Director Kraninger's Remarks at TCH-BPI Conference
Thank you, Rob, for that kind introduction. I’m honored for the invitation to speak at your conference. You’ve had a great line up, including some of my government colleagues, Jelena McWilliams, Justin Mzunich, and Joseph Otting.
While Treasury, the FDIC, and the OCC have been around for decades—the youngest of the three being 80 years old, the Bureau is the new kid on the block with roughly 8 years under our belt. Further, the Bureau went through its first leadership transition within the last two years. As we continue to mature the agency, we are focused on using all of the tools that Congress gave us to carry out our mission of protecting consumers. I also believe that in carrying out our mission, our focus should be to prevent harm in the first place. This saves consumers the headaches of trying to get their money back after they have been harmed and avoids the very injuries that consumer finance laws seek to address.
Before I get into the policy topics, I want to take a moment to acknowledge the Bureau employees who have provided insights during your conference: Cara Peterson, Gary Stein, Albert Chang and Steve Van Meter. I am also happy to note new staff in the Bureau’s leadership ranks. We brought on a new Associate Director for Supervision, Enforcement, and Fair Lending, a Private Education Loan Ombudsman, and a Chief Information Officer, to name a few. I am grateful for the talented team we have in place to help us carry out our important mission.
Today, I want to provide an update on recent activities that demonstrate the Bureau’s commitment to transparency, productive public discourse, and effective use of the tools Congress gave us to protect consumers. I’ll talk about clear rules of the road for financial services providers through our symposium series and our innovation efforts. Second, with regard to our supervisory and enforcement tools, I’ll provide an update on consent orders, Civil Investigative Demands, and petitions. I’ll close by turning to our education tool and our savings initiative. All of our efforts are aimed at preventing harm to consumers and carrying out the important statutory mission Congress provided.
Clear Rules of the Road
As part of maturing our agency, we are focused on ensuring that our rulemaking efforts are transparent and result in clear rules.
Earlier this year, I announced a symposium series aimed at stimulating a proactive and transparent dialogue. The goal of the symposium series is to assist our policy development process, including possible future rulemakings. By approaching issues with an open mind, and inviting experts with diverse viewpoints, the Bureau can arrive at better policy and decisions that enhance consumer protection.
So far, we have held symposia focused on section 1071 of the Dodd-Frank Act, behavioral law and economics, and on the prohibition of abusive acts or practices.
Let me take a few moments to discuss the Dodd-Frank Act’s prohibition of abusive acts or practices.
As you know, the Act was signed into law almost 10 years ago. It provided the Bureau with the authority to protect consumers from unfair, deceptive, or abusive acts or practices, or “UDAAPs” – a fundamental and critical responsibility.
Although Congress provided some indication of its meaning through a definition in the Dodd-Frank Act, abusiveness does not have the long and rich history of unfairness or deception. Substantial concerns have been raised about the uncertain and indeterminate meaning of certain terms Congress enacted in the definition. The Federal Trade Commission has used its authority under the FTC Act to address unfair and deceptive acts or practices for over 80 years, and the prudential regulators have also enforced this prohibition since before the Bureau’s existence.
Ultimately this uncertainty is not beneficial to the marketplace: businesses that want to comply with the law face great challenges in doing so and these challenges can impose large costs, including impeding innovation. And consumers ultimately may lose the benefits of improved products and lower prices if lack of clarity imposes such costs.
During our symposium, we heard a lot of great feedback to help us decide on a path forward. We have a responsibility to provide greater clarity on how the Bureau plans to implement and apply this standard. At the same time, we have to allow for the environment to build the common law around abusiveness. We are looking to do both with a concrete step in the near future.
Our next symposium will be held in February of next year and it will focus on consumer authorized financial data sharing. This is another important topic and I’m looking forward to the dialogue and insights provided by the panelists on how we should move forward.
Clear Rules Provide Opportunity for Innovation
In our role of protecting consumers, Congress also tasked the Bureau with the mission of facilitating innovation and access to financial products and services for consumers. The Bureau recently announced our 3 innovation policies. First, the Compliance Assistance Sandbox provides an environment where innovators, whether at startups or established companies, can develop new technologies to address consumer needs. The Bureau will work with companies that are testing new financial products and services while sharing data with the Bureau. Our sandbox enables testing of a financial product or service where there is regulatory uncertainty arising under three enumerated consumer laws – the Truth in Lending Act, the Equal Credit Opportunity Act, and the Electronic Fund Transfer Act. Under the Policy, Bureau approvals are a determination of compliance that companies can rely upon.
The second policy is a revised trial disclosure program through which covered persons may test alternative disclosures aimed at improving consumer understanding and efficiency.
The new policy streamlines the review process and provides for time limited extensions for successful disclosure tests. I am truly excited about the opportunities for more effective disclosures. Show us that different disclosures work and that information may ultimately be used to help support improvement to our rules.
The third policy is a revised no-action letter policy. The no-action letter provides regulatory certainty through a Bureau statement that, under certain facts and circumstances, we won’t bring a supervisory or enforcement action regarding specified aspects of a product or service. We announced our first recipient, the United States Department of Housing and Urban Development. HUD acted on behalf of more than 1,600 HUD-certified housing counseling agencies that serve more than one million households annually. These HUD certified counselors offer pre-purchase homeownership counseling to potential borrowers looking to purchase their first homes. They also enable borrowers to make informed choices based on their financial circumstances so that they can achieve safe and sustainable homeownership.
Over the years, the Bureau has heard concerns from HUD, housing counselors, and mortgage lenders about regulatory uncertainty related to the Real Estate Settlement Procedures Act or RESPA.
The no-action letter states that the Bureau will not take supervisory or enforcement action under RESPA against HUD-certified housing agencies for entering into certain fee-for-service arrangements with lenders for pre-purchase housing counseling services. Prior to this no action letter, there was concern that such arrangements would be considered prohibited payments for “referrals” under RESPA.
Clarifying such uncertainty and ensuring clear rules paves the way for innovation. Innovation benefits consumers through increased competition, generating better and less expensive products and services for consumers. New products and services can expand access, especially to unbanked and underbanked households, giving more consumers access to the benefits of the financial system.
Innovation is also having a big impact on credit underwriting. In considering AI and other emerging technologies, the Bureau is strongly committed to helping spur innovation, while being mindful of possible risks.
Alternative modeling techniques, such as the use of machine learning algorithms, have the potential to expand access to credit for some of the approximately 45 million Americans with no or thin credit files. The technologies also can make models more efficient, leading to faster decision times and potentially reducing the cost of credit. Given these potential benefits, we see these technologies as important to our mission.
Despite AI’s potential to expand access to credit, uncertainty about how AI fits into the existing regulatory framework may be hindering adoption of the technology, especially for credit underwriting.
One issue we have heard a lot about is whether complex AI models are compatible with the adverse action notice requirements in the Equal Credit Opportunity Act (ECOA) and the Fair Credit Reporting Act (FCRA). For example, ECOA requires creditors to explain to consumers the main reasons for a denial of credit or other adverse action. FCRA includes additional requirements for credit report and similar information used in taking adverse action.
We are aware that the development of tools and technologies to accurately explain complex AI decisions continues to develop, and we expect more methods will emerge. These developments hold great promise as ways to comply with the adverse action notice requirements.
In addition, our innovation policies can be utilized to address areas of regulatory uncertainty, including for adverse action notices. We are particularly interested in exploring three areas: (1) methods for determining the main reasons for a denial of credit or other adverse action; (2) the accuracy of explainability methods; and (3) experimentation on how to convey the reasons in a manner that accurately reflects the factors used in a model and is understandable to the consumer.
The Bureau intends to leverage experiences gained through the innovation policies. For example, applications granted under the innovation policies, as well as other stakeholder engagement with the Bureau, may ultimately be used to help support an amendment to a regulation or its commentary.
We hope to facilitate the growth of technology to expand access to credit and benefit consumers.
Next, I want to briefly touch upon our supervisory and enforcement tools. When an entity or individual violates the law, the Bureau will vigorously enforce the law. We have vital tools to help us carry out this task, including Civil Investigative Demands, or CIDs, and consent orders.
Earlier this year, the Bureau announced that it would update its policies concerning CIDs to provide better information about what activity the Bureau is investigating and the relevant statute that could have been violated. By providing more clarity, the Bureau is operating in a more transparent way.
Another tool we use is consent orders. Consent orders are vital for the Bureau to ensure compliance with the Federal consumer financial laws under its authority. To date, the Bureau’s consent orders may have fixed terms or indefinite terms. Since 2014, the majority of the Bureau’s administrative consent orders have imposed five-year terms.
If an entity or individual is the subject of an order, they may request termination of a consent order. This can be done through either the Regional Director or Enforcement Assistant Director, depending on which office is monitoring the consent order.
The Bureau has terminated a few consent orders in the past. We are currently identifying ways to improve this process to promote consistency, and we are also committed to ensuring consent orders remain in effect only as long as needed to achieve their desired effects. The ultimate goal here is to provide clarity and consistency in our policy related to consent orders. We will announce our updated policy soon.
As I think I have made clear, I want to make sure that everyone knows what the rules are and when they are in violation of, or compliance with our rules. This is really important for our examiners as they work to ensure that entities are in compliance. To make sure that there is clarity on this front, the Bureau has been working with the prudential regulators to respond to the petition BPI and ABA submitted last November asking that we codify the interagency “guidance on guidance.” While I don’t have a full response today, I can assure you that I understand and agree with many of the concerns raised in the petition. There will be a formal, public response in the near future. Furthermore, in keeping with my commitment to transparency, the CFPB will make any such petitions and our responses public.
The last tool that the I want to mention is the Bureau’s education tool. The Bureau provides innovative resources to help consumers learn about financial products and issues so that they can make better informed decisions.
For many of you in this room, your companies have programs to support customers in developing their money management skills. The collective investment in improving the money management skills of consumers in this country is substantial. The CFPB estimated it at $1 billion in 2013. But there is much more to be done to improve the return on that investment. I believe we can increase the level of financial well-being by better aligning our efforts and I think employers are uniquely positioned to help their employees have the financial know-how to assess products and services that best meet their needs.
Through our Start Small, Save Up initiative, we have been bringing stakeholders together to think through how we increase people’s opportunities to save and empower them to achieve their emergency savings goals as a step to improved financial well-being.
We are focusing on three key change levers that will help many Americans for whom savings is neither easy nor accessible.
Lever one – Communities. I don’t see this as a one-size-fits all solution. That’s why we are looking to work directly with a select number of communities around the country to help explore the specific barriers the people in those cities, towns, and counties may face and help them expand proven solutions. For instance, we know that a car breaking down in a city with available public transportation is a very different scenario than a car breaking down in a rural area where the nearest bus stop is 30 miles away.
Lever two – Employers. Our goal here is to encourage employers to offer automated options like financial coaching or split to save – where you can put a portion of your paycheck into your savings account and have that happen automatically.
Lever three – Working with our fellow federal regulators, financial institutions, and fintechs, we can help identify and grow the savings strategies that work and break down barriers that prevent people from starting or growing their emergency savings.
Most of you here are uniquely positioned to help improve the financial well-being of both your customers and your employees.
We know you are innovative and have come up with products that are trying to break down the barriers people face when it comes to building emergency savings. We want you to keep improving and prioritizing those products and services. We know we can help consumers understand options that may be available to them.
And as employers, you can play a key role in making savings easier for your employees by emphasizing emergency savings and implementing or enhancing automated solutions in the workplace. The Bureau is looking to identify employers that are interested in developing and promoting financial education and savings programs to assist their employees.
I believe that by partnering we can increase the level of financial well-being by bringing our efforts together. I believe with the right coalition putting our energy and talents toward this goal, we can significantly increase financial well-being across the country. We are not here to reinvent the wheel, but rather to put our shoulder to it, alongside others.
I look forward to the progress we can achieve on moving the needle on the number of Americans that have a savings cushion.
Thank you for the invitation to address you today and I look forward to taking your questions.
The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.