CFPB Update

The 112^th Congress may be winding down, but the Consumer Financial Protection Bureau (CFPB) keeps chugging. Before Congress scurried off home for electioneering in September, CFPB Director Richard Cordray paid a visit to both the Senate Banking Committee and House Financial Services Committee for a biannual update on the Bureau’s activities. House Financial Services Committee Chairman Spencer Bachus (R-AL) even quipped that Director Cordray “made some news” during his appearance on September 20. Yes, it’s news when an Administration official appears before Congress and says something of interest.

The Consumer Financial Protection Bureau is poised to
issue two important proposed rules on overdraft
protection and prepaid cards.

What did Cordray say of interest? At issue is the 2009 CARD Act’s “ability to pay” rule. The Federal Reserve Board had responsibility for the implementing this provision of the CARD Act (the CFPB had not existed at this time). The Board created a uniform standard requiring all consumers to demonstrate “an independent ability to repay.” The Board’s rule took effect October 1, 2011 and almost immediately Congress began asking questions on the rule’s impact on stay-at-home spouses and their ability to obtain credit. Dodd-Frank gave the CFPB rule-making authority over Regulation Z (Truth in Lending). At another House Financial Services Committee hearing during the summer, Gail Hillebrand of the CFPB did not appear very sympathetic to opening up the rule again. But Cordray believe enough evidence had been produced to warrant a new rule that would disadvantage stay-at-home spouses who may ample “household income” to secure credit. CFPB will likely issue the revised rule for public comment later this year or early 2013.

Senate and House leaders also expressed concerns with CFPB’s final rule on international remittance transfers (Sec. 1073 of Dodd-Frank). Several House members wrote Cordray in August asking for a delay in the effective date (February 2013) while the CFPB studies its impact on consumers. The CFPB’s rule on international remittance transfers required several disclosures to be made to consumers including exchange rates and fees charged by other entities and taxes to be charged by foreign governments. The only relief CFPB has given to exempt those financial institutions providing less than 100 remittances annually from the new disclosure rules. I do not expect this will be the last we hear of this issue. How far will consumer choice be limited as institutions exit the business because compliance requirements are not financially viable? Stay tuned.

Looking ahead to 2013, the CFPB is poised to issue two important proposed rules on overdraft protection and prepaid cards. EFTA has provided comment to the Bureau on both subjects in 2012 as part of an Advanced Notice of Proposed Rule-Making. Gov. Mitt Romney also called out the Bureau for slow progress on issuing rules on qualified mortgages. Expect some busy beavers in the hallways and offices of the CFPB in the weeks and months ahead.

House to Debate Bill Modernizing ATM Signage Requirements

On Wednesday, June 27, the House Financial Services Committee is scheduled to consider H.R. 4367 which seeks to eliminate Regulation E’s current dual fee notification requirement. If this bill becomes law this year, consumers will not be impacted. Any individual wishing to draw cash at an ATM or inquire on his or her balance will receive the required fee notice on the screen. And, he or she must affirmatively acknowledge the fee before the transaction can be executed.

Prospects for the committee approving H.R. 4367 on Wednesday are strong. The House bill currently has 120 cosponsors including more than half the Financial Services Committee. The Senate companion bill (S. 3204) has 16 cosponsors. The House and Senate bills are enjoying strong, bipartisan support. If the Committee approves H.R. 4367 on Wednesday, it moves to the full House for consideration (mostly likely in July).

In recent years, ATM owners and operators have been beset by a spate of lawsuits from plaintiff attorneys alleging Reg E violations. In many of these cases, unscrupulous individuals are physically removing (vandalizing if you will) the ATM stickers and forwarding photos to these attorneys. Many ATM operators  deploy small fleets of ATMs and face the option of costly litigation or settlement (not a good option either way for small business in America).

Please come back next week for a status on the Committee’s consideration of H.R. 4367 is its next steps along the legislative process.

Congress Zeroes in on Mobile Payments, but Uncertain of the Target

Mobile payments, mobile banking and mobile financial services are getting attention by lawmakers on Capitol Hill. Both House and Senate banking committees have conducted hearings in the last two weeks on the issue. More hearings are expected in the spring and summer.

At this writing, Congress appears to be in the “understanding” phase. Who are the players? What is the difference between mobile payments and mobile banking? What are the roles of wireless carriers and software providers? What are the legal protections for consumers? What is an “open mobile wallet?” How will mobile financial services affect the underserved? Is the United States behind other countries in the adoption of mobile financial services? Are mobile payments secure? What are the barriers to broader consumer adoption of mobile financial services?

Federal Reserve representatives testified at both the House and Senate hearings armed with new data on consumers and mobile financial services [link to report here found at efta.org]. The findings are clear. A vast majority of U.S. citizens has a mobile phone. Approximately 44 percent of mobile phones can connect to the Internet (i.e., smartphones). Please refer to the FRB’s report for additional statistics. Surprisingly, the underserved make greater use of mobile financial services than the banked.

Consensus emerged from both hearings about a possible gap in consumer protections when a mobile payment charge appears on a consumer’s wireless statement and not on a traditional card statement from a bank. It is unclear at this time on how Congress may address this. Mobile payment security was another popular theme expressed at both hearings. On this issue, perception may be a greater force working against mobile payment acceptance than reality. According to the FRB study, about half of the mobile phone users cited security as the reason not participating in mobile financial services.

It’s hard to tell where Congress will go next on the mobile financial services topic. The same probably could be asked of the industry itself. Players are coming and going. The banks, processors, networks, wireless carriers and device makers are competing and collaborating for this segment. I’ll check back when the next round of Congressional hearings start.

ATM Fee Disclosure: Updating Regulation to Limit Jackpot Justice

   In July of this year Kurt Helwig, president and CEO of the Electronic Funds Transfer Association and Dennis Ambach, director of the Association's Legislative and Regulatory Council, met with the staff of the House Financial Services Committee regarding a regulation that requires ATM owners to display a sign specifying the fee charged to use the machine. There has been evidence of unscrupulous gold diggers ripping the fee signs off of ATMs and then attempting to file class action lawsuits against the owners of the ATMs for failing to post notice of the fees. There are even websites that troll for alleged victims and encourage the filing of these suits.
   Members of the EFTA, which represents a wide spectrum of companies involved in electronic payments, believe that the sticker requirement is an antiquated requirement since modern ATMs post the fee on the ATM screen and ask the user whether he wishes to accept the fee before continuing. They are joined in this belief by members of various other groups including the ATM Industry Association (ATMIA).
   Following the July meeting the Committee's chairman, Rep. Spencer Bachus (R, AL) wrote to Raj Date, a special advisor to Treasury Secretary Tim Geithner and the interim head of the new Consumer Financial Protection Bureau. Chairman Bachus asked whether the CFPB has the authority to amend Regulation E of the Electronic Funds Transfer Act to eliminate what amounts to dual notification.
   The CFPB recently published what the government calls a "Notice for Comment." This is an invitation for the public to comment on some pending regulatory action. In this case, the CFPB is looking for public input on regulations that fall within the Bureau's authority and which could use a little streamlining. Specifically, the CFPB is looking for regulations which it has "inherited" from other regulatory bodies, and which could be updated or modified because they are "outdated, unduly burdensome or unnecessary."

HFSC Chairman Bachus contacted
 the CFPB concerning its authority
to amend the EFT Act to
eliminate dual notification

   Among the suggested areas for comment in the Notice is ATM fee disclosure. The Bureau is looking for comment on whether the requirement to post a sign on the ATM should be eliminated and whether other disclosures, such as the on-screen fee notice, are adequate for informing consumers.

   The Bureau's desire to quickly identify the regulations for which it is now responsible and to streamline those requirements is welcome news. How the newly minted CFPB manages this comment period and deals with the public comment will go a long way in establishing the Bureau's credibility with consumers and with industry.
   In you are interested in commenting to the CFPB on this issue the comment period is open for 90 days. It's hard to believe that we can't find a way to ensure that consumers' rights to know upfront the cost of using someone's ATM can't be balanced with the right of that ATM owner to avoid financial calamity through the jackpot justice of frivolous lawsuits.
   That's my opinion. What's yours?

  

Vita secundum Barney

   Life after Barney. The financial services industry now faces the uncertainty of dealing with the all-important House Financial Services Committee without Massachusetts' Barney Frank as chairman or ranking member.
   To figure out where we're going without Rep. Frank we need to look at how we got here with him. This is not meant to be a Barney bashing. Truth be told, even most conservatives would give him credit (probably grudgingly so) for being one of the more intelligent, articulate and passionate Members ever to sit on, or chair, the Committee. The Dodd Frank financial overhaul bill, loathed by conservatives, owes its existence to Rep. Frank's legislative and parliamentary skills, which allowed him to skipper the bill through a discordant House of Representatives.
   Barney Frank's quick wit powers a sharp tongue. He is a larger-than-life human sound-bite machine, making him a darling of the media. But his sharpness, unfortunately, also has made him a polarizing figure. And while it's difficult to envision him losing a reelection campaign in 2012, even with redistricting, let's face it: After 32 years in Congress he would have had a lot to answer for.
   And at the head of that list would have been his virtual protectorate over Fannie Mae and Freddie Mac. "I do not want the same kind of focus on safety and soundness," he said flatly in 2003, referring to the regulation of Fan and Fred, "that we have in the office of the Comptroller of the Currency and the Office of Thrift Supervision." Rep. Frank went on to say that he wanted to "roll the dice a little more" in loosening up lending requirements for government-backed loans.
   It was this perception of a willingness to sacrifice the financial well being of Fan and Fred in order to put more people, qualified or not, into houses, that made him a target of conservatives. More than that, say conservatives, it was his unwillingness to admit that this roll of the dice had contributed to a complex web of liar loans, credit default swaps and mortgage backed securities that helped collapse the housing market and with it the greater economy.
     So where do the Committee and Congress go after Barney? One place might be a second look at the Consumer Financial Protection Bureau. Rep. Frank successfully fought attempts by moderate Democrats to make the planned agency less independent. With him gone those Democrats may be more likely to join with Republicans seeking to recast the agency.

      Without Rep. Frank the Democrats will tap one of theirs to be the new ranking member (or Committee chair in the unlikely event they are able to re-take the House in 2012). 

   The heir apparent, based on seniority is Rep. Maxine Waters of California. However, she faces two hurdles within her caucus that could preclude her.

   First, she is currently embroiled in a fierce ethics investigation. Rep. Waters continues to be hounded by allegations that she used her juice as a member of the Committee to direct federal bailout funds to a bank in which her husband owned stock. Ms. Waters maintains her innocence in the matter. The case is currently with the House Ethics Committee, which is waiting on a review by outside counsel. Even if she's exonerated the thought of Maxine Waters with a gavel in her hand may make moderate Democrats duck for cover. 

   Second, standing in the way of Ms. Waters' ascendancy may be her fiery Bonnie-and-Clyde anti-bank rhetoric. Being pro-consumer isn't necessarily to be anti-bank. In fact, bankers may not have liked Barney Frank's bluster, his politics, or his sarcasm; however, those who understood the workings of Congress respected his understanding of their complex line of work.

   Ms. Waters, on the other hand, has equated bankers with gangsters. Her solution to the mortgage crisis? Congress should "tax (banks) out of business" if they won't re-negotiate consumer mortgages. Ms. Waters has already started to campaign for the top Democrat seat on the panel. However, I doubt many Democrats, most of whom would hate to see any more banks fail in their districts, are willing to sign onto her slash-and-burn Chavista banking policy.

  In the end the ranking member of the Committee may not matter much, since there are few things in this world as irrelevant as the minority party in the U.S. House of Representatives.  However, nothing would deepen this irrelevance as much as having an ethics-tainted firebrand as the Democrats' ranking member. The party might do better to look at a Committee member like Carolyn Maloney of New York if it wants to have any chance of being an active partner in financial policy in 2013 and beyond.

   That's my take. What's yours?