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Diversity reports at two federal agencies offer glimpse of regulatory review under impending Dodd-Frank diversity standards

Posted in Diversity and Inclusion

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), signed by President Obama in 2010 in response to the financial crisis, includes a provision intended to remedy racial and gender discrepancies at federal financial regulatory agencies and private financial institutions.  Section 342 of Dodd-Frank directs each of the federal financial regulatory agencies to create an Office of Minority and Women Inclusion (OMWI) to oversee diversity efforts at the agencies, and further, to develop standards for assessing diversity policies and practices at regulated financial entities.  In October 2013, six federal agencies proposed joint diversity standards for public comment.  Final standards could be issued in the near future.

Two reports recently issued by the Offices of Inspector General at the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) may provide some insight on the impending final standards.  (FDIC Report; OCC Report).  The House Financial Services Committee requested the reviews of the FDIC and OCC in response to a 2013 Government Accountability Office report on diversity, which concluded that very little had changed from 2007 to 2013 at federal financial agencies, despite the diversity provisions of Dodd-Frank.  Committee members questioned whether agency practices were systemically disadvantageous to women and minorities.

The reviews focused in part on agency demographics, personnel practices, and efforts to increase diversity.  The Inspectors also assessed the impact of the newly-established OMWIs on agency policies and diversity efforts.  In both reviews, the Inspectors compared the resulting data to that of the national civilian labor force.  Despite the fact that the FDIC and OCC had taken measures to promote diversity as directed by Dodd-Frank, both reports concluded that more could be done.

In particular, the FDIC report highlighted a lack of Hispanics and women throughout the agency and in senior executive positions.  Noting that female and minority representation at the FDIC remained relatively static since 2008, the Inspector discussed ongoing challenges to the agency’s efforts to increase diversity in the overall workforce.  Many of these challenges are socioeconomic and thus beyond the agency’s control, such as low turnover of existing managers and executives, competition from the private sector for diverse candidates, and limited representation of minorities and women in certain parts of the country or in certain occupations.  After identifying several areas for improvement, the Inspector offered specific recommendations relating to recruiting and workforce engagement, reliability of diversity data, and diversity policies.

The OCC fared somewhat better under review.  The report noted that the OCC’s diversity initiatives—which included enhanced diversity tracking, outreach, and employee networking—resulted in the agency achieving overall workforce numbers that closely aligned with the national civilian labor force.  However, the report also pointed out that these numbers did not translate across the entire organization, with representation of minorities and women at supervisory and senior-level positions falling well below that of the agency’s workforce as a whole.

These reports may offer insights into how the agencies will approach diversity issues for regulated entities under the final diversity standards for regulated entities.  While these standards were expected before year-end 2014, their issuance has been delayed.  Financial institutions and publicly traded companies subject to the standards can expect increased regulatory scrutiny of their diversity policies and procedures once the final standards are issued.  Ballard Spahr’s Diversity Practice already is assisting financial institution clients with compliance measures.

CFPB seeking new members for advisory groups

Posted in CFPB General

The CFPB has published a notice in the Federal Register announcing that it is seeking applications from persons interested in becoming members of its Consumer Advisory Board, Community Bank Advisory Council, or Credit Union Advisory Council.  Appointments to the Board are typically for three years and appointments to the Councils are typically for two years.

Membership in the Board is open to persons with expertise in consumer protection, financial services, community development, fair lending and civil rights, and consumer financial products or services, and representatives of depository institutions that primarily serve underserved communities, and representatives of communities that have been significantly impacted by higher-priced mortgage loans.  The notice indicates that “expertise” depends, in part, on “the constituency, interests, or industry sector the nominee seeks to represent, and where appropriate shall include significant expertise as a direct service provider to consumers.”  Dodd-Frank directs the CFPB to seek Board members who represent the interests of industry and consumers.

Membership in the Community Bank Advisory Council is open to individuals (1) with similar expertise or who represent community banks that primarily serve underserved communities or communities that have been significantly impacted by higher-priced mortgage loans, and (2) who are current employees of banks and thrifts with total assets of $10 billion or less that are not affiliates of depository institutions or credit unions with total assets of more than $10 billion.

Membership in the Credit Union Advisory Council is also open to individuals (1) with similar expertise or who represent credit unions that primarily serve underserved communities or communities that have been significantly impacted by higher-priced mortgage loans,  and (2) who are current employees of credit unions with total assets of $10 billion or less that are not affiliates of depository institutions or credit unions with total assets of more than $10 billion.

The CFPB states that it has a special interest in ensuring that women, minority groups and individuals with disabilities are adequately represented on the Board and Councils.  It further states that because it also has a special interest in establishing a Board that is represented by diverse viewpoints and constituencies, the CFPB encourages applications for Board membership from candidates who represent U.S. geographic diversity and the interests of special populations identified in Dodd-Frank such as servicemembers and older Americans.

An individual must submit a complete application package on or before February 28, 2015 to be considered for membership.  The CFPB expects to announce new members in August 2015.

ABA urges OIG to expand scope of consumer complaint database audit

Posted in CFPB General

The American Bankers Association (ABA) has sent a letter to the Office of the Inspector General (OIG) urging it to expand two of its ongoing CFPB projects: an audit of the CFPB’s public consumer complaint database and a security control review of the CFPB’s DT complaints database (which supports the public consumer complaint database).

In its letter, the ABA makes the following key points:

  • To avoid the CFPB from becoming an “official purveyor of unsubstantiated, and potentially false, information,” the ABA encourages the OIG audit to evaluate the controls in place to ensure the accuracy of individual complaint data.  More specifically, the ABA believes the OIG should look at the degree to which published complaint data relates  to a legal or regulatory violation or a bank practice or policy failure, as opposed to a more generalized expression of consumer frustration or anger.  The ABA observes that “CFPB investigators and examiners evaluate complaints regularly to test their substantive validity and make conclusions about whether a law or regulation has been violated or a bank practice needs to be addressed” and distinguish among complaints that indicate provider violations and those that are unfounded.  The ABA urges the OIG to compare these supervisory evaluations with the data posted on the database.
  • Noting the CFPB’s proposal to expand the public database to include the publishing of consumer complaint narratives, the ABA wants the OIG’s review of the effectiveness of “controls over the accuracy and completeness of the public complaint database” to include “the effectiveness of proposed controls – or the lack thereof – to promote the objectivity, reliability, and utility of the consumer narratives the Bureau may publish.”  The ABA believes the OIG audit should also review CFPB testing, if any, “to evaluate whether consumers can glean salient information from complaint narratives that have been stripped of personal information and relevant attachments, such as account statements or other personal financial records (due to their confidential nature).”
  • The ABA urges the OIG to expand the scope of its security control review of the CFPB’s DT complaints database to include the risks presented by the proposal to publish complaint narratives.  The ABA believes that the security audit should encompass test results of the “scrubbing standard and methodology” to be used to remove personal information from complaint narratives and company responses as well as the consumer
    opt-in process described in the proposal.  The ABA also wants the OIG to look into the sufficiency of consumer response staffing levels, and the adequacy of their training, “to ensure the accuracy and security of a database that may include consumer narratives.”  The ABA notes that should the CFPB consider outsourcing the redaction process or other complaint handling, the OIG would need to audit the CFPB’s third-party risk management controls and capabilities, as well as the independent contractors procedures and controls, “to guarantee that the handling of the considerable volume of personally sensitive financial information by a third-party will meet data quality and security standards.”



CFPB report explores consumers’ mortgage shopping experience

Posted in CFPB General, Mortgages, Research, TILA / RESPA

In a report released on January 13, 2015, the CFPB announced that nearly half of consumers do not shop among multiple lenders before applying for a mortgage loan.  Even fewer—about one of every four—submit multiple applications to gauge the best deal, the Bureau says.

The report is the first to harness data gathered by the National Survey of Mortgage Borrowers, an ongoing research effort funded jointly by the Bureau and the Federal Housing Finance Agency (FHFA).  Its findings rely on responses gathered from roughly 1,900 consumers who took out home-purchase mortgages in 2013.

Among its salient points, the report concludes that the vast majority of consumers—about 70 percent—gather information about mortgage loans primarily from lenders and brokers.  Not surprisingly, the report expresses concern that these parties may not offer the most objective information, given their interest in closing the transaction.  In conjunction with the report’s publication, the CFPB announced steps that aim to provide another avenue for consumers to gather information about available mortgage products.  These steps are discussed below.

The report also concludes that consumers who identify as “unfamiliar” with the basic features of mortgage loans are less likely to shop around for the best deal, and that factors not related to cost, like a lender’s reputation and proximity of a branch office, are important to a significant minority of mortgage borrowers.

Though likely no surprise to the industry, the data and their attendant conclusions suggest that the new TILA/RESPA integrated disclosures, set to be implemented in August 2015, may not, by themselves, sufficiently address consumers’ failure to shop the mortgage market.  Federal regulatory efforts traditionally have focused on encouraging consumers to shop for mortgage loans through an easier, more streamlined loan application process.  The reality emphasized by the report, however, is that to the extent a consumer shops around for a mortgage, the shopping typically ends when the consumer submits a loan application.  Thus, prior efforts have targeted the wrong point in the process.  The report demonstrates that the CFPB is attempting to address this issue.

Alongside the report, the CFPB has rolled out a new landing page called the “Owning a Home Toolkit” within its existing website.  The toolkit includes factsheets to get potential homebuyers started shopping for a mortgage loan and checklists to prepare borrowers for a closing.  The toolkit’s brass ring, though, is its “Rate Checker” tool, which the Bureau disclaims is still in beta testing.  The Rate Checker allows a consumer to enter information about his or her location, credit profile, desired loan amount, and collateral value.  Pairing this information with daily-updated data from financial institutions (via a private research firm), the Rate Checker displays the prevailing interest rates for which the consumer may qualify, as well as the number of financial institutions offering those rates to consumers with the consumer’s profile.  Though wildly simplified and, at this point, a little clunky, this tool could provide potential borrowers with useful information about typical products in the mortgage market, and, toward the Bureau’s goal, it could help consumers better assess terms offered once they apply for a loan.  The concern, of course, is that consumers may unduly rely on information produced by the tool, which does not account for the full scope of consumers’ risk profiles.

At the end of the report, the CFPB notes that the current analysis did not evaluate the extent to which more shopping by consumers improves mortgage outcomes, such as better loan terms and fewer delinquencies and foreclosures.  The CFPB advises that the National Mortgage Database project (which is part of the CFPB’s joint endeavor with the FHFA) hopes to develop a much better understanding of consumer shopping behavior and how it affects mortgage outcomes.

CFPB proposes scorecard for colleges seeking to partner with financial institutions

Posted in Campus Financial Products

The CFPB has issued a request for information (RFI) in which it seeks comments on a draft “Safe Student Account Scorecard” to be used by colleges and universities to obtain information from prospective financial institution partners offering financial products to students.  The scorecard is intended to be used by schools to obtain information on product features and fees when selecting a partner, such as in a request for proposal seeking a marketing partnership.  Although use of the scorecard would be optional, the RFI’s wording suggests that the CFPB hopes that schools will feel reputational pressure to use it.  According to the RFI, the scorecard’s goal “will be to provide responsible institutions of higher education with a standardized format to solicit critical cost and feature information from prospective financial institution partners.”

The draft scorecard appears to be designed for use in connection with products other than credit cards, such as debit cards, prepaid cards, and deposit accounts.  It consists of four sections as follows:

  • The first section lists various “Safe Account features” to be provided without charge and, if the respondent’s product would include any fees or charges for such features, asks the respondent to provide details about any fees or charges associated with such features.  It also asks the respondent whether it will waive students’ monthly maintenance fees and, if not, to describe such fees and any circumstances under which they would be waived.
  • The second section asks for details about fees charged for various features and services.
  • The third section asks about the financial institution’s marketing practices and its ability to adhere to specified guidelines. Such guidelines include the financial institution’s adherence to “transparency” about its relationship with the school in accordance with the “contract transparency requirements” listed in the scorecard.  Those transparency requirements would mandate that the financial institution post its marketing agreement with the school on its website, something the CFPB has previously called upon financial institutions to do voluntarily.  They would  also mandate that the financial institution provide information about revenue sharing and royalties.  Also included in the guidelines is the financial institution’s provision of an annual fee report that would include the number of student account holders in the previous year, the average and median fees paid by a student account holder per year, the three most frequently incurred fees per year, and the average and median fees paid by a student for each fee imposed.
  • The fourth section asks the respondent to provide supplemental information on various “core features” of financial accounts offered to students, such as details on access to regional/national networks of surcharge-free ATMs and the number of surcharge-free ATMS that would be in close proximity to campus locations.

The RFI also includes a sample response by a financial institution to the draft scorecard as well as eight questions on “general areas.”  The questions generally relate to use of the scorecard and the process used by schools to select a financial institution partner.  However, one question asks what fees students most frequently incur under existing campus marketing arrangements for “checking accounts, prepaid cards and other financial products,” the degree to which fees and transaction patterns vary among different student populations, and how this compares “to the frequency of fee assessments on accounts unrelated to these marketing arrangements.”  Comments are due on or before March 16, 2015.

In response to the proposed scorecard, the Consumer Bankers Association issued a statement in which it observed that “[m]any of the concerns outlined in the CFPB’s request for information are based on an antiquated study which primarily focuses on the wrongdoings of one non-bank institution and are not based on the actions of our depository institutions which must abide by strict federal disclosure rules and account opening procedures.”

CFPB encourages comments on prepaid card proposal

Posted in CFPB Rulemaking, Prepaid Cards

Kelly Cochran, CFPB Assistant Director for Regulations, addressed the CFPB’s prepaid card rulemaking in a January 12 presentation to the American Bar Association Consumer Financial Services Committee in New Orleans.  She acknowledged the complexity of the CFPB’s proposal and difficult choices facing the CFPB and encouraged the submission of comments on the proposal.

We are largely supportive of the proposal.  However, the Q&A following the presentation gave us the opportunity to informally comment on two of our concerns:

  • Language and Terminology: The language of the proposed rule and commentary is opaque.  Thus, for example, there are repeated references to “credit cards under Regulation Z where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor” (with minor variations).  Why not simply use a shorthand reference to “account number credit cards” or like language?  Such a change would dramatically improve readability.
  • Treatment of Linked Credit Plans:  Short of prohibiting entirely all extensions of credit in connection with prepaid cards, the CFPB’s proposal would seem to have done all it could to erect as many obstacles as possible to such credit extensions.  These restrictions threaten to deny consumers access to credit programs with manifest consumer benefits, such as a “hybrid” prepaid-credit card that would allow access, at a consumer’s request, to a low-rate overdraft credit line that might be far cheaper than other credit alternatives.

The CFPB’s rationale that most consumers have said that they want prepaid cards without credit features is unpersuasive.  The needs of these consumers are fully addressed by the CFPB’s proposed requirement that consumers must affirmatively opt-in if they want credit features in conjunction with prepaid cards.  Even if they are in the minority, the substantial numbers of consumers who want credit with prepaid cards should not be denied the opportunity.

Obviously, the CFPB and the consumer advocates who have so much influence over the CFPB are concerned about high-cost, short-term credit.  That concern should be addressed directly in the upcoming payday lending rulemaking and not through unnecessary and counter-productive restrictions in the prepaid card rule.

There is much of value in the proposed prepaid card rule.  Hopefully, the comment process will result in an even better final rule.


CFPB plans to launch financial education project for disabled individuals

Posted in Financial Literacy

The CFPB continues to seek comments on its plans to launch in the winter of 2015 what it describes as “a multi-site financial education demonstration project to provide one-on-one and group financial counseling/coaching services to individuals with disabilities transitioning into the workplace or already employed.”

The project has two goals.  One goal is to improve the financial capability of approximately 15,00 disabled individuals to effectively navigate the financial marketplace.  The other goal is “to build the capacity of diverse multi-sector systems (non-disability and disability) in up to 14 cities to unite around the common purpose of building financial security for individuals with disabilities.”  The CFPB plans to collect monthly qualitative reports and quantitative aggregated individual data from participating sites “to document the design, growth and impact of up to 14 integrated diverse delivery models serving primarily low-income populations with disabilities.”

Comment are due on or before February 9, 2015.






CFPB makes two leadership changes

Posted in CFPB People

According to the Wall Street Journal, the CFPB is making two changes in leadership.  Tony Alexis, who previously served as Deputy Director of Enforcement Field Litigation and is currently serving as Acting Director of Enforcement, will become the CFPB’s Director of Enforcement.

Mr. Alexis served as an Assistant United States Attorney in the District of Columbia for 13 years.  He will replace Kent Markus, who will become a senior advisor to Steven Antonakes, the CFPB’s Deputy Director.

CFPB issues second appropriations report

Posted in CFPB General

The CFPB has issued its second report entitled “Report of the Consumer Financial Protection Bureau Pursuant to Section 1017(e)(4) of the Dodd-Frank Act.”  That Dodd-Frank section requires the CFPB’s Director to submit an annual report to the House and Senate Committees on Appropriations “regarding the financial operating plans and forecasts of the Director, the financial condition and results of operations of the Bureau, and the sources and application of funds of the Bureau, including any funds appropriated in accordance with [Section 1017(e)].”  (The CFPB’s previous appropriations report covered the period August 1, 2012 through September 30, 2013.)

The new report covers the period October 1, 2013 through September 30, 2014.  It repackages (often verbatim) the information contained in three previous CFPB reports: the fifth Semi-Annual Report to the President and Congress covering the period from October 1, 2013 to March 31, 2014, the sixth Semi-Annual Report to the President and Congress covering the period from April 1, 2014 through September 30, 2014, and the FY 2014 financial report.

CFPB issues fourth annual report on its workforce

Posted in CFPB General

The CFPB has issued its fourth annual report to Congress on its workforce.  The Dodd-Frank Act requires the CFPB to submit an annual report that includes a Recruitment and Retention Plan, Training and Workforce Development Plan, and Workplace Flexibilities Plan.

Titled “Growing our Human Capital,” the report states that the CFPB had 1,419 employees as of September 2014.  According to the new report, 46% of the CFPB’s employees are female and 35% of the CFPB’s employees self-identify as a minority.  Last year’s report indicated that the CFPB had 1,302 employees as of September 2013, with about the same percentages of female employees and employees who self-identified as a minority.

The new report details the CFPB’s steps to develop and train its workforce, workplace flexibilities offered, and recruitment efforts.