Banking groups are pushing for a major change to the leadership of the Consumer Financial Protection Bureau, and want it attached to must-pass government funding legislation, the Washington Examiner reported today. A wide range of financial industry trade groups wrote to congressional appropriators yesterday and asked them to use government funding bills to change the agency to a five-member bipartisan commission. The CFPB is currently headed by a single director, former President Barack Obama appointee Richard Cordray. Banks regulated by the bureau have chafed at Cordray's power to supervise them and write rules unilaterally. Republicans have argued that the setup of the bureau, created by the 2010 Dodd-Frank law, is unconstitutional. A federal court ruled in October the single-director structure does run afoul of the separation of powers in government, but that ruling is under appeal.
The government’s consumer watchdog is adding its voice to a growing chorus of warnings about problems with a federal program that permits people who take public service jobs to have their student loans forgiven after a decade, the New York Times reported today. Confusing rules, bureaucratic tripwires and outright errors are hindering thousands of people as they try to take advantage of the program, according to a report released yesterday by the Consumer Financial Protection Bureau. These are people who teach, serve in the military or work for a nonprofit organization, for example. The volume of complaints is especially alarming because the program has not yet reached its first milestone: forgiving debts. Created in 2007, the program requires borrowers to do 10 years of service before any federal student loan debt is eliminated. The first wave of qualifying borrowers can submit applications in October. But hundreds of complaints in the last year indicate many applicants are encountering obstacles, the agency said.
Sen. Elizabeth Warren said yesterday that Senate Democrats are willing to pursue targeted changes for regulations affecting community banks and credit unions as Congress moves to review post-crisis financial regulations, the Wall Street Journal reported today. But the Massachusetts Democrat, Congress’s leading critic of Wall Street, said that she would stand fast against changing laws to roll back consumer protection or to help big banks. “There are places where we should do targeted changes in laws and regulations to make sure community banks don’t have to endure regulations…for problems like disrupting the entire U.S. economy when they really don’t pose that kind of threat,” Warren said.
International Business Machines Corp. today formally launched a Watson product for financial regulation, rolling out artificial-intelligence tools to help financial institutions comply with rules and detect possible financial crimes, the Wall Street Journal reported today. The technology giant’s entry into the regulatory-compliance space, where a number of firms already use AI to manage immense amounts of data, comes after it purchased financial consultancy Promontory Financial Group in September. Watson’s move comes as financial firms continue to shift to AI and so-called “machine learning” to manage data that must be analyzed for regulatory compliance and crime prevention. IBM rolled out three Watson tools: One analyzes regulatory text to identify obligations that companies might face and help assess whether the company’s compliance programs are sufficient to comply with the rules. Another assists banks in detecting suspicious customers or transactions, and a third seeks to make “big data” at financial firms more accessible to decision makers when developing new business strategies.
Even as Wells Fargo was reeling from a major scandal in its consumer bank last year, officials in the company’s mortgage business were putting through unauthorized changes to home loans held by customers in bankruptcy, a new class action and other lawsuits contend, the New York Times reported today. The changes, which surprised the customers, typically lowered their monthly loan payments, which would seem to benefit borrowers, particularly those in bankruptcy. But deep in the details was this fact: Wells Fargo’s changes would extend the terms of borrowers’ loans by decades, meaning they would have monthly payments for far longer and would ultimately owe the bank much more. Any change to a payment plan for a person in bankruptcy is subject to approval by the court and the other parties involved. But Wells Fargo put through big changes to the home loans without such approval, according to the lawsuits.
Justice Gorsuch’s maiden opinion is a unanimous decision favoring debt purchasers. In a unanimous opinion written by Justice Neil M. Gorsuch, the Supreme Court ruled today that someone who purchases a defaulted debt is not a “debt collector” and is therefore not subject to the federal Fair Debt Collection Practices Act, or FDCPA.
The case, Henson v. Santander Consumer USA Inc., was argued on April 18, the second day Justice Gorsuch sat on the bench after being sworn in the week before as the high court’s 113th justice. The opinion was Justice Gorsuch’s first for the Supreme Court, even though he did not ask a single question or make any comments at oral argument.
Santander had purchased a portfolio of defaulted auto loans from a bank. The district court and the Fourth Circuit both held that Santander was not a “debt collector” and thus not subject to the regulations and remedies afforded to consumers under the FDCPA. The Supreme Court granted certiorari to resolve a split because other circuits had held that purchasing debt did not give a debt collector immunity from the FDCPA.
The U.S. Treasury Secretary Steven Mnuchin unveiled the much-anticipated report on the department's assessment of the financial market as ordered by President Donald Trump earlier this year. The report details potential executive actions and regulatory changes that can be immediately undertaken to provide much-needed relief, according to the Treasury. Though, to be sure, the timeline of implementing any actual change is likely to be at least one year away. The report also makes extensive recommendations on the path to bring back private mortgage investor capital into the secondary markets. Shortly after taking office, Trump issued an executive order mandating that the Treasury examine financial regulations to determine if they satisfied a set of seven core principles. Those seven principles are generally related to economic growth, prudential regulation and taxpayer protection. So, for the past four months, Mnuchin and other Treasury officials got to work on this, meeting with stakeholders across the financial ecosystem, including community, independent, regional and large banks, regulators, FSOC members, consumer advocates, academics, analysts and investors.
The Trump administration will recommend limits on the U.S. consumer-finance regulator and a reassessment of a broad range of banking rules in a report to be released as early as today, the Wall Street Journal reported. The report from the Treasury Department, drafted in response to a February executive order from President Donald Trump, is less sweeping than financial legislation approved by the House of Representatives last week, these people said. That suggests the administration is taking a more pragmatic path than some Republicans who want to throw out Obama-era financial rules wholesale, although administration officials are still seeking to loosen regulatory restrictions on banks in significant ways. The report is around 150 pages and makes recommendations on policy goals, without laying out a specific process for achieving them. It is harshly critical of the Consumer Financial Protection Bureau and recommends that the bureau be stripped of its authority to examine financial institutions. By law, the bureau has the authority to enforce consumer laws as well as to examine individual firms on a continuing basis.
The American economy has looked pretty robust of late — unemployment just hit a 16-year low, and stocks recently reached an all-time high. This makes it all the more curious that Americans have suddenly stopped paying off their credit-card bills at a rapid rate. In the past two fiscal quarters, banks reported a steep rise in credit-card charge-offs — debt that companies can't collect from their customers — according to a report from Moody's. The sharp increase, the largest since 2009, is especially unusual given how strong the US employment market has been, Moody's noted. It suggests that American consumers haven't fallen on hard times so much as banks have started to loosen their standards and issue credit more aggressively. Card issuers have been much stricter since the financial crisis and the passing of the Card Act in 2009, which added an array of protections for consumers. Getting a credit card got a lot tougher, especially if you had subprime credit.
Dodd-Frank, which imposed stricter rules on banks in the wake of the financial crisis, is highly unpopular in Republican circles. True, passing a significant weakening of the 2010 law -- it also set up the CFPB -- is a lot easier in the House, where the Republicans have a larger majority, than in the Senate. In the Senate, they have a narrower (52-48) advantage, not enough to overcome a Democratic filibuster, which needs 60 votes. Still, Republican lawmakers and President Donald Trump, also a vocal critic of the consumer agency, have several other chances to hobble its far-reaching powers. The GOP line is that the CFPB, created in 2012, has stifled economic activity by burdening lenders with regulations and lawsuits. They charge that its director, Richard Cordray, has unconstitutional authority: He can be fired only by the president and only for cause, such as malfeasance or negligence. Under the bill going to the House floor, the CFPB would be prevented from its freewheeling ability to go after what it sees as violations, and can only enforce what's on the books. Its director would serve at the pleasure of the president, and its budget -- now funded by the Federal Reserve -- would be shifted to Congress, thus subjecting it more to political forces.