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.

The Boys are Back in Town

After a five week recess, two party conventions and a nasty Gulf hurricane, Congress is back in session on September 10. How long will they stick around? What can they do before taking off to campaign back home? [Quick fact: The boys may be back in town, but women currently constitute 17% of the 112^th Congress. Apologies to Thin Lizzy.]

At most, Congress will be in session three weeks with a scheduled adjournment date of October 5. The only “must do” agenda item is to pass a measure to fund the government when the new fiscal year begins October 1. At this writing, no individual appropriations bills have been sent to the President’s desk for signature into law. No one is even sure if a lame duck Congress can agree on 2013 spending levels. The budget can could be kicked into early 2013 and a new Congress. It’s happened before in recent years. The only positive news here is that the House and Senate agreed to the temporary funding measure back in July.

When we last saw the Senate in session, no agreement could be reached to move forward on comprehensive cyber-security legislation. News reports popped up periodically in August that some Senators believed a deal could be reached in September. Count me in the doubtful column. We do know, however, the Obama Administration is actively considering either a revised Homeland Security Presidential Directive 7 or an entirely new executive order on cyber-security. PaymenTrends will keep close tabs on all things cyber. We should also bear in mind that Congress may be in and out of session with a blink of an eye, but federal agencies such as the Consumer Financial Protection Bureau remain open for business. CFPB is currently digesting public comments on overdraft protection and prepaid cards (just to name two).

I do want to give a “shout out” to one piece of legislation that has passed the House of Representatives 371-0 and that has more than 60 Senate cosponsors. This legislation (H.R. 4367/S. 3204) would eliminate the requirement that an ATM need a physical placard fee notice to accompany the on-screen fee notice to a consumer. This is one issue where Republicans and Democrats have united behind common-sense legislation to eliminate a burdensome and unnecessary regulation. The Senate needs to act on S. 3204 before leaving for home in October.

EFTA’s Legislative & Regulatory Council will be tackling all these issues (CFPB, ATM signage, overdraft protection, cyber-security) this September 27 in Washington DC. Speakers include Stuart Pratt, President & CEO of the Consumer Data Industry Association, Nicole Muryn, director of regulatory and legislative affairs for BITS and Catherine Galicia, counsel to Chairman Tim Johnson of the Senate Banking Committee.

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.

Dueling Piano Players

Anyone who has been to New Orlean's French Quarter, San Antonio's Riverwalk, or any of a number of other tourist traps, er, destinations, is familiar with the dueling piano players. These are musicians who took Billy Joel's Piano Man way too seriously. They set up shop with a couple of grand pianos in bars and play a series of pop songs, show tunes, naughty nursery rhymes and other ditties that well liquored tourists sing along to. It's a non-techno version of karaoke.

So we had dueling piano players this week in the Senate Banking Committee following the Democrat's unsuccessful vote to break the Republican's filibuster over the nomination of Richard Cordray to head the new Consumer Financial Products Bureau.

First up was the ever intemperate Dick Durbin (D, IL) who chairs the Banking Committee. Sen. Durbin decried the Republican's successful filibuster of Mr. Cordray's confirmation. In full throat and a belligerent baritone Sen. Durbin rounded up the usual suspects on which to pin the blame: "...the big banks and their backers in Congress have done all they can to hamstring [the CFPB] and prevent it from having the tools and leadership necessary to be an effective consumer watchdog."

Not so! Not so! mellifluously sang Alabama's Richard Shelby, the ranking Republican on the Committee chaired by Sen Durbin. On the Senate floor he sang a woeful tale of a Bureau with nearly unlimited power, funding that amounts to a virtual unchallenged blank check, and a Titan director to whom lesser gods would answer.

"It should be common sense that the more power an agency has the more accountable it needs to be," sang out Sen. Shelby.

But in a second verse, Sen. Durbin accused his opposite number and the Republican conference of voting "to protect the status quo rather than...putting consumers interests first."

Not to be outdone Sen. Shelby's baleful rejoinder told of the need to broaden the governance of the Bureau by replacing the sole Director with a Board of Directors and to make the funding of the agency more transparent and less CIA-like. " In light of the reasonableness of the reforms we have requested, the question remains: why are the Administration and the [Democrats] so insistent that the Bureau be unaccountable?" he crooned. 

I think I can answer that. The Administration and the Senate Majority have little faith that the American people know what's in their best interest. They believe that consumers need a deus ex machina, on standby 24/7, to swoop down and save us from ourselves.

I'll go even further. I think the CFPB shows how little respect some in Congress have for the American people and, frankly, for the institution of the Congress itself. By their design of the agency and by their attempt to jam Richard Cordray through the confirmation process, they are telling American financial consumers and their elected representatives, we're going to put a bunch of smart people in a room and they're going to figure all this out. Don't bother your pretty little heads about it.

Well, we don't need more regulation and we don't necessarily need less regulation. We need the right regulation. And a bunch of smart people unanswerable to the institution of the Congress and led by a Director answerable to no one ain't it.

And the boys and girls gathered round Sen. Shelby's keyboard don't get a pass here. Granted, there's nothing more limiting than being the minority party in the House or Senate, but they're in the minority right now for a reason. They were sent to Washington to govern, not to tickle their keys.  This he sang-she sang, dueling piano routine gets old fast.

So pardon me if I don't stick around. I'll do my drinking elsewhere. Maybe a little dive where there's an old guy with 12 teeth and a beat up Gibson belting out the blues from somewhere between his gut and his heart.

That's my opinion. What's yours?