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Posts from July 2011

Mortgage disclosures are getting better, thanks to you.

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On July 21st, the Consumer Financial Protection Bureau opened its doors for business. That means that we have started taking your credit card complaints, and initiated the supervision process for large banks and their affiliates.

But our work didn’t start last week. In May, we launched Know Before You Owe, a project that combines and re-designs the disclosure forms that assist consumers in understanding mortgage products they’ve applied for, before signing on the dotted line. We put our draft disclosure forms online and asked for public input…and we got it. Since May, we’ve received more than 18,000 comments on different versions of our draft disclosure forms.

In Round 1, you helped us compare front-page designs for a single, simplified disclosure form. In Round 2, we looked for input on the second page of our form. Next week, we’ll be posting revised forms for comment. Before we do, we wanted to share what we learned from your comments, and how they affected what you’ll see when we start Round 3.

  • Clarifying “Cautions.” Many people found that simply stating “Cautions?” with the “Yes/No” answers was confusing and did not effectively communicate the intended message. Accordingly, “Cautions?” will be replaced with different language on the front page in Round 3 and we’ll see if that is more effective.
  • Telling you more vs. keeping it simple. Commenters were divided over the benefits of greater itemization of fees versus a simpler, more concise format on the second page. In Round 3, we will continue to determine the appropriate level of detail of fee disclosures for consumers, fixing some of the problems identified from the feedback and testing.
  • Important dates are, well, important. We heard from many that “Important Dates” should be moved to the front page, near “Date Issued.” In this round, we are going to see if that works better.
  • Setting “Points” aside. We will test putting “Points” on its own subject line for better clarity, as many recommended.

As you can see, we count on your feedback to improve the forms that customers and lenders will use every day. Sign up now, and we’ll e-mail you when it’s time to weigh in again.

Keeping a good credit score

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Credit scores are important for consumers. They affect the rate of interest on a mortgage, credit card, or auto loan and can even play a role in whether you get auto or homeowners insurance. We have created a printable advice sheet on how you can get and keep a good credit score. To learn more, see the report we issued last week examining the differences between credit scores sold to consumers and scores used by lenders to make credit decisions.

Preserving a level playing field and access to mortgages

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Today, the CFPB is issuing an interim rule effective immediately to fill a regulatory gap.

Some lenders are chartered or licensed by states, while others operate under federal charters. For years, state lenders have been able to rely on a federal law called the Alternative Mortgage Transaction Parity Act (or AMTPA, for short) to make variable rate loans and other “alternative” mortgages, regardless of state law restrictions. Congress passed AMTPA to allow state lenders to make alternative mortgages on the same footing as their federally chartered competitors. Last year, the Dodd-Frank Act amended AMTPA to update it and to provide states more room to regulate certain fixed-rate loans and certain features of adjustable rate mortgages.

Without this interim rule implementing the AMTPA amendments, state lenders would lose their ability – overnight – to rely on AMTPA to make alternative mortgages. That could hurt not just state lenders that rely on AMTPA, some of which may be small rural banks. It could also hurt consumers by reducing their access to mortgages from those lenders. And, all of this harm would occur quite suddenly.

This interim rule will help preserve certainty in affected mortgage markets. It will also give lenders, consumers, and state regulators time to adjust to recent changes to the law. AMTPA was designed to preserve consumer access to alternative mortgages. These mortgages aren’t for everyone, but some consumers find that alternatives to the traditional fixed-rate mortgage better suit their needs. Our action today helps preserve parity and access as Congress intended.

Today’s rule also reflects the Dodd-Frank Act’s amendments to AMTPA, and the CFPB will continue to work to implement Congress’ goals. But the full process will take time. We are asking for public feedback on the temporary rule we are issuing today. This input will help us develop a proposal for a permanent regulation, which we will issue for public comment and then revise before finalizing. In the meantime, the interim rule will prevent disruptions of mortgage lending and allow orderly implementation of the Dodd-Frank amendments.

The interim rule gives state lenders two choices: They can follow state law when they make alternative mortgages or they can follow some straightforward federal requirements that provide consumers basic protections. For example, under the federal requirements, lenders must use a fair and transparent method – like a publicly available index that the lender does not control – for changing the rate on an adjustable rate loan.

The Dodd-Frank Act requires that the permanent rule address alternative mortgages made by federally chartered lenders as well as state lenders. So we are seeking information about alternative mortgages generally, as well as those made specifically under AMTPA. Please provide us with your input on the interim rule by September 22, 2011, to help us begin the process of proposing a new permanent rule for public comment.

A consumer-centered supervision program

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Yesterday, we began operation of what will be the largest function within the CFPB: Supervision. As part of this effort, Special Advisor to the Secretary of the Treasury Elizabeth Warren and Assistant Director for Bank Supervision Steve Antonakes signed and sent introductory letters to the CEOs of over 170 financial institutions that are subject to CFPB Supervision. These are depository institutions with over $10 billion in assets and their depository affiliates.

Professor Elizabeth Warren and Assistant Director for Large Bank Supervision Steve Antonakes sign introductory letters to the CEOs of over 170 financial institutions that are subject to CFPB Supervision.

Professor Elizabeth Warren and Assistant Director for Large Bank Supervision Steve Antonakes sign introductory letters to the CEOs of over 170 financial institutions that are subject to CFPB Supervision.

Supervision will serve as consumers’ eyes in financial institutions by assessing whether the institutions are complying with various federal consumer protection laws. If they are not, we will work with other CFPB teams to determine what should be done. In addition to requiring the company to change its practices so they comply with the law, we might also require improved employee training, implementation of better policies and procedures or quality controls, and in more serious cases, monetary compensation to consumers. Our supervision will have a simple goal: to prevent harm to consumers from unlawful financial practices and ensure that markets for consumer financial products and services are fair, transparent, and competitive.

To accomplish this, we are assembling a diverse and talented team of several hundred examiners. They will be based in four satellite offices in Chicago, New York, San Francisco, and Washington, D.C. These examiners will serve as the proverbial “boots on the ground” for consumers. They will travel to the largest banks, to mortgage lenders and servicers, and to companies in other consumer financial markets. They will kick the tires by asking questions, observing activities, and collecting data. For example, examiners will look at transaction records or observe call centers. These activities enable us to assess institutions’ compliance with the law and the quality of their internal processes for ensuring compliance.

Our examination process will strive for transparency, efficiency, and fairness. It will not be about “gotcha.” We will communicate with institutions throughout the examination cycle. In most instances, institutions will be advised of upcoming examinations well in advance of the start of our examinations. We will keep the institution informed of the examination’s status and findings during the course of our review. We will meet with management to discuss our findings and conclusions prior to finalizing our exam report. We will work constructively with institutions to address compliance risks and issues as well as to strengthen their compliance programs and practices. And we will keep the public informed of supervision activities through aggregate quarterly reports – while maintaining the confidentiality of supervisory information.

We expect this communication to go both ways. Our examination process will improve continuously, based not only on input from examiners in the field, but also on feedback from the organizations we supervise and other interested parties.

The CFPB will coordinate its supervision efforts with other federal and state regulators. They will continue to have important responsibilities for overseeing the safety and soundness of depository institutions, as well as an important continuing role in consumer protection. We understand and place a very high value on their primary mission of ensuring that banks, thrifts, and credit unions are run in a safe and sound manner so they remain trusted and reliable deposit holders. Indeed, many examiners will join the CFPB from safety and soundness-focused regulators. We will also share information with these regulators and will coordinate exams with them. This understanding, appreciation, and coordination will help to ensure that the CFPB carries out its consumer-centered mission in a manner that is sensitive to safety and soundness considerations and minimizes regulatory duplication.

Examiners will also work closely with colleagues throughout the CFPB. When consumers submit complaints to the CFPB, the Consumer Response team can relay to examiners any trends those complaints reveal. Our offices focused on the needs of Older Americans, Students, Military Servicemembers, and underserved consumers and communities will flag issues for our examiners to review. Economists in our Research group and analysts in our Markets offices will communicate their latest findings to better inform our field work. And, generally as a last resort, examiners will coordinate and work closely with CFPB’s Enforcement staff to implement appropriate enforcement actions to address violations of law that harm consumers.

In the coming weeks, we will communicate more details about our supervision policies and procedures. If you have questions you would like us to consider, please leave them in the comment section below. We look forward to hearing from you.

Peggy Twohig is the Assistant Director for Nonbank Supervision. Prior to her work at the CFPB, Ms. Twohig was Director of the Office of Consumer Protection at the Department of the Treasury, where she worked on the proposal to create a new consumer agency as part of financial regulatory reform. Immediately before joining Treasury, Ms. Twohig served as Associate Director of the Division of Financial Practices at the Federal Trade Commission, focusing on enforcement and policy issues related to consumer financial services.

Steven Antonakes is the Assistant Director for Large Bank Supervision. He was previously appointed by successive governors to serve as the Commissioner of Banks for the Commonwealth of Massachusetts. In that capacity, he supervised over 250 state-chartered banks and credit unions and over 5,000 non-bank entities, oversaw the development and implementation of the Nationwide Mortgage Licensing System, and became the first state voting member of the Federal Financial Institutions Examination Council.

A Strong Foundation

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One year ago, Congress passed and President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which created this new Consumer Financial Protection Bureau (the CFPB). This law establishes a single point of accountability to assure that markets for consumer financial products work for American consumers and for responsible providers of those products. On July 21, the CFPB starts this work, and it will be a cop on the beat to enforce the laws on credit cards, mortgages, student loans, prepaid cards, and other kinds of financial products and services. The purpose of this report is to summarize in one place what we’ve been up to.

Building the CFPB: A Progress Report. Click the image to read the full report.

This letter also appears in a CFPB report entitled Building the CFPB: A Progress Report. Click to read the full report.

The consumer bureau’s statutory obligations are designed to make markets for consumer financial products and services work in a fair, transparent, and competitive manner. This means, in part, creating a level playing field where all providers of consumer financial products and services are subject to meaningful oversight to ensure that they play by the rules. It also means creating a level playing field where both parties to the transaction – the customer and the lender – can understand the terms of the deal, where the price and the risk of products are made clear, and where direct comparisons can be made from one product to another.

Americans aren’t looking for a free ride. They expect to be held responsible for their debts and purchases. And they understand that there are consequences to not keeping up with payments. When consumers are presented with a choice between two financial products, and they know the true costs, the actual benefits, and the real risks of those products, they will be better able to make good decisions for themselves and their families. A level playing field encourages personal responsibility and smart decision-making.

Americans are looking for an honest marketplace. They want to know the costs up-front, so that they’re not blindsided by hidden fees, interest rate changes, or payment shocks. A properly functioning market relies on consumers’ getting the information necessary to make the best decision for themselves and their families. Consumers have the power to drive markets, but only if they’re provided with the basic information that lets them choose products that meet their needs and reject those that do not.

Across the country, there are responsible financial institutions offering products and services that provide real value to their customers. But finding those products in a sea of fine print and complex terms can overwhelm even the most diligent consumers.

If there is a lesson from the past five years, it’s this: We all lose when consumers cannot readily determine whether they can afford to pay back their loans. We all lose when lenders routinely sell credit in ways that hide the risks and costs. We all lose when a broken consumer credit system magnifies risks throughout the economy. We can do better.

At the consumer bureau, we will do better. Over the past year, we have built a strong foundation, and, in the years ahead, the CFPB will work hard for consumers across the country.

Sincerely,
Elizabeth Warren
Special Advisor to the Secretary of the Treasury on the CFPB

This letter also appears on page 5 of a CFPB report entitled Building the CFPB, which was originally published on July 18, 2011

The CFPB and JAGs: partnering to protect servicemembers

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The Consumer Financial Protection Bureau (CFPB) and the Judge Advocate Generals of the United States Army, Marine Corps, Navy, Air Force, and Coast Guard yesterday announced an agreement on a Joint Statement of Principles to provide stronger protections for servicemembers and their families in connection with consumer financial products and services. Partnership between the CFPB and the Offices of the Judge Advocate Generals will help better protect servicemembers and their families from unlawful acts and practices.

Holly Petraeus adds her signature to an agreement between the CFPB and the Judge Advocate Generals.

Holly Petraeus adds her signature to an agreement between the CFPB and the Judge Advocate Generals.

The Judge Advocate Generals and the CFPB, among other things, will work together to identify potential violations of federal consumer financial laws and establish a single point of contact within the CFPB’s Enforcement Division that will allow members of the Judge Advocate Generals’ Corps to share information on consumer complaints from servicemembers and military families. In addition, the Offices of the Judge Advocate Generals and the CFPB – including its Office of Servicemember Affairs and Enforcement Division – will create a formal working group with the goal of achieving a coordinated response to unlawful conduct targeted at servicemembers and their families.

The Judge Advocate Generals and CFPB officials met today to discuss the following goals set forth in the Joint Statement:

  • Protecting servicemembers and their families from unlawful acts or practices by providers of consumer financial products or services, including through enforcement actions where necessary;
  • Creating mechanisms that enable the Offices of the Judge Advocate Generals to provide input on the Bureau’s efforts to improve the marketplace for servicemembers, their families, and law-abiding businesses;
  • Finding ways to work together as efficiently and effectively as possible to address concerns raised by servicemembers and their families about consumer financial products or services; and
  • Working with other offices in the Department of Defense to support improved financial literacy training for servicemembers and their families.

For statements from Holly Petraeus and the Judge Advocate Generals, and for a full list of signers, see the full press release.