CFPB’s Regs Are Wind Beneath Its Wings
From Regulation B to Regulation Z and beyond, the Consumer Financial Protection Bureau inherited a number of regs from seven different agencies. In doing so, the CFPB has made it a priority to streamline regulations by updating, modifying and even eliminating some provisions.
To that end, the CFPB has issued several requests for comments. Twenty-nine have already closed and nine remain open. Following is a summary of the top four CFPB non-lending regulatory issues the agency has addressed that are the biggest concern for credit unions.
Probably the most troubling non-lending regulation proposal to come from the CFPB so far concerns remittances and a host of new disclosures that will go into effect in January 2013. The proposed regs are so limiting and burdensome, both CUNA and NAFCU have warned that if enforced as currently written, credit unions could stop providing the service to members. The CFPB asked for comment on the proposed rules, but the April 9 deadline has already passed.
Credit unions are at a disadvantage because the new disclosures and limitations would be difficult to control for institutions that use so-called open networks, like international wires and ACH, compared to companies like Western Union that use their own networks. Credit unions don’t have easy access through open networks to all the information required to meet the regulations, wrote NAFCU President/CEO Fred Becker.
Proposed disclosures include an estimate of exchange rates and fees when a prescheduled transaction is originally authorized, a second receipt 10 days before the transaction will take place and a third and final receipt when the transfer is received. The goal is to allow consumers to comparison shop. However, Becker said the rule would require massive reconfiguration of the way remittances are offered and would be an inefficient use of resources for credit unions. And, he said, credit unions would have a difficult time managing exchange rate risk for 10 days.
The CFPB also proposes allowing consumers to cancel a transaction up to three days before it is scheduled, after receiving cost and exchange rate estimates.
CUNA Senior Vice President and Deputy General Counsel Mary Dunn said the rule would impose unsustainably high compliance costs and legal liabilities for credit unions. Furthermore, if credit unions are forced to discontinue the service due to regulatory burdens, it would result in increased fees for consumers and fewer choices.
Both organizations also agree that multiple disclosures for preauthorized remittances would be overkill for consumers while increasing compliance costs.
To provide safe harbor to credit unions, both trades propose raising the CFPB’s current threshold of 25 transactions per year. NAFCU suggests raising the number to 600, while CUNA suggested excluding organizations that receive less than 30% of their total net income from remittance transactions.
In February, the CFPB issued a request for comment regarding overdraft programs. In particular, the agency asked for information regarding the impact of opt-in regulations, alternatives to overdraft programs and low- or negative-balance alerts to consumers.
The deadline for comment is April 30, but CUNA asked the bureau to grant an extension of the comment period. As of press time, the CFPB had not responded to the request, but Dunn said she’s optimistic the CFPB will grant the extension.
“It’s such an important issue for credit unions,” Dunn said. “A number of credit unions offer a range of products to members for overdraft protection, so we want the agency to have good information.”
CUNA Mutual Compliance Manager Lauren Calhoun said the bureau is attempting to balance getting enough information to consumers with avoiding regulatory burden on financial institutions. She said the CFPB is also seeking comment on a model statement that discloses overdraft fees assessed each month in a penalty box format and also provides a link for consumers to learn more about how to avoid overdraft fees.
The CFPB's approach to statement disclosures mimics the tabular format proposed as part of the “Know Before You Owe” initiative, Calhoun said, which aims to increase consumer knowledge of credit card, mortgage and student loan programs.
The comment period for payday lending ended April 23, and although credit unions don’t engage in the type of predatory lending the CFPB is targeting, Calhoun urged credit unions to stay abreast of the CFPB’s moves.
“There’s some indication NCUA will take [CFPB’s] lead on this issue,” she said. “We know it’s a topic that will come up later this year.”
The current credit union short-term lending model is consistent with the bureau’s objectives of protecting consumers from predatory payday lending, said Assistant General Counsel Luke Martone in CUNA’s letter to CFPB on the issue.
The NCUA’s Short-term, small amount loan program was held up by CUNA as a model for responsible payday lending. The program restricts credit unions to principal amounts between $200 and $1,000, maximum six-month terms, application fees of $20 or less, and a restriction against rolling over the loan.
State-chartered credit unions are not eligible for the program, but many offer similar programs, such as Listerhill’s Better Choice loan option, which provides short-term loans for between $250 and $500 with an 18% APR and 30-day repayment term and also do not permit roll-overs.
CUNA Mutual Director of Compliance Bill Klewin said one CFPB change that will require credit unions to adjust is the way the agency approaches rulemaking. The bureau seeks early consumer and industry feedback, and even though CFPB gives institutions an opportunity to provide official comments, he said credit unions should get involved earlier in the comment process.
NAFCU Director of Regulatory Compliance Steve Van Beek agreed, saying he thinks credit unions are getting used to CFPB’s different approach but added all institutions are often taken by surprise when CFPB Director Richard Cordray announces potential rule changes during speeches.
“Part of the challenge is that the CFPB doesn’t have regular board meetings,” Van Beek said. “You can’t plan your week as a compliance officer when something new can drop at any moment.”