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Posts from March 2012

Remittance transfer rule: A personal perspective

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Updated on August 8, 2013: The remittance rule goes into effect October 28, 2013. Visit the remittance rule page for additional information regarding the rule including the most recent updates.

As a child of South Asian immigrants, I recall my parents frequently sending money back to our family and friends in India. Because so much depended on its receipt, my parents were uneasy about the transaction until they knew the money was in the right hands. Their unease was not unwarranted. My parents had no control over how the money got there. When my parents used a service to send money, they never fully understood the process, were charged numerous, unexplained fees, and felt powerless if any errors were made. At times they resorted to sending cash by mail, an option that was not especially secure.

Unfortunately, other immigrant families and other consumers who must send remittance transfers have had similar experiences, which is why advocates have been calling for greater protections around these transfers of money, or remittance transfers. Now, with direction from Congress through the Dodd-Frank Act, the CFPB has changed that. We adopted new rules that will go into effect in February 2013. These rules will generally make the costs of remittances clear and hold remittance transfer providers accountable for certain errors.

Here’s how:

Better Disclosures: Under this rule, remittance transfer providers must generally disclose the exchange rate, any fees related to the remittance, the amount of money that will be delivered abroad, and the date the money will be available. Certain disclosures must be provided both before and after the consumer pays for a remittance transfer. Consumers will generally receive these disclosures in English and sometimes in other languages. The CFPB thinks the clarity provided by these disclosures will help inform consumer decisions and instill confidence.

Option to Cancel: Typically, consumers will have at least 30 minutes after payment to cancel a remittance. If they cancel within the 30 minute window, they will get their money back, whether they make a mistake, change their minds, or feel something isn’t right.

Correction of Errors: With this rule, remittance transfer providers will generally be held accountable for errors. If a remittance sender reports a problem with a transfer within 180 days, the provider must generally investigate and correct errors. Companies that provide remittance transfers may also be responsible for mistakes made by their agents. The CFPB believes this will encourage remittance transfer providers to use reliable agents and partners in the U.S. and abroad, helping to weed out the bad actors.

As a lifelong advocate for immigrant communities, I am very proud that the first final rulemaking adopted by the CFPB addresses this issue and brings new protections to many consumers who, like my family, continue to send money to family members, loved ones, and others abroad.

Share your input on payday lending for the official record

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Public input is tremendously important to our work at the CFPB. At our January field hearing in Birmingham, we had the opportunity to gather information directly from Alabamans about their experiences with payday loans.

We’d also like to hear from you. The CFPB is inviting public comments for the record. Please take this opportunity to share your thoughts and insights.

Payday loans are typically marketed as a way to get quick cash when you need it. They generally have three features: the loans are for small dollar amounts; borrowers must repay the loans quickly; and the loans require that a borrower give lenders access to repayment through a claim on the borrower’s deposit account.

We heard and learned a lot at the Birmingham forum, and we know that there are many others around the country who may wish to add to the dialogue. Please tell us your experiences!

You can also watch Director Cordray’s opening remarks from Birmingham below, or read the transcript of the entire event, including what we heard from the public.

Learning to speak financial products and services

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It can be hard to understand the language of financial products and services. Just what exactly is a grace period? What about an ARM? A balloon payment? And while the Internet can serve up an answer, how can you be sure it’s the right one?

Ask CFPB, a new interactive online tool from the Consumer Financial Protection Bureau (CFPB), can help.

Say you’re thinking about buying a home. You could type in a question to Ask CFPB’s search box, or you could browse the list of questions in the Mortgage category. Once you’ve done a search, you can also filter by topic, like “fees” or “closing,” or by populations, like servicemembers, students, and older Americans.

Ask CFPB contains three general categories of questions and answers:

  1. Definitions: Financial products and terms are often described in industry jargon. Ask CFPB translates the jargon into clear definitions. You can get answers to questions like, “What is a credit report?” or “What is a reverse mortgage?”
  2. Explanations: Financial products can include many complicated terms and features, and it can be difficult for you to understand how they work. Ask CFPB provides you with general information and explanations on terms and features of financial products.
  3. Situations: Ask CFPB arms you with information and tips to help you navigate various situations. For example, you can use to the tool to ask, “What if my lender quoted me one rate at application but raised it at closing?”

Ask CFPB also lets you provide feedback. You can rate an answer “Helpful,” “Too long,” “Confusing,” or “Incorrect.” And if you don’t find the answer you’re looking for, you can submit a question for consideration.

Our Ask CFPB database currently contains more than 350 questions and answers, primarily focused on credit cards and mortgages. In the coming months, the CFPB will continue to build the database to answer questions about a range of financial products and services, including student loans, auto loans, checking and savings accounts, and prepaid cards.

So visit consumerfinance.gov/askcfpb, take a look, and let us know what you think!

Too Big to Fail: Student debt hits a trillion

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Recently, we undertook what we understand is the first major effort to understand the size of the private student loan market. This market went through the same boom and bust cycle we saw play out in markets for mortgages and other credit products.

Our initial findings on the size of the private student loan market are sobering. When we add in the outstanding debt in the federal student loan program, it appears that outstanding student loan debt hit the trillion dollar mark several months ago – much larger than estimates from other recent reports. It seems that this market is too big to fail.

Unlike other consumer credit products, student debt keeps growing at a steady clip. Students borrowed $117 billion in just federal student loans last year. And students continue to borrow private student loans, which lack the income-based repayment and deferment options of federal student loans. If current trends continue, there will be consequences not just for young people, but for all of us.

According to data from the Department of Education, federal student loan debt isn’t growing just with new originations – with so many borrowers unable to keep up with interest payments, debt is growing even for many who have left school. Too much debt means too much risk for a generation of young people, many of whom are struggling in today’s economy.

The lines of job-seekers are long, states are reducing their higher education budgets, and household budgets are straining. Young consumers are shouldering much of the punishment in the form of substantial student loan bills for doing exactly what they were told would be the key to a better life. Large levels of debt might also pose immediate problems for the rest of us.

Excessive student debt can slow the recovery of the housing market. Student loan borrowers are sending big payments every month to their loan servicers, rather than becoming first-time homebuyers. This debt can also put added stress on the borrowing capacity of the household and government sector.

At the CFPB, we are attacking the problem on multiple fronts. Working with the Department of Education, we launched a Know Before You Owe project to solicit input on a “financial aid shopping sheet.” The sheet should help students understand the debt implications of their college choice. We are supervising private student loan providers to ensure they comply with Federal consumer financial protection laws. We are providing tools for borrowers to help them navigate their student loan repayment options. And we set up a student loan complaint system to help ensure that private student lenders and servicers are responsive to potential mistakes and problems that borrowers encounter.

Before we opened our doors, these duties were spread across a myriad of federal agencies. Bringing these functions under one roof means we can better ensure that financial institutions operating outside of the traditional banking system are subject to the same rules of the road as all of you.

But consumer protection is just one piece of preventing a student loan market meltdown. The financial services industry, the higher education community, and policymakers all bear responsibility to address the underlying causes of the growing debt levels.

We all need to understand better and address a number of concerns, such as rapidly rising defaults in the for-profit college sector and high borrowing to gain training in fields with limited opportunities post-graduation. We also need to find methods to get struggling borrowers into alternate payment programs quickly so they can avoid default.

We will continue our conversations with many of you about the steps you have already taken to reduce risk in private student lending. And we can keep exploring what can be done within the realm of consumer financial protection for those who have already graduated with too much private student loan debt.

This summer, we’ll release the full results of our study on the private student loan market. Until then, we must all act to address the impacts that student loan debt has on all of us.

Rohit Chopra is the CFPB’s student loan ombudsman. This post is excerpted from remarks delivered before a conference hosted by the Consumer Bankers Association on March 21, 2012, in Austin, Texas.

Don’t miss the chance to make a nomination

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Last month, Director Richard Cordray announced that the Bureau is taking nominations for our Consumer Advisory Board (CAB). In the weeks since the announcement, we’ve received calls and emails from all over the country. People want to know more about the board and how they can get involved, and we’re thrilled with this response. You can help us make the CAB a great resource for the Bureau and for consumers by making a nomination.

To submit a nomination
If you are interested in being considered for the Consumer Advisory Board, please submit a nomination letter and a complete resume/CV to CABnominations@cfpb.gov or to the address below by March 30, 2012.

We want the CAB to be comprised of approximately 20 individuals with varied backgrounds and innovative ideas about how to help protect consumers. Members will meet in Washington, D.C., at least twice a year to discuss, advise, and consult with the Bureau on emerging consumer financial issues. We are looking for nominees with a background in one or more of the following areas: consumer protection, financial services, fair lending, civil rights, consumer financial products and services, or community development. It is our hope to find individuals who can represent the opinions of consumers, advocacy groups, and financial services companies.

With less than two weeks to go before the nomination period closes, we want to make sure that everyone gets the opportunity to nominate someone who will be a dedicated and valuable Board member. We want to get as many nominees as possible in the coming days, and we need your help to make it happen. If you know of dynamic individuals that would be great members of the Consumer Advisory Board, please nominate them today. Don’t miss your chance to make a nomination and be part of something that will help American consumers.

You may also submit nominations by mail to this address by March 30, 2012:

Mail – ATTN: Monica Jackson/CAB Nominations
Consumer Financial Protection Bureau
1500 Pennsylvania Avenue NW (Attn: 1801 L Street)
Washington, DC 20220

If you have additional questions, please give us a call at (202) 435-7451.

Making new partners at our first VSO-MSO town hall

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One of the biggest challenges of working at a new organization is getting the word out about what you do and how your product or service makes a difference to the customer. And that’s definitely the case here at the Consumer Financial Protection Bureau and its Office of Servicemember Affairs.

To get the word out since we started up last year, my staff and I have: visited more than two dozen military instillations across the country; met with various members of Congress and testified at hearings; developed working relationships with crucial Department of Defense offices; established a social media presence; and hosted a Financial Fitness Forum for the military and banking industry leaders.

We took another big step forward recently when the Bureau hosted our first Town Hall with Veterans Service Organizations (VSOs), and Military Service Organizations (MSOs).

Since the earliest days of the United States military, there have been groups of veterans, community leaders, and concerned citizens who’ve banded together to address issues affecting the lives of American servicemembers. For more than a century, many of the leading VSOs and MSOs have been among the most effective champions for servicemembers, veterans, and their families.

For our town hall we hosted 26 representatives from such organizations as the Military Officers Association of America (MOAA), the Veterans of Foreign Wars (VFW), Iraq and Afghanistan Veterans of America (IAVA), the National Military Family Association (NMFA), and others as we talked about how the Bureau works to protect servicemembers, veterans, and military families.

The town hall provided the VSO and MSO representatives an opportunity to ask questions and speak directly to our Bureau’s senior officials about military consumer finance issues.

We got some great questions on topics ranging from for-profit colleges to contract arbitration clauses. We also described what the Bureau is doing to protect servicemembers, highlighted some resources we have to assist military families, and conveyed that we have shared goals and priorities when it comes to protecting the financial future of America’s military community.

Director Richard Cordray told the audience how seriously he takes the job of being a consumer watchdog for military families:

“Active-duty servicemembers, National Guard and Reserve personnel, military spouses, retirees, veterans and their families often face unique financial challenges that can leave them vulnerable to debt, scams, questionable business practices and a wide range of consumer financial protection issues,” he said. “As the Director of our nation’s consumer watchdog, I am honored to have the opportunity to protect the men and women who have sacrificed so greatly for this country.”

What he said really sums up the mission of my office. Everything we do is dedicated to helping servicemembers, veterans and military families build strong financial foundations and receive the consumer financial protections they deserve.

We’ve found allies in the VSOs and MSOs, and we look forward to working together as we pursue our shared mission of helping military families.