Good afternoon. It is a pleasure to be here and have the opportunity to speak at NCRC’s Annual Conference. The Bureau has benefited from its strong working relationship with NCRC on issues ranging from consumer protection to access to credit. We thank you for your continued partnership.
The work all of you do day in and day out to better serve this nation’s most vulnerable consumers – including those in low-income communities and communities of color – should stand as an inspiration to all of us. Like you, we at the Consumer Bureau are working hard to improve the consumer financial markets. 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. Events like this conference enhance our collaboration and I am confident will move us toward our shared goal of protecting consumers.
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.
Since we opened our doors, our consumer response team has received over 300,000 complaints. Just last month we received more than 31,700 calls and handled more than 21,000 complaints. Debt collection is our largest source of these complaints. We receive approximately 6,200 debt collection complaints a month. Mortgage complaint volume, however, remains high and averages around 4,300 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.
I know many of you in NCRC’s extensive housing counseling network have helped your clients file complaints with us. Thank you for helping us to help more consumers. Anyone can file a complaint with us on our website at consumerfinance.gov or by calling our multi-lingual hotline at 855-411-CFPB. Our Ask CFPB tool is another valuable resource for consumers with over 1,000 questions and answers about financial products and money management.
One of our largest tasks has been to draft rules to restore confidence and common sense to our mortgage market. As you all well know, 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.
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 (Qualified Mortgage) 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.
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. You know better than most: 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 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.
Our new rules of the road have been in effect since January. Like our mortgage origination regulations, they embody a back to basics approach. 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.
In sum, we expect servicers to conduct outreach to ensure that all consumers in default know their options. We expect servicers to assess loss mitigation applications with care, so that consumers who qualify get the loss mitigation that saves them – and the investor – from foreclosure.
We expect servicers to pay exceptionally close attention to servicing transfers and they should understand that we will as well. This process should be seamless for consumers. Our rules mandate policies and procedures to transfer “all information and documents” in order to ensure that the new servicer has accurate information about the consumer’s account. Servicing transfers where the new servicers are not honoring existing permanent or trial loan modifications will not be tolerated. Struggling borrowers being told to pay incorrect higher amounts because of the failure to honor an in-process loan modification – and then being punished with foreclosure for their inability to pay the incorrect amounts – will not be tolerated.
There will be no more shell games where the first servicer says the transfer ended all of its responsibility to consumers and the second servicer says it got a data dump missing critical documents.
We expect servicers to turn to force-placed insurance as a last resort, rather than using it as a profit center that feeds off consumers’ distress. At the end of the day, foreclosures are an important part of the business, but they shouldn’t happen unless they’re necessary and they must be done according to relevant law.
We expect these simple protections to help prevent needless foreclosures, which is best for borrowers, lenders, and our entire economy. We mean to end a failed process in which too many struggling homeowners have been kept in the dark about where they stand. American consumers deserve better; they are entitled to be treated with respect, dignity, and fairness.
Last month, we took other steps to improve the mortgage market by proposing the expansion of the information collected under the Home Mortgage Disclosure Act (HMDA). Knowing more about how lenders are serving communities and consumers will help us better identify possible discriminatory lending patterns. We also launched an online tool so that consumer groups and others can have easy access to this public information, something that advocates, industry professionals, and researchers have sought for decades. The tool allows people to evaluate trends in their local mortgage markets.
Last year, Director Cordray spoke on this stage to express concern that discretionary pricing in auto finance increases the risk of pricing disparities among consumers based on race, national origin, and potentially other prohibited bases. In December, in partnership with the Department of Justice, we ordered Ally, an indirect auto lender, to pay $98 million to address their auto loan pricing structure. We believe that structure has caused discrimination against more than 235,000 minority consumers—specifically African-American, Hispanic, and Asian and Pacific Islander borrowers. Ally will pay $80 million in restitution to consumers and $18 million in civil penalties to resolve these issues. This was the federal government’s largest auto loan discrimination settlement in history.
Additional areas of concern and focus for us 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 they 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 requirements. 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. They were 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 other important stakeholders. 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.
Student loans comprise the second largest consumer debt market. For any 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 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 – slowing household formation, discouraging business start-ups, inhibiting first-time homeownership, and limiting the mobility and options of young graduates who might otherwise consider, perhaps 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.
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, we recently completed our larger participant rulemaking covering nonbanks in the student loan servicing market. Our supervisory jurisdiction now complements our existing enforcement authority with respect to the larger nonbanks in this market and our existing authority over large banks. As with other sectors where the Bureau has supervision activity, we are taking steps to make sure that student loan servicers are complying with federal consumer financial laws.
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. 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 gave 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. I’d like to thank you once again for all the work that you are doing to help us get there, and for your dedication to the betterment of all communities, especially the most vulnerable. Thank you.
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.