Continuing to press their case that the CFPB is not sufficiently accountable to Congress, Republican members of the House Financial Services Committee made the CFPB’s spending habits the focus of criticism at the committee’s hearing this past Tuesday on “CFPB Budget Review.”  

The only witness was Stephen Agostini, the CFPB’s Chief Financial Officer.  In his prepared remarks, Mr. Agostini discussed the CFPB’s FYs 2013 and 2014 budgets.  He indicated that over these two fiscal years, the Division of Supervision, Enforcement, and Fair Lending will have the largest increase in funding to support additional staff and systems development.  He also indicated that during this period, more than 40 percent of the growth in CFPB staff will support Supervision, Enforcement, and Fair Lending activities.  The CFPB’s budgets fund an expected 1,214 full time equivalent employees in FY 2013 and 1,545 in FY 2014. 

According to an American Banker report, Mr. Agostini was questioned about CFPB salaries, with Representative Sean Duffy, a Republican, pointing to data showing that the Fed’s top annual pay scale averaged $205,000 while the CFPB’s top scale averaged $259,000.  Republican committee members also criticized the amount of funds slated to be spent on renovating the CFPB’s offices.  

It was also reported that committee members from both parties raised concerns about the high rate of departures in CFPB leadership and that Republican committee members pointed to a survey of CFPB employees showing significant dissatisfaction with the training they were receiving from the CFPB. 

A press release issued by the committee after the hearing indicates that other areas of concern reviewed during the hearing included the substantial dollar amount spent by the CFPB on travel by its employees and comments made in an independent audit indicating that the CFPB needs to strengthen its internal controls over travel expense approvals. 

The CFPB announced yesterday that it is partnering with the City of Boston to facilitate the ability of consumers to ask questions and submit complaints to the CFPB.  Boston consumers will be able to reach the CFPB by calling the Boston Mayor’s Constituent Service non-emergency hotline at (617) 635-4500. Consumers who call the hotline with a question or complaint about consumer financial products or services will be transferred directly to the CFPB.

The Boston partnership is similar to the partnership the CFPB entered into earlier this year with the City of Newark, New Jersey.  Newark consumers can use a local 4311 hotline to reach the CFPB with questions and complaints about financial products and services. 

In addition to the Newark partnership, the CFPB has previously announced partnerships with the Cities of Chicago and New York and a tribal government, the Navajo Nation.

The House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit held its second hearing yesterday focused on the CFPB’s ability to repay/qualified mortgage rule.  At the first hearing in May, the only witnesses were two CFPB officials.  The witnesses at yesterday’s hearing, entitled “Examining How the Dodd-Frank Act Hampers Home Ownership,” consisted of representatives of state regulators, consumers and industry. 

The witnesses representing industry included James C. Gardill, Chairman of the Board, WesBanco, Inc., on behalf of the American Bankers Association, and Debra W. Still, Chairman of the Mortgage Bankers Association.  In their testimony, Mr. Gardill and Ms. Still sounded a common theme: that the QM rule will substantially limit mortgage lending because lenders will not want to face the risks associated with making loans outside the QM standard.

In his testimony, Mr. Gardill discussed the complexity of the QM rule to support the ABA’s plea for a 12 month extension of the implementation date to January 2015. 

In her testimony, Ms. Still asked Committee members to urge the CFPB to change the QM rule by raising the small loan limit for loans that can have more than 3 percent in points and fees and still qualify as QMs from the current $100,000 limit to $200,000.  She also repeated the MBA’s request that the CFPB amend the definition of points and fees to exclude affiliated title fees and clarify that loan originator compensation from lenders to brokers and escrowed amounts be excluded from the calculation for purposes of applying the QM 3 percent points and fees limit.  While noting that the MBA believes the CFPB can make these revisions under existing law, she also voiced the MBA’s support for H.R. 1077, the Consumer Mortgage Choice Act, which would amend the Dodd-Frank Act’s ability to repay/QM provisions to expressly exclude these items from the 3 percent QM cap.

CFPB Director Richard Cordray was among the speakers at a program last week celebrating the fifth anniversary of the Philadelphia Residential Mortgage Diversion Program.  The Diversion Program, which began in 2008, was the first city-sponsored plan in the nation to facilitate face-to-face negotiations between mortgage lenders and borrowers in connection with troubled loans. 

In his remarks, Director Cordray discussed the CFPB’s mortgage rules and supervisory authority over nonbanks.  He also highlighted the CFPB’s consumer complaint system. 

The Philadelphia program received attention at the joint FTC-CFPB roundtable on the debt collection industry held in Washington, D.C. earlier this month.  Among the concerns discussed at the roundtable was the high non-appearance rate of debtors in debt collection court cases.  The roundtable speakers included Judge Annette Rizzo, who had invited Director Cordray to speak at the Philadelphia  celebration.  Judge Rizzo sits on the Court of Common Pleas in Philadelphia (First Judicial District) and the CFPB’s Consumer Advisory Board.  At the roundtable, she spoke about the Diversion Program as a model solution to the non-appearance problem.

The CFPB’s leadership ‘brain drain” seems to be continuing, with Politico reporting that Richard Hackett, the Bureau’s Assistant Director for installment and liquidity lending markets, is planning to leave the CFPB later this summer.  Just two weeks ago, we reported about the departures of three top CFPB officials to join the firm founded by former CFPB Deputy Director Raj Date. 

Rick works in the CFPB’s research, markets and regulations group, where he has been overseeing installment loans, such as auto and student loans, as well as small dollar loans, including payday and auto title loans.  Politico also reports that, according to two people “familiar with the situation,” Rick’s responsibilities overseeing student and auto loans will be temporarily assigned to Rohit Chopra, the CFPB’s student loan ombudsman, and Corey Stone, the CFPB’s Assistant Director for deposits, cash, collections and reporting markets, will become responsible for smaller dollar loan markets on a permanent basis. 

We know Rick well from his many years in private practice representing industry prior to his joining the CFPB and have great respect for his legal talents.  His departure will represent a significant loss for the CFPB, particularly because he is one of the few CFPB attorneys with a strong industry background.  

Second time’s the charm?  For the second time in less than two years, the U.S. Supreme Court granted certiorari today in a case that presents the question whether plaintiffs suing under the Fair Housing Act  (FHA) may bring disparate impact claims.  

Today’s grant of certiorari was in Mount Holly v. Mount Holly Gardens Citizens in Action, Inc., which concerns a New Jersey township’s plan to redevelop a blighted residential area occupied predominantly by low- and moderate-income minority households.  The justices were poised to decide the FHA disparate impact question last year in Magner v. Gallagher, but the case disappeared from the Court’s docket just a few weeks before its scheduled oral argument on February 29, 2012, when the City of Saint Paul dismissed its appeal. 

As we have noted in our ongoing reports on Mt. Holly, the CFPB has taken the position that a violation of the Equal Credit Opportunity Act (ECOA) and Regulation B (which apply to all types of credit, not just mortgage lending) can also be established through evidence of disparate impact.  Since both the FHA and ECOA lack textual support for use of a disparate impact test, if Mt. Holly, unlike Magner, goes the distance, the Supreme Court’s ultimate ruling will have significant implications for the validity of the CFPB’s position.  Ballard Spahr is representing one of the defendants in the case.

For more on today’s grant of certiorari in Mt. Holly, see our legal alert.

Tomorrow, June 18, the House Financial Services Committee will hold a hearing on “CFPB Budget Review.”  According to the memo to Committee members from Committee Majority Staff, the hearing “will examine the past and planned obligations and expenditures of the Consumer Financial Protection Bureau (CFPB) for fiscal years 2011-14, the purpose and propriety of such obligations and expenditures, and whether the absence of CFPB accountability to Congress has an impact on such obligations and expenditures.”  The only scheduled witness is Stephen Agostini, the CFPB’s Chief Financial Officer. 

As the memo details, the CFPB is principally funded by transfers from the Fed that are capped at a percentage of the Fed’s 2009 operating expenses.  As a condition for approving President Obama’s renomination of  Richard Cordray as CFPB Director, Republicans have demanded several changes to the CFPB.  Those changes include making the CFPB subject to the appropriations process.  Based on the memo, it appears the Republican members of the House Financial Services Committee intend to use the hearing to advance their demands.

The CFPB’s website now has a regulatory implementation page that provides “one stop shopping” for all of its 2013 mortgage rules and related implementation materials.

The page includes links to the rules, small compliance guides, videos, quick reference charts and other related materials.  The CFPB plans to keep the page updated with any new materials.

The CFPB and Federal Deposit Insurance Corporation have jointly launched a new financial resource tool to assist older adults and their caregivers in avoiding elder financial exploitation.  Named “Money Smart for Older Adults,” the tool  is a stand-alone training module that provides information on how to prevent, identify and respond to elder financial exploitation, plan for a secure financial future, and make informed financial decisions. 

It is contemplated that the instructor-led module will be provided to seniors and their caregivers by financial institutions, adult protective service agencies, senior advocacy organizations, law enforcement, and others that serve this population. The module consists of a scripted instructor guide, participant/resource guide, and power point slides. 

We applaud the CFPB’s and FDIC’s efforts to develop new methods for combatting elder financial exploitation using available technology.

It’s not necessary to read more than the cover page to know that the debt collection industry does not fare well in the report issued this week by the New Economy Project (NEP).  The cover page reads: “The Debt Collection Racket in New York: How the Industry Violates Due Process and Perpetuates Economic Inequality.”  The report follows closely on the heels of the joint FTC-CFPB roundtable on the debt collection industry held last week in Washington, D.C. at which documentation used by the debt collection industry was a significant focus. 

The NEP report indicates that its findings are based on statewide data concerning debt collection lawsuits filed in New York City and New York county courts, which it supplemented with a “detailed analysis” of 90 lawsuits filed by debt buyers across New York State. Among the report’s findings are that (1) debt collection lawsuits accounted for 8 out of 10 of all default judgments entered, (2) 42% of debt collection lawsuits resulted in default judgments but debt buyers obtained default judgments in about 62% of their cases, (3) no application by a debt buyer for a default judgment complied with New York law but the courts nevertheless granted default judgment on 97% of the applications, and (4) debt buyers rarely prevailed in contested cases but relied on winning cases by default or by intimidating unrepresented people into reaching settlement agreements. (The report does not attempt to determine whether the defaulting debtors had any defenses to the debts.) 

The report contains a series of recommendations that include:

•             Enactment by the New York legislature of the Consumer Credit Fairness Act  (The Act includes a three-year statute of limitation on consumer debt collection actions,  a new notice to the debtor before entry of a default judgment, pleading requirements for consumer debt collection cases, and evidentiary requirements for a debt buyer to obtain a default judgment.)

•             New court rules imposing evidentiary requirements on debt buyers

•             New regulatory requirements for debt collection by debt buyers 

Documentation requirements for debt collection by creditors, debt collectors and debt buyers and evidentiary requirements for debt collection lawsuits by debt collectors and debt buyers were also part of the Model Family Financial Protection Act proposed by the National Consumer Law Center last year. 

The NEP report is likely to further increase the already heightened scrutiny  the debt collection industry is facing from federal and state regulators, including the CFPB and FTC, state courts and legislators and attorneys for debtors.