2008 financial crisis. It is so radical that even President Trump was only willing to endorse it in ‘several key respects.’ The bill would not only undercut the pro-consumer policies issued by the Consumer Financial Protection Bureau — and in the case of payday lending, take away the CFPB’s authority altogether — it would also take away the independence of the CFPB itself, and replace it with political pressure from Congress and well-heeled industries.”
— Yana Miles, senior legislative counsel for The Center for Responsible Lending: “This bill puts big banks and predatory lenders back in charge of our economy. Dodd-Frank and the creation of the Consumer Financial Protection Bureau has created a fairer financial marketplace for consumers and has kept financial institutions accountable to the public. This basic accountability is especially important for low-wealth families and communities of color who were hit hardest by the financial crisis. The Trump Administration’s recent support of this bill contradicts the president’s promise to drain the swamp and protect people from bad financial practices on Wall Street. Instead of giving free passes to loan sharks like payday lenders, Congress and the president should make consumer protection a top priority. CRL and communities across the country — including veterans, faith leaders, consumers and others — will fight the Wrong Choice Act at every turn and continue to stand up for economic justice and inclusivity.”
With the Consumer Financial Protection Bureau taking a greater interest in what service providers finance companies are using, Recovery Industry Services Co. (RISC), a provider of collateral recovery training, certification and compliance solutions, recently announced that it has signed a definitive agreement to acquire Recovery Compliance Solutions (RCS).
The move was made in order to enhance RISC’s vendor vetting services as part of its overall compliance-related offering.
RISC president Stamatis Ferarolis highlighted that the acquisition comes at an exciting time, as RISC has recently unveiled technology integrations that can allow forwarders and financial institutions to ensure that agents meet their specific compliance standards all the way from agent selection through individual assignment and asset storage.
“RISC’s overall vision is to create a succinct experience allowing lenders to be sure that the agents they work with are thoroughly trained, comprehensively vetted, and in possession of secure and adequate storage lots,” Ferarolis said.
“Through our technological integrations, lenders and forwarders can manage assignments with all of that compliance information at their fingertips. They can even specify their own custom compliance standards and push required policies and training courses to their agents," Ferarolis continued.
"We’ve worked with the industry’s leading stakeholders, as well as bodies such as the CFPB, to architect universally accepted compliance guidelines and integrate them with our solutions," he went on to say.
RCS was founded in 2008 and has offices in St Louis.
“RISC is a perfect fit for us,” RCS officials said. “They share our vision for ensuring that the most capable, well-rounded, and compliant individuals and agencies are operating on behalf of the automotive lending community. We are thrilled to be a part of the RISC family.”
Ferarolis elaborated about what else RCS brings to RISC’s portfolio.
“The RCS team has built a very strong practice in repossession agent auditing. Their process is extremely thorough and by combining our teams we will be able to better serve our customers by delivering best-in-class compliance validation,” he said.
To contact RISC, send an email to sales@riscus.com or visit its website at www.riscus.com.
Mark Floyd is the current and Steve Hall is the immediate past president of the National Automotive Finance Association.
In their own ways, both Floyd and Hall conveyed to the attendees of the NAF Association’s 21st annual Non-Prime Auto Financing Conference how the organization resembles a community with members who are more like friends than just industry participants or even competitors.
“I always considered Steve one of the thought leaders in our organization,” Floyd said during the opening segment of Thursday’s conference activities. “I didn’t always agree with him, but he’s someone who I would consider that makes us think outside the box.”
While Hall couldn’t attend this week’s gathering, he shared a note with NAF Association leadership that Floyd shared in part. Hall used some terminology that triggered this reaction Floyd acknowledged: “When I first read that I thought, ‘Really, Steve?’ … Then I thought, he’s got something here.”
What Floyd initially questioned was Hall trying to convey that the NAF Association should generate a “tribal culture.” Hall’s reasoning stemmed from what members are facing nowadays — particularly finance companies that operate in the non-prime and deeper portions of the credit spectrum. The trials include rising delinquencies, a potential reduction in capital availability as well as the ongoing pressure to perform by stakeholders and regulators.
Floyd turned back to Hall’s note, telling several hundred attendees, “As we think about some of the challenges we’re facing today, we’ve seen most of them before. So we should be thinking about what tools, analytics, educational programs and content we can give our members to help them be successful, which (NAF Association executive director Jack Tracey) and the team have done a really great job of.”
Floyd continued with Hall’s sentiment, saying, “I think there is an opportunity to create a tribal culture within our membership where people feel a part of group that has common values, beliefs, customs and rituals — interesting choice of words — about how the subprime industry should function. We can create a community where people come together to help each other be successful. That’s really what we do here.”
While the NAF Association has hosted this event filled with training and updates on regulatory matters, industry trends and networking for more than two decades, Floyd recalled the first time he attended this conference.
“I think it was 1996,” Floyd said as he gestured from behind a lectern adding, “We could fit everybody in half of one of these sections; it was about 25 or 30 people.
“I remember thinking I’m not really sure I want to be part of this group,” Floyd continued. “And I’m glad I’ve been part of the group. We’ve grown friendships and we’ve grown a community. It’s really a nice group to be a part of.
“I feel like the conversations I have with everybody, we really are looking out for each other. That’s that tribal community Steve was talking about. I feel that and that’s a genuine feeling. I feel that from people I talk with in the industry,” Floyd went on to say.
Thursday’s activities included a back-and-forth conversation involving Calvin Hagins, deputy assistant director for originations at the Consumer Financial Protection Bureau, and Michael Benoit, who is chairman at Hudson Cook. Panel sessions about capital availability and a major accounting change associated with reserving for potential losses as well as the final conference presentation by retiring Cox Automotive chief economist Tom Webb filled the day.
Floyd agreed with the closing portion of Hall noted when he shared that the NAF Association is “where people feel they are a part of a group of like-minded and valued leaders who are committed to helping each other pursue greatness in their businesses.”
Editor’s note: More expert analysis from the 21st annual Non-Prime Auto Financing Conference will be included in future reports distributed through SubPrime News Update.
Hudson Cook partner Lucy Morris told SubPrime Auto Finance News she wasn’t surprised the U.S. Court of Appeals for the District of Columbia Circuit immediately smelled the political aroma during oral arguments as the 11-member en banc panel assembled for rehearing of the case questioning the constitutionality of the Consumer Financial Protection Bureau.
Morris — a founding member of the CFPB Implementation Team before returning to private practice — explained in an alert from Hudson Cook that this case stems from a $109 million penalty levied by the CFPB against PHH Corp. for violations of the Real Estate Settlement Procedures Act (RESPA). But Morris noted this matter, initially ruled on last October by a three-member panel, has “morphed into an existential crisis for the bureau.”
Morris went into more detail about why the court’s thinking that this case is more political rather than constitutional didn’t trigger any surprise.
“It didn’t surprise me simply because the CFPB has been a political hot button since day one and continues to be, as you know, very political, with people on both sides of the aisle feeling very strongly about the bureau. There is the CHOICE Act. We have the change in administration. We’re in a very political environment, and the court was well aware of the political environment, well aware that this is a young agency and this case is really challenging the very structure of the agency,” said Morris, who also spent more than 20 years at the Federal Trade Commission.
“It didn’t surprise me that the court recognized the political overlay,” she continued during a conversation this week with SubPrime Auto Finance News. “I think what the court was saying is, that’s not the relevant inquiry. The relevant inquiry is whether there is a constitutional defect in how the agency is structured. The court was very focused on that question and whether the unique structure of the CFPB, does it diminish the power of the president more than similar agencies, like the FTC, where the Supreme Court has upheld similar for-cause provisions.
“The court was aware of the political environment but focused on the legal, constitutional question,” Morris went on to say.
While the oral arguments took place just before Memorial Day weekend, it might be the holiday season, if not into 2018, before an opinion is released.
“Certainly not just a few weeks, it will take months,” Morris said when asked how quickly en banc matters are often resolved. “I think it could be later this year or early next year. We have an en banc review. There were 11 judges on the panel so it will take some time to have an opinion come from the court.”
In the alert on Hudson Cook’s website, Morris explained the primary issue before the 11-member panel was whether the CFPB's structure as a single-director independent agency is consistent with Article II of the Constitution. And, if not, Morris noted whether the proper remedy is to sever the for-cause provision of the CFPB’s enabling statute.
When asked about how eager the entire finance industry is for the next development in this case, Morris offered a two-part response.
“Given the tenor of the oral arguments, and the questions that were being asked, my sense is that the court is likely to rule that the agency is constitutionally structured,” Morris said. “Given that likely outcome, I don’t know if the finance industry is as eager as it once was, because some had hoped that they would essentially hold the same as the three-judge panel and sever the for-cause provision and allow the president to fire director Cordray. Now it doesn’t appear that this is where this court is headed.
“But I think the finance industry is eager for other guidance from this case,” she continued. “The statute of limitation issue is very important on a going-forward basis. Is there a statute of limitations in CFPB administrative actions? The prior three-judge panel said there is and rejected the CFPB’s argument on that. I think there was one question on that in the latest oral argument. That’s an issue that would be very helpful to get resolved.”
While the latest U.S. House proposal to modify the Consumer Financial Protection Bureau keeps the agency overseen by a single director, it appears the sentiment of more than just industry supporters within the Capital Beltway is strong for the bureau to be supervised by a multiple-member panel.
According to a news release delivered on Monday, 58 percent of registered voters in key battleground states say the CFPB should be run by a bipartisan commission, according to a Morning Consult poll commissioned by the Consumer Bankers Association (CBA), the Independent Community Bankers of America (ICBA), and the American Land Title Association (ALTA).
The poll, which found that just 14 percent said the CFPB should keep its current structure, shows that consumers support structural changes at the bureau, according to the survey orchestrators.
The May poll of voters in Indiana, Maine, Michigan, Missouri, Montana, North Dakota, Ohio and West Virginia revealed three in five voters said a commission would lead to consumer protections that are fairer, more accountable, more representative and more transparent.
“CBA and its members have long championed what the poll results revealed: a bipartisan commission at the CFPB would increase accountability, fairness and transparency,” CBA president and chief executive officer Richard Hunt said.
“With the 2018 elections coming up, members of Congress in key battleground states may find these results useful, as voters, regardless of party affiliation, believe the best way forward for consumers and small businesses is through a commission made up of a diverse and bipartisan group of experts similar to that of the FDIC. Now’s the time for lawmakers to act,” Hunt continued.
Along with 58 percent of surveyed voters supporting establishing a bipartisan commission at the CFPB, the poll contained several other key aggregate findings, including:
—By a 3-1 margin, these voters prefer a bipartisan commission over a single director.
—Only 14 percent of respondents said they believe the CFPB should be left the way it is now.
—By a 4-1 margin, voters agree the CFPB should be structured as a commission like the Federal Deposit Insurance Corp. (FDIC).
—More than half of voters believe a commission would help consumers and small businesses.
—Three in five voters said a commission would make the CFPB fairer (63 percent), more representative (62 percent), more accountable (62 percent) and more transparent (60 percent).
—57 percent said the CFPB’s authority to supervise financial institutions, write rules and enforce penalties is too important to be controlled by a single director.
—59 percent also said a commission would better position the CFPB to help consumers over the long run.
“The survey is clear on the consumer’s preference to replace the CFPB’s single-director governing structure with a bipartisan commission — a longstanding ICBA policy,” ICBA president and CEO Camden Fine said. “This poll bolsters our position that Congress should implement reforms to make the bureau more balanced and accountable to the consumers it is charged with serving.”
Looking at the survey data by state revealed several other interesting points, including:
—In Indiana, by a 4-1 margin, voters agree the CFPB should be structured as a commission like the FDIC.
—In Ohio, by a 3-1 margin, voters prefer a bipartisan commission over a single director.
—In Maine, 63 percent of voters support establishing a bipartisan commission at the CFPB.
—In Michigan, voters said a commission would make the CFPB fairer (62 percent), more representative (63 percent), more accountable (62 percent) and more transparent (60 percent).
—In Missouri, voters said a commission would make the CFPB fairer (61 percent), more representative (61 percent), more accountable (62 percent) and more transparent (58 percent).
—In Montana, 60 percent of voters support establishing a bipartisan commission at the CFPB.
—In North Dakota, by a 4-1 margin, voters prefer a bipartisan commission over a sole director.
—In West Virginia, three out of five voters believe a commission would help consumers and small businesses.
“It’s hard to find any policy position in Washington that a majority of Americans agree on,” ALTA chief executive officer Michelle Korsmo said. “So when 58 percent of consumers said the CFPB’s authority to supervise financial institutions, write rules and enforce penalties is too important to be controlled by a single director, Congress should listen to them.”
Earlier this month, the House Financial Services Committee passed the Financial CHOICE Act 2.0 — the measure that would greatly modify the Dodd-Frank Act and the Consumer Financial Protection Bureau.
The committee passed the proposal along party lines by a 34-26 vote with all Democratic lawmakers opposing and all Republican members supporting the plan crafted by chairman Jeb Hensarling, who wants to make a wide array of changes, including:
—Allowing the sole director to be removed at will by the president
—Removing the bureau’s supervisory authority
—Limiting the CFPB’s enforcement authority to enumerated statutes
—Removing its unfair, deceptive, and abusive acts or practices (UDAAP) authority
—Repealing mandatory advisory boards and market monitoring authority
