Prepared Remarks of Richard Cordray, Director of the CFPB, at the National Association of Federal Credit Unions
Good morning and thank you for having me join you today. For five years now, the Consumer Financial Protection Bureau and America’s credit unions have had the opportunity to work together on behalf of all Americans. Our responsibility is to support and protect consumers. For credit unions, these same people are more than your customers; they are your members. We share many goals in common as we pursue our respective objectives, and we have a considerable stake in one another’s success.
We can see this cooperation in our Credit Union Advisory Council, which we created to ensure that credit unions could weigh in directly on policy priorities and provide us with information and perspective on consumer financial markets. We also see it in our Office of Financial Institutions, which has met with hundreds of credit unions to hear your comments and concerns. The more we hear about your perspective and your members, the better we can respond.
Credit unions often note that they made consumer protection their first priority long before the Consumer Bureau was born. We agree that you did not cause the financial crisis and performed well during that very difficult period in our country’s economic history. For that reason, we have regularly taken a close look at how credit unions operate and we have worked to accommodate the specific needs of smaller financial institutions. And we will continue to do so.
For our part, the Consumer Bureau seeks to make costs and risks clearer for consumers in the financial marketplace. Some of our most important work to date has been to reform and improve the mortgage market. Let me review what we are doing, which is so relevant to all of you.
Our first set of mortgage rules have been in place for over two and a half years, and we are seeing great progress. In 2014, the first year of our Ability-to-Repay rule on mortgage origination, owner-occupied home purchase mortgages increased by 4 percent, according to HMDA data, and growth was even stronger last year: home purchase mortgages increased by an estimated 13 percent to 14 percent. And it is notable that credit unions are thriving, with their share of mortgage lending actually growing. In fact, credit unions originated 39 percent more home purchase mortgages in the first nine months of 2015 than they did for the same period of 2014, according to recent data.
Let me pause to let that sink in. That is good news for you and for consumers. It means more opportunity for more consumers, and a wider path to the American dream in a mortgage market made stronger by the changes we made. Many credit unions have focused on the compliance burdens of the new rules. But they have overlooked the positive benefits of the rules. A safer mortgage market that does not allow “no-doc” loans, or loans that can be underwritten over misleading teaser rates, is a market that presents more favorable ground for responsible lenders like credit unions. When bad practices are rooted out, good practices are able to thrive, freed from the unfair competition of a race to the bottom. That is exactly what has happened for credit unions over the past two years. In addition, as the Consumer Bureau is building out a vigorous supervision program over non-bank mortgage lenders and mortgage servicers, you are being put on a level playing field with your competitors for the first time ever.
These positive trends are not restricted to mortgage lending. Total loan balances grew at a 10.1 percent annualized pace according to the August Credit Union Trends Report. Auto lending is sharply up: on a seasonally-adjusted basis, annualized growth in used auto loan balances grew by 14.4 percent in June, and new auto loan balances increased by 15.4 percent. Indeed, credit unions have seen new auto loan balances hit $100 billion for the very first time. Those of you who offer credit cards to your members are also enjoying an improved market based on better regulation under the CARD Act. Most telling of all, credit union membership hit record highs in the past year. That is a lot of welcome good news indeed.
One thing we have learned from our discussions is that smaller creditors operate differently from larger financial institutions. So we continue to think hard about the challenges faced by most credit unions, which seek to maintain their traditions of flexible yet responsible lending. It is an invaluable service to consumers, especially in rural areas and towns like the one in Ohio where I grew up and still live with my family today. So when you raise these concerns, we listen closely.
Based on your input, for example, we revisited our mortgage rules to broaden the definitions of “small creditor” and “rural area.” We raised the loan origination limit for small-creditor status for first-lien mortgage loans from 500 to 2,000 per year, and we stopped counting loans held in portfolio by smaller creditors and their affiliates toward the limit. Under the new rule, our small creditor provisions now cover all but about 150 of the very largest credit unions.
And we expanded the definition of “rural.” Many of you told us our definition was too narrow, so we took another look. The new rule added all census blocks that are not in urban areas – all of them – which expanded the definition to embrace about 22 percent of the population. Last year, Congress weighed in further with the HELP Rural Communities Act and we adopted a new interim rule to move even further. We understood Congress to be saying that even more credit unions and other small creditors should be exempt from required escrow accounts for higher-priced mortgage loans and should be allowed to continue to originate certain balloon-payment mortgages. So we have now made it even easier to qualify as a lender that is “operating predominantly” in a rural or underserved area.
We also are reducing uncertainty for consumers by giving them a simpler, more understandable approach to the largest purchase most of them will ever make, which is a new home. Our Know Before You Owe mortgage disclosure rule took effect last October. It combines duplicative and overlapping paperwork that burdened mortgage lenders for over 40 years. Congress told us to integrate the separate disclosures imposed under TILA and RESPA, and so we did.
Consumers now get a single form, the Loan Estimate, after applying for a loan. They get another single form, the Closing Disclosure, at least three days before finalizing the loan. These forms help consumers spot crucial information such as the interest rate, monthly payments, and total closing costs, as well as any risky terms that could lead to payment increases over time. Consumers like the forms and tell us they are a great improvement.
Up front, you told us this rule required major operational changes and extensive coordination with third parties, and in the end we allowed almost two years for implementation. Even so, we saw that the transition was difficult and we understood that you were just trying to get it right. So we worked with NCUA to make it clear that early evaluations for compliance will be corrective and diagnostic, not punitive. We also added a new page on our website at consumerfinance.gov to aid implementation. There you will find the rule along with useful tools to explain it with straight talk, not legalese. We encourage you to check it out if you have not done so already.
On a related note, we have also released our Home Loan Toolkit, which guides consumers through the process of shopping for a mortgage and buying a house. Creditors must provide a copy to all applicants for home-purchase mortgages. That means millions of consumers will get this document each year. The toolkit has been slimmed down from its previous version and has been rewritten in plain language. It helps people better understand the choices they face, and that will mean happier and more satisfied customers – just what you and we both want.
We have another online, interactive set of tools and resources that we call Owning a Home. It takes consumers through the home-buying process and helps them make sound decisions, from day one to the closing table. It is on our website as well, and it incorporates changes based on feedback from credit unions. We have completed an eClosing pilot project to encourage lenders to try a more paperless process that incorporates our educational materials into their closing platforms. There is great potential for eClosings to increase efficiency and improve consumer understanding, and I am glad that credit unions took part in our pilot and have shown leadership on this initiative.
Our last required mortgage rule was to update how mortgages are reported under the Home Mortgage Disclosure Act. This law is intended to provide information about how lenders are serving the housing needs of their communities. It gives public officials information to guide policy decisions. It reveals lending patterns that could be discriminatory. And it helps lenders understand changing loan patterns in their local markets.
The final rule will provide better data on such crisis-era features as non-amortizing loan terms and teaser interest rates, as well as products like cash-out home equity loans that were abused by some predatory lenders. It also reports the age of the applicant, which will help all of us monitor and protect seniors against the kind of exploitation we saw in the lead-up to the financial crisis. We recognize this means another implementation process for mortgage lenders, so we set a generous lead time to implement the rule. The effective date for most provisions is January 1, 2018, meaning the first submission of new data will not be due to the Bureau until March 2019. One change does take effect this coming January, and that is a higher loan-volume coverage threshold for depository institutions, including credit unions. That means more of you can take advantage of the HMDA reporting exemption as soon as possible.
Beyond our efforts to compile better information, we are also building better ways to collect it. To ease compliance burdens, in many instances the final rule aligns as much as possible with MISMO standards, to reduce burden and harmonize with the approach being taken by Fannie Mae and Freddie Mac. By speaking the same language, we can achieve two goals: improve the quality of the data and reduce long-term costs. At the same time, we are working with NCUA and other agencies to streamline how you submit HMDA data, which may save the industry between $30 million and $60 million per year.
To help you understand these changes, we have already issued a plain-language compliance guide, a timeline, reportable data summaries, and other tools. You can find them on the HMDA regulatory implementation page at consumerfinance.gov.
The Consumer Bureau is also looking beyond the mortgage market to other financial services that affect consumers. So I will touch briefly on some of these changes.
For prepaid accounts, we are finalizing a rule to ensure that consumers get the information they need to choose the product that is right for them and that these accounts enjoy the same kind of protections as checking accounts, including error correction rights, dispute resolution rights, and access to account information. And we are looking at when and how consumers are charged overdraft fees and the transparency of fees on prepaid accounts.
For small-dollar loans, we have issued a rulemaking proposal that would cover payday loans, vehicle title loans, and certain installment loans. Our proposal would end debt traps by requiring lenders to take steps to make sure consumers can actually afford to repay their loans. It would also restrict lenders from attempting to collect payment from consumers’ bank accounts in ways that tend to rack up excessive fees. We are currently taking public input on the proposed rule, and already have received more than half a million comments, with many more expected before the comment period closes next month. Our proposed rule would allow lenders to make longer-term loans sharing many features of the NCUA Payday Alternative Loan (PAL) program, so that these loans can continue to be made available to your members. We are very interested in your comments about this approach and how it would affect you in serving the needs of your members.
We also are taking steps to reform the troubled debt collection market. Our proposal under consideration would apply to the third-party debt collectors covered by the Fair Debt Collection Practices Act, including many debt buyers. As part of our overhaul, we also plan to address first-party debt collectors, and you will hear more about that soon. The basic principles we are considering are grounded in common sense. Companies should not collect debt that is not owed. They should have reliable information about the debt before they try to collect, and they should be barred from collecting on disputed debt that lacks proper documentation. They should give consumers better information and more control over the process. The same requirements would follow along with any debts that are sold or transferred to another collector.
Earlier this year we announced actions to encourage checking account access and enhance the accuracy of the screening process used by banks and credit unions. About nine million households have no checking or savings account at all. This exposes them to costly and harmful risks. To help these consumers better manage their spending, we are encouraging financial providers to offer lower-risk account options more broadly. This might include a checking or prepaid account that will not authorize consumers to overdraw, which means they would not have to be screened out of the system based on this risk. More consumers would get the benefits of basic financial services, such as a safer place to keep their money and convenient and affordable payment mechanisms, and gain more control of their financial lives. For credit unions, it would lead to expanded membership and demonstrate once again your traditional commitment to community development and financial inclusion.
Let me conclude by repeating what I said earlier: credit unions provide enormous value to millions of people around the country and are great stewards of consumer interests. We applaud your efforts to advance financial education, a mission that we share. Specifically, we appreciate those credit unions in Montana, Minnesota, and elsewhere that field tested the Bureau’s Your Money Your Goals initiative to help adults manage their finances better. We encourage you to join us and help even more people become successful and sustainable credit union members.
You can do that, if you are willing, and I urge you to do so. We both want to see a world where consumers understand their options, weigh their choices carefully, and make sound decisions. A more educated consumer is a central tenet of our mission. Here are some ways we can help accomplish that together.
First, we are working to help young people increase their financial capability. I think every state should include a stand-alone personal financial management course as a graduation requirement for high school students, just like American history, math, and civics. Credit unions can help make this happen, far better than I can. These young people are your future members, and you are in prime position to help them manage their financial affairs, as you do all over the country through financial education programs, such as reality fairs. You are admired leaders in your communities, and public officials respect your views. I urge all of you who want to improve economic life in America to push to make financial education a topic of required learning in the schools in all 50 states. That would be something to be proud of, with a lasting positive effect. Do that for yourselves, your children, your grandchildren, and for America’s future.
Second, we are providing workplace financial education ourselves and encouraging others in the public and private sectors to do the same. People make many important financial decisions on the job. Indeed, financial educators note that the workplace is the only place most adults will ever receive any financial education at all. Credit unions are uniquely positioned to lead the development of financial wellness programs in the workplace, both internally and externally.
Third, we are helping to support and protect older Americans and educate those who care for them and care about them. More than 10,000 Americans turn 62 years old every day. They join 57 million others who have already turned that page on the calendar and who now face financial issues that pose risks for the unprepared and unprotected. We have developed resources for caregivers who are managing an aging relative’s money, and to protect friends and loved ones against financial scams and abuse. We also published a set of recommendations to help credit unions and banks in your efforts to prevent elder financial abuse and to intervene effectively when it occurs. We recognize that credit unions are often the first ones to spot the danger signs, and frequently act to stop older members from becoming victims. Seniors have great trust in you, and you have earned it. Please keep this a focus, and do not feel the need to reinvent the wheel. Instead, we urge you to take the initiative by considering the recommendations we have made and by sharing our materials widely with your members.
It has been said that cooperation is the most effective form of creation. So we ask you to continue to cooperate with us to address the financial issues that play such pivotal roles in the lives of consumers. They need and deserve less mystery and more transparency. They need protection, not exploitation; they need support, not indifference. We know that credit unions care deeply about such things and make them happen every day. It is up to us, working together, to make sure people get what they need. 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.