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Prepared Remarks of CFPB Deputy Director Steve Antonakes at Protecting Nevada’s Consumers: A Common Ground Conference

Good morning. It is my pleasure to be with you at this Common Ground Conference. I would like to thank Attorney General Masto for hosting this important event, along with Jessica Rich and all of our colleagues at the Federal Trade Commission. I know that an enormous amount of work goes into planning these events, but I think we can all agree that it is well worth the effort. The FTC has held many of these Common Ground Conferences around the country, and we are delighted to be participating in this one.

I cannot think of a better forum to foster an open dialogue and spirit of collaboration among the agencies involved, as well as with the consumer advocacy and legal aid communities. Much of the important work we do results from informal interactions among staff, and from generous information sharing. Events like this conference enhance that level of collaboration, and I am confident that they will move us toward our shared goal of protecting consumers, both in Nevada and beyond.

By way of background, I am a career regulator having started in this line of work over 24 years ago as an entry level bank examiner. I later served for seven years as the Massachusetts Commissioner of Banks. Under this purview, I had a mandate to ensure compliance with safety and soundness, consumer protection, community reinvestment, and fair lending laws and regulations. Moreover, I have supervised banks, credit unions, and nonbanks throughout my career.

While the Bureau’s mandate focuses on consumer protection rather than on safety and soundness, we very much care about the financial health of banks and credit unions. As a veteran of two banking crises, I can tell you unequivocally that, in my view, consumer protection is not in conflict with safety and soundness. Consumers benefit from a healthy, competitive, and diversified financial services system through greater access to credit and competitive pricing.

We hold that banks, credit unions, and nonbanks should be treated alike and receive similar oversight if they offer the same types of financial products and services. Accordingly, we want responsible businesses playing by the rules to succeed, free of unfair pressure from predatory competitors.

Ultimately, both financial and consumer compliance performance are dependent on strong management. Seldom do institutions excel in one and not the other. No business built on deceiving its customer base will be sustainable. Moreover, when businesses underinvest in compliance management systems it can pose significant reputational and financial risks. There is no better evidence than the banking industry’s ongoing recovery from a significant underinvestment in internal control systems relative to mortgage origination and servicing.

Reform stemming from the financial crisis resulted in the creation of the Consumer Financial Protection Bureau. Our mission, quite simply, is to make markets for consumer financial products and services work for Americans. Above all, this means ensuring that consumers get the information they need to make financial decisions that are best for themselves and their families.

Since we opened our doors, our consumer response team has received over 300,000 complaints. Just last month we received more than 30,000 calls and handled more than 20,000 complaints. Debt collection is our largest source of these complaints, as historically has been for the FTC and many attorneys general offices. We receive approximately 5,900 debt collection complaints a month. Mortgage complaint volume, however, remains high and averages around 4,900 complaints per month. Complaints are not only opportunities for us to assist specific people; they also make a difference by informing our work and helping us identify problems, which then feed into our supervision and enforcement prioritization process.

Our consumer response work compliments the work that the FTC has been doing for over a decade with its Consumer Sentinel Network. Attorneys general have also long been a part of this collaboration, sharing and acting on complaints affecting consumers in their states. I am pleased to tell you that we have begun working with several states to give them real-time access to our growing database of consumer complaints. We are now able to provide this information to state officials through a secure portal, so that you can search and filter complaints by company, product, or issue. The California, Virginia, Oregon, and Texas attorneys general are already partnering with us on these efforts, as are the banking regulators in 14 states. We want every attorney general to take advantage of this technology, which will help us see things through the same eyes and find new opportunities to serve consumers more effectively. This portal is a concrete way to realize the shared goals that bring us here today.

One of our largest tasks has been to draft rules to restore confidence and common sense to our mortgage market. For residents of Nevada, the story of our housing crisis is all too familiar.

In the lead-up to the crisis, many mortgage businesses failed to conduct the very due diligence necessary to safely and prudently underwrite mortgages. Some joined their customers in wishful thinking. Some tricked people into believing they could afford loans they could not. Some actually falsified documents. Certainly some consumers should have known better and made very bad choices. But too many consumers could not recognize the risks they were taking until it was too late.

When the music stopped and property values began to fall, servicers were ill-equipped to handle the resulting foreclosures. Breakdowns at every step in the process exacerbated the decline in property values, and neighborhoods from Las Vegas to south Florida were torn apart. The housing crisis did not have to turn out this way, and so I want to walk you through how our new rules aim to better protect consumers at every stage.

First, our mortgage origination work marks a return to traditional mortgage lending. Our Loan Originator Compensation rule restricts certain practices that created financial incentives to push people into loans with higher interest rates. Under our Ability to Repay (QM) rule, lenders must now make a reasonable, good-faith determination that the consumer can actually afford the mortgage before they make the loan. Now, obviously, mortgage lenders do not have a crystal ball: they cannot predict if someone will lose a job or have an unexpected financial emergency. But they must look at a consumer’s income or assets, and at their debt, and must weigh them against the monthly payments over the long term. In other words, lenders must revert to responsible lending.

These new rules complement existing consumer protections in the mortgage origination area. All of the agencies here today have been very active in enforcing these protections. I want to highlight one particular example that shows the benefits of collaboration. In November 2012, the Bureau and the FTC issued warning letters to a dozen or so mortgage lenders and brokers advising them to clean up misleading advertisements. Some of these advertisements particularly targeted veterans and older Americans, two populations that we have a keen interest in protecting. This sweep also included formal investigations by both the FTC and the Bureau for companies that may have committed more serious violations. I expect that time will offer continued opportunities for fruitful partnerships like this particular effort.

Our second back to basics regulation is in mortgage servicing. We recognize that servicers play a critical role in the mortgage market. Servicers collect and apply payments to loans. When necessary, they can work out modifications to the terms of a loan. And they handle the difficult foreclosure process. Because of all the things servicers do, their effects on borrowers and communities can be profound. Wrongful foreclosures are disruptive: homes were lost forever, families were wrenched from their communities, children lost their friends, and the biggest financial asset for that family was taken with a process that sometimes ended with a sheriff.

We know that here in Nevada, these effects have been deeply felt. At the same time, there have been meaningful, state-based efforts underway to help struggling homeowners. For example, the Home Again program provides a single point of contact for homeowners seeking loan modifications or facing foreclosures. These efforts are important and complement the regulatory work we do at the federal level. In many ways, our new servicing rules build on the groundwork laid by the attorneys general in this area.

Simply put, consumers should not be hit with surprises by those responsible for collecting their payments. If a consumer takes out a mortgage, our rules require servicers to keep the consumer informed about their loan and to investigate and fix errors which are brought to their attention. Our new rules will help borrowers know where they stand. Servicers now must send monthly statements showing how they applied the monthly payment. The statement puts all the important information in one place, showing the interest rate, loan balance, escrow account balance, and how the payments are applied.

To clean up the mortgage servicing market, we also are taking aim at practices that have given too many consumers the runaround. Servicers now know that they must perform basic customer-service functions such as returning phone calls or answering customer inquiries. Moreover, our rules require mortgage servicers to let consumers know about available options to save a home or to work out a problem in making payments.

We are also restricting “dual tracking” by barring servicers from starting foreclosure proceedings until the borrower has been delinquent for more than 120 days. If the borrower timely submits a complete application for loss mitigation more than 37 days before a scheduled foreclosure sale, no foreclosure sale can occur until all other options available through the owner of the loan have been considered, such as loan modifications, short sales, and deeds-in-lieu of foreclosure. And servicers cannot foreclose on a property once a loss mitigation agreement has been reached, unless the borrower fails to perform under that agreement.

With the servicing rules now in effect, we have made it very clear to industry that certain practices will simply not be tolerated. While we are looking for servicers to make a good faith effort to comply, this does not mean that servicers have the freedom to harm consumers. We expect these simple protections to help prevent needless foreclosures, which is best for borrowers, lenders, and our entire economy.

The notion that government intervention has been required to get the mortgage industry to perform basic functions correctly – like underwriting, customer service and record keeping – is bizarre to me but, regrettably, necessary.

Additional areas of concern and focus include debt collection, consumer reporting, and student loans. One in ten consumers has debts in collection. The best estimates are that 30 million Americans came out of the financial crisis with one or more debts in collection for amounts that now average $1,500 per person. Collection of consumer debts serves an important role in the proper functioning of consumer credit markets. But certain debt collection practices have long been a source of frustration for many consumers, generating a heavy volume of consumer complaints at all levels of government.

For example, we recently filed a lawsuit against CashCall, an online loan servicer. We believe that the company violated federal law by seeking to collect on loans that were rendered void or otherwise nullified because the loans violated state caps on interest rates or state licensing requirement laws. We also ordered Cash America, one of the largest short term, small-dollar lenders in the country, to refund consumers up to $14 million for robo-signing debt collection documents and illegally overcharging service members. It was also ordered to pay a $5 million fine for these violations and destroying records in advance of our examination.

In November, we published an Advance Notice of Proposed Rulemaking asking consumers for feedback about their experiences with debt collections and asking the industry for information about their practices. We extended the deadline for comments to ensure that we received feedback from anyone who wanted to comment, including consumers, advocates, and the attorneys general. We want to ensure that collectors are seeking to recover debts from the right person in the right amounts. In particular we are concerned that the accuracy of account information degrades as it passed on from the original creditor to debt collection firms or debt buyers.

Consumers are also challenged in that they cannot control the information that goes into their credit reports and can have difficulty correcting the errors they find in them. For consumers with errors in their reports, the damage done can be severe. We have issued a bulletin putting companies that supply information to consumer reporting agencies on notice of their obligations to review consumer disputes and correct inaccurate information. We have also completed larger participant rulemakings for the markets for consumer debt collection and consumer reporting companies. Accordingly, larger players in both of these critical markets are now subject to oversight through the Bureau’s supervision program. Our enforcement oversight extends to all debt collectors and consumer reporting agencies.

I would also like to talk about student loans, which comprise the second largest consumer debt market. For the law students and recent graduates in the audience, this reality hits perhaps too close to home. Student loans allow many Americans to pursue opportunities through higher education that they could not otherwise afford. However, the cost of higher education has been rising steadily, and so more students and their families are taking out loans in order to afford college. The result is that more than 40 million Americans collectively hold approximately $1.2 trillion in outstanding loan balances. These rising levels of student loan debt can also have a domino effect on our economy and on our society.

In recent months, other agencies have joined the Bureau in expressing concern about how this rising debt burden may be holding back the economic recovery – slowing household formation, discouraging business start-ups, inhibiting first-time homeownership, and limiting the mobility and options of young graduates who would otherwise consider, say, working in rural communities or as teachers.

We know that student loan borrowers rely on the business practices of financial companies once they have taken on the debt. Student loan servicers have come to play an increasingly important role in graduates’ economic futures. We have identified a number of potential servicing concerns in this market, based on complaints and other market data. These complaints bear some resemblance to those voiced by struggling homeowners — servicing personnel without authority to provide assistance, no clear options when borrowers run into trouble, and a raft of record retention and payment processing problems that leave borrowers stymied with no clear recourse.

For example, some borrowers have found that when they attempt to prepay their loans, the servicers do not apply the excess payment to the highest interest loan. Other borrowers who can only make partial payments have found that the servicers apply the payment in a way that maximizes the late fees they incur. And, as we have seen in the mortgage servicing market, when borrowers’ loans get transferred, they may experience lost paperwork or processing errors that result in late fees, damaged credit, and, in some cases delinquency and default. We have serious concerns that these are the same sort of systematic breakdowns that millions of homeowners faced when dealing with their mortgage servicer.

Because student loan servicing is so important, our most recently completed larger participant rulemaking covered nonbanks in the student loan servicing market. As of March 1st, our supervisory jurisdiction will complement our existing enforcement authority with respect to the larger nonbanks in this market and our existing authority over large banks in this market.

As with other markets where the Bureau has supervision activity, we are taking steps to make sure that student loan servicers are complying with federal consumer financial laws. This means that we are reviewing the policies and procedures, assessing their compliance management systems, and testing transactions for compliance. Our supervision program in this market will allow the Bureau to scrutinize practices in these areas, assess the risks and harms to consumers, and take corrective action where necessary.

The Consumer Bureau has also developed new resources to help students make more informed decisions when it comes to higher education. Our “Paying for College” set of tools, which is available on our website, is designed to help families consider their options and assess the costs and risks in terms that are easier to understand. These tools help students and families – who may be facing this intimidating challenge for the first time in their lives – to ask the right questions and make more informed decisions. We urge everyone to spread the word about these tools and to make use of them.

A renewed and appropriate focus on consumer protection will go a long way toward preventing the problems that give rise to the financial crisis. Our goal is that this will allow substantial opportunities for all responsible companies to innovate and compete in the marketplace.

Put another way, we are attempting to recalibrate the relationship between consumers and financial service providers by ensuring it is grounded in fairness, transparency, and choice. We look forward to continuing to work with all of you, our partners, to achieve these goals. Thank you.

The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive. For more information, visit