Demand better consumer financial protection

consumer financial protection
Consumer Financial Protection and Dodd-Frank (infographic from CreditUnionTimes www,cutimes.com)

In an effort to reform the Consumer Financial Protection Bureau (consumerfinance.gov) to become a better steward of consumer protection, H.R.5983 – Financial CHOICE Act of 2016 was introduced during the last congress.  The effort to compel oversight on the now embattled agency, as well as provide for a panel of decision makers (in lieu of a single chairperson), is unfortunately highly politicized.  As financial consumers, we should demand a better and fair protection agency serving without political motive.

From the Executive Summary of the The Financial CHOICE Act
Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs:

SECTION THREE: Empower Americans to achieve financial independence by fundamentally reforming the CFPB and protecting investors.

  • Change the name of the CFPB to the “Consumer Financial Opportunity Commission(CFOC),” and task it with the dual mission of consumer protection and competitive markets, with a cost-benefit analysis of rules performed by an Office of Economic Analysis.
  • Replace the current single director with a bipartisan, five-member commission which is subject to congressional oversight and appropriations.
  • Establish an independent, Senate-confirmed Inspector General.
  • Require the Commission obtain permission before collecting personally identifiable information on consumers.
  • Repeal authority to ban bank products or services it deems “abusive” and its authority to prohibit arbitration.
  • Repeal indirect auto lending guidance.

Some have hailed the CFPB because it was created out of good intention. There is no question that the CFPB has done a great job in collecting and publicizing consumer complaints.  The announcements of consumer complaints seem to be a public airing of consumer grievances, which sometimes signaled forthcoming action from the agency in a specific financial sector.

However, critics contend that the CFPB rules have made lending more burdensome for both lenders and consumers by increasing bureaucratic red tape.  It has also increased the cost of lending to consumers by adding levels of compliance measures that are now embedded within the lending process.  Critics have also complained that the CFPB’s enforcement is not fair and unequal in focus.

Critics are becoming increasingly vocal, not only because of the sometimes invasive rule making, but more recently of how offenders are chosen and penalized.  Jacob Gaffney’s article for HousingWire (Former CFPB attorney pretty much just confirmed the worst fears of the mortgage industry: housingwire.com; January 3, 2017) earlier this year discussed two genuine concerns about the CFPB:

1) “The CFPB targets lenders for enforcement action based on opaque internal decisioning;” and

2) “Monetary penalties seemed determined by revenue, not equalitarian application of said enforcement action.”

Gaffney quoted Ronald Rubin, a former enforcement attorney at the Consumer Financial Protection Bureau, (from a December 21st 2016 piece “The Tragic Downfall of the Consumer Financial Protection Bureau” published online nationalreview.com) as confirming these concerns.  For example, the Wells Fargo fake consumer account scandal, one of the most egregious consumer scandals post financial crises, was not addressed by the CFPB (until it was too late) because Wells Fargo was allegedly “not a target of the agency at that time.”

Referring to the complaint database, Rubin stated:

The CFPB’s complaint database contained grievances against almost every financial business. Enforcement targeted the companies with the most revenue…rather than those with the most complaints.”  He further stated: “Targets (of the CFPB) were almost certain to write a check… Even the size of the checks didn’t depend on actual wrongdoing — during investigations, Enforcement demanded targets’ financial statements to calculate the maximum fines they could afford to pay.

The recent PHH Corp v Consumer Financial Protection Bureau case highlighted some of the alleged abuse of power by an agency with no oversight.  US Appellate Judge Kavanaugh wrote in his opinion:

That combination of power that is massive in scope, concentrated in a single person, and unaccountable to the President triggers the important constitutional question at issue in this case

…This is a case about executive power and individual liberty. The U.S. Government’s executive power to enforce federal law against private citizens – for example, to bring criminal prosecutions and civil enforcement actions – is essential to societal order and progress, but simultaneously a grave threat to individual liberty.”

We’ve followed the career of the CFPB since it was established in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.  Shortly after the financial crisis, we eagerly anticipated the new agency to help those who were the target of abusive lending and foreclosure practices.  Since its inception, however, controversy has embraced the agency.

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Credit report reforms

credit report
Credit report (infographic from dollarcents.org)

One of the main reasons you’re likely to be declined for a mortgage is your credit report.  More specifically, derogatory information contained therein.  Unfortunately, many of us are still not proactive when it comes to our credit report.  And for many, erroneous information that is foisted upon them without their knowledge affect their daily lives.

Flawed data has been a long standing issue in the credit industry.  A 2012 study conducted by the Federal Trade Commission (ftc.gov) found that “one in five consumers” disputed and corrected an error that was reported to a credit reporting agency (CRA).  A follow-up study conducted in 2015 found that “Most consumers [almost 70 percent] who previously reported an unresolved error on one of their three major credit reports believe that at least one piece of disputed information on their report is still inaccurate.”  The follow-up study recommended that CRA’s “review and improve” the dispute process, as well as increase consumer education efforts. From the FTC report:

The follow-up study announced today focuses on 121 consumers who had at least one unresolved dispute from the 2012 study and participated in a follow-up survey. It finds that 37 of the consumers (31 percent) stated that they now accepted the original disputed information on their reports as correct. However, 84 of these consumers (nearly 70 percent) continue to believe that at least some of the disputed information is inaccurate.  Of those 84 consumers, 38 of them (45 percent) said they plan to continue their dispute, and 42 (50 percent) plan to abandon their dispute, while four consumers are undecided.

The final study also examined whether consumers from the 2012 study who had their credit reports modified after disputing information on their credit reports had any of the negative information that had been removed subsequently reappear on their reports. The study found two instances of this, representing about 1 percent of these consumers.

On March 9, 2015, New York Attorney General Eric T. Schneiderman announced an agreement that was worked out with the three credit repositories (Experian, Equifax, And Transunion).  The agencies agreed to seek improvements to the credit report dispute resolution process, as well as increasing protections for consumers from false claims and reporting paid debt (such as medical bills).

As A.G. Scheiderman’s statement was released, the Consumer Data Industry Association (the trade association for the consumer data industry) announced the creation of the National Consumer Assistance Plan.  The roll-out of The Plan is to be over three years, and includes a website (nationalconsumerassistanceplan.com) where consumers and the CRAs are to interface about credit reporting news and information.  Stuart Pratt, President and CEO of the Consumer Data Industry Association, stated in a press release:

“…The nationwide consumer credit reporting companies are making important changes to their procedures that will improve their ability to collect accurate information, and we want to make sure consumers know about the new options available to them…”

Additionally, the press release included highlights of the National Consumer Assistance Plan:

Consumers visiting www.annualcreditreport.com, the website that allows consumers to obtain a free credit report once a year will see expanded educational material.

Consumers who obtain their free annual credit report and dispute information resulting in modification of the disputed item will be able to obtain another free annual report without waiting a year.

Consumers who dispute items on their credit reports will receive additional information from the credit reporting agencies along with the results of their dispute, including a description of what they can do if they are not satisfied with the outcome of their dispute.

The credit reporting agencies (CRAs) are focusing on an enhanced dispute resolution process for victims of identity theft and fraud, as well as those who may have credit information belonging to another consumer on their file, commonly called a “mixed file.”

Medical debts won’t be reported until after a 180-day “waiting period” to allow insurance payments to be applied. The CRAs will also remove from credit reports previously reported medical collections that have been or are being paid by insurance.

Consistent standards will be reinforced by the credit bureaus to lenders and others that submit data for inclusion in a credit report (data furnishers).

Data furnishers will be prohibited from reporting authorized users without a date of birth and the CRAs will reject data that does not comply with this requirement.

The CRAs will eliminate the reporting of debts that did not arise from a contract or agreement by the consumer to pay, such as traffic tickets or fines.

A multi-company working group of the nationwide consumer credit reporting companies has been formed to regularly review and help ensure consistency and uniformity in the data submitted by data furnishers for inclusion in a consumer’s credit report.

An improved credit reporting industry was to take another leap forward with the introduction of H.R. 5282 – Comprehensive Consumer Credit Reporting Reform Act of 2016 (congress.gov).  Introduced in Congress May 19, 2016, the bill is a comprehensive restructuring of the credit reporting process.  Among the many details, the bill also: calls for a new dispute process; “meaningful” disclosures about resulting investigations; limits credit reports for employment purposes; requires removal of items that were a result of identity theft, fraud and other crimes; and transfers authority from the FTC to the CFPB on “procedures for reporting identity theft, fraud, and other related crime.”  The bill was referred to committee, where it appears to have stalled.

Your credit report has become akin to your “financial soul.”  Some of its uses include assisting entities in deciding whether to employ you, lend to you, or extend you credit.  It has even become vogue for individuals to check someone’s credit report before going out on a date!

Financial experts and government agencies recommend you become proactive and check your credit report annually, and dispute inaccurate information.  Annualcreditreport.com is the only “authorized” website where you can receive a free credit report annually from the three repositories.  The site also contains information on protecting your identity, and links to the FTC and CFPB for topics such as how to maintain good credit, and credit repair.

Copyright © Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

It’s Mr. Trump’s housing market now

Trump's housing market
Dodd-Frank regulation (from uschamber.com)

Change is not always easy.  Sometimes we choose to change and other times we are forced to change.  The Great Recession forced massive change to many aspects of our lives – mostly financial.  Many found themselves out of work because of the recession, and many home owners lost their homes to foreclosure; while the rest of us searched for ways to cope.  It’s Mr. Trump’s housing market now.

As a result, the Dodd–Frank Wall Street Reform and Consumer Protection Act was quickly pieced together and signed into law in 2010.  “Dodd-Frank”, contained over two-thousand pages of regulations and rules, many of which were to be created at a later time by many agencies and unelected bureaucrats.  Dodd-Frank also created the Consumer Financial Protection Bureau, which took over RESPA, lending and consumer finance markets enforcement responsibilities.  The CFPB created the “Qualified Residential Mortgage” and “Know Before You Owe” rules that significantly impacted the mortgage and housing industries.

The purpose of Dodd-Frank and the CFPB was well intentioned as Congress sought a solution to prohibit future crises.  In the uncertain financial atmosphere that ensued, consumers wanted accountability from Wall Street and mortgage lenders.  While some continue to generally blame Wall Street and the mortgage industry for the financial crisis, the reality is that the dynamics that created the financial crises were complex.  And one can surmise from the many hearings, books, dissertations, and working papers that the crux of the financial crisis was widespread fraud that took advantage of a hot real estate market and easy money.

Six years after Dodd-Frank, the rules and regulations keep coming.  Writing for the US Chamber of Commerce’s “Above the Fold,” J.D. Harrison pointed out that Dodd-Frank has created over 27,000 new federal regulations by thirty-two federal agencies impacting many industries (Dodd-Frank’s Regulatory Nightmare in One Rather Mesmerizing Illustration; uschamber.com).  Compared to the previous Wall Street reform in 2002, which had two agencies issuing regulations to only five industries.  Harrison stated that the Sarbanes-Oxley Act “basically sought more corporate transparency and accountability.”

Many have associated Dodd-Frank with the ongoing slow economic recovery, citing increased consumer costs and restricted lending – which effects the housing market, home buyers and sellers.

An example of increasing consumer costs is the CFPB’s TILA-RESPA Integrated Disclosure.  The Mortgage Bankers Association (mba.org) recently reported that compliance with TRID costs on average $210 per mortgage, some of which is recouped from the consumer.  The rule is also responsible for “slower application to closing times.”

A recent appellate case highlighted some of these Dodd-Frank outcomes.  The CFPB sought fines against a mortgage lender for their years of compliance with HUD’s interpretation of a rule; the fines were imposed retroactively for not complying with a new CFPB reinterpretation of the same rule. Additionally, the court focused on the CFPB’s unilateral ability to impose rules and fines without oversight.

It’s Mr. Trump’s housing market now.

Repeal and Replace is a talking point that is not exclusively for the Affordable Care Act.  Shortly after Donald Trump’s election as the forty-fifth President of the United States, many industry insiders and pundits are already anticipating the future of Dodd-Frank and the CFPB.  Mr. Trump’s plan for financial services is posted to the President-Elect’s site (greatagain.gov) stating: “The Dodd-Frank economy does not work for working people.  Bureaucratic red tape and Washington mandates are not the answer.  The Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.

Copyright © Dan Krell

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Liberty, housing, private citizens

Liberty, housing, private citizens
Liberty, housing and private citizens (infographic from anthem.edu)

Since its inception, the Consumer Financial Protection Bureau (consumerfinance.gov) has had many advocates and many critics.  While many point to the CFPB’s staunch protection of consumers, some have argued that the independent agency has too much power with little oversight.  And this week’s opinion from the United States Court of Appeals in the case of PHH Corp v. Consumer Financial Protection Bureau seems to side with CFPB’s detractors – and highlights liberty, housing, private citizens.

As you know, the CFPB was created in the aftermath of the financial crisis by the passing of Dodd-Frank in 2010.  Dodd-Frank (also known as the Dodd–Frank Wall Street Reform and Consumer Protection Act) came at a time when politicians wanted to reign in financial institutions and businesses.  In order to carry out financial reform, Dodd-Frank created a number of oversight boards and agencies in an expansive piece of legislation that covered many areas spelled out in over 2,000 pages.  And even in its behemoth size, Dodd-Frank left much of the reform regulations to be written by agencies and its unelected officials – including the CFPB.

The CFPB has issued many new rules and have fined many banks and lenders.  Some of the new rules have fundamentally changed the relationship between the consumer and the bank.  For example, the TRID (TILA-RESPA Integrated Disclosure) rule that went into effect this year which not only changed how settlements are conducted but can levy stiff a penalty for each violation.

The case PHH Corp v. Consumer Financial Protection Bureau, appeared as if a seemingly “bad” mortgage lender was pushing back against fines and penalties for doing wrong.  (PHH Corp was fined $108 million by the CFPB for mortgage re-insurance deals with company affiliates, even though it claimed to have followed HUD’s previous rule of paying a reasonable market rate.)  But there’s more to this story, and it highlights exactly the what the CFPB’s critics have complained about – the CFPB’s independence from oversight and guidance.  The case is about the CFPB’s authority to change the rule and retroactively apply it to PHH Corp.

Judge Kavanaugh wrote: “This is a case about executive power and individual liberty. The U.S. Government’s executive power to enforce federal law against private citizens – for example, to bring criminal prosecutions and civil enforcement actions – is essential to societal order and progress, but simultaneously a grave threat to individual liberty.”

He continued to say that “…the Director of the CFPB possesses enormous power over American business, American consumers, and the overall U.S. economy. The Director unilaterally enforces 19 federal consumer protection statutes, covering everything from home finance to student loans to credit cards to banking practices. The Director alone decides what rules to issue; how to enforce, when to enforce, and against whom to enforce the law; and what sanctions and penalties to impose on violators of the lawThat combination of power that is massive in scope, concentrated in a single person, and unaccountable to the President triggers the important constitutional question at issue in this case.”

The result is that the CFPB will continue to operate and go after bad actors in the financial world.  However, the recent appellate ruling will likely change the scope and focus of its operations, as the CFPB will be under the “ultimate supervision and direction of the President.”  This case and the opinions of the Court can be found here (https://www.cadc.uscourts.gov/internet/opinions.nsf).

Copyright © Dan Krell

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Coming this summer – A new real estate settlement experience

real estateFor many, August 1st will be like any other summer day. However for those in the lending and real estate industries, August 1st is when the Consumer Financial Protection Bureau’s (CFPB) new lending, closing disclosures and rules go into effect.

Know Before You Owe” is a project that began before the official opening of the CFPB (which officially opened July 21st 2011), and undertook the remaking of mortgage disclosures to make them more consumer friendly. You might say the project started with the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which mandated the creation of the CFPB as well as amends the Real Estate Settlement Procedures Act (RESPA). Sec 1098 of Dodd-Frank states that the Bureau “shall publish a single, integrated disclosure for mortgage loan transactions” in a “readily understandable language” so as to help borrowers understand the financial aspects of their loan clearly and to be nontechnical.

A change in industry disclosure and compliance to enhance consumer protection is not new. RESPA and the Truth in Lending Act (TILA) were both devised as consumer protections, and amended over the years. RESPA was enacted in 1974 as a protection for consumers from abusive and predatory lending practices to help home buyers better shop for services related to the home buying process. Enacted in 1968, TILA provided guidelines for which lenders are required to inform consumers about the cost of their loan; which includes the disclosing the Annual Percentage Rate (APR), finance charges, amount financed, and the total amount paid as scheduled. The new integrated disclosure forms replace the Good Faith Estimate (GFE) and Settlement Statement (HUD1) required by RESPA and the Truth and Lending Disclosure Statement required by TILA with a Loan Estimate and a Closing Disclosure.

RESPA and TILA require disclosures to be provided to you within three days upon making your mortgage application, as well as not having changed prior to your closing of the transaction. Changes to these regulations and disclosures have often been made to keep up with the industry as well as to enhance consumer disclosure and education; the most recent revisions being made immediately after the financial crisis. Although redesigned to be more efficient and accurate, the most recent revision of the GFE and the Truth in Lending Disclosure Statement remained technical in nature. Many claimed the forms remained confusing making it difficult to compare mortgage costs between lenders; costs were not always labeled consistently and sometimes changed prior to closing.

By combining these disclosures into two forms in a clear and understandable language, the forms present important information conspicuously to help consumers decide if the mortgage is affordable and warn about loan features that they may want to avoid. The new forms seek to standardize fee and cost disclosures so as to make shopping easier; with standard cost and fee disclosures, comparisons will be more like comparing two apples rather than an apple to an orange.

One of the more important aspects of the new rules is that the new Closing Disclosure be given to the borrower three days prior to settlement. During the three days prior to closing, changes to the Closing Disclosure that increase charges are prohibited (unless allowed by exception). You can find more information about the CFPB and view the new disclosures at the CFPB website Know Before You Owe (consumerfinance.gov/knowbeforeyouowe).

© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.