Category Archives: Commercial Banking

CFPB is Making It Easier to Sue Banks ?

The Consumer Financial Protection Bureau just made it easier for ordinary citizens to sue banks by restricting how they can use mandatory arbitration to block class-action lawsuits, according to Bloomberg. But the decision – inspired by a 2015 investigative series in the New York Times about how US companies, particularly credit card companies and payday lenders, abuse the practice – likely won’t stay on the books for long. As the LA Times writes:

It’s all but certain that Republican lawmakers in control of the House and Senate will move quickly to overturn the rule as part of their ongoing efforts to cripple the consumer-watchdog agency and create a more business-friendly regulatory landscape.”


Clauses requiring arbitration to settle disputes are inserted routinely in contracts for credit cards, payday loans and other financial products. They typically prevent consumers from filing lawsuits or banding together in class actions.

“Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong,” CFPB Director Richard Cordray said in a statement.

“These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up. Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together.”

From the time they formally receive the ruling, lawmakers have 60 legislative days to overturn the bureau’s decision. Republicans have been using the Congressional Review Act, a little-known provision, to undo more than a dozen Obama-era regulations during the closing days of his presidency, including the CFPB’s plans to implement tougher standards for prepaid debit cards.

“As a matter of principle, policy and process, this anti-consumer rule should be thoroughly rejected by Congress,” Representative Jeb Hensarling, the Texas Republican who leads the House Financial Services Committee, said in a statement.

Congress isn’t the only body that’s skeptical of the ruling: In an unusual move, the head of a key banking regulator wrote to Cordray to raise concerns about it. Keith Noreika, the acting Comptroller of the Currency, asked that the CFPB share data used to develop its arbitration rule, according to a letter dated Monday that was obtained by Bloomberg.

“We would like to work with you and your staff to address the potential safety and soundness implications of the CFPB’s arbitration proposal,” Noreika said in the letter. “That is why I am requesting the CFPB share its data.”

Noreika cited a section of the Dodd-Frank Act that gives the Financial Stability Oversight Council – a panel of regulators headed by the Treasury secretary – power to set aside any CFPB rule that can be shown to put the safety of the wider financial system at risk.

However, studying the fairness of arbitration clauses appears to be well within the bureau’s remit: Dodd-Frank says the CFPB “may prohibit or impose conditions or limitations on the use” of arbitration clauses if it determines that restricting such provisions “is in the public interest and for the protection of consumers,” according to the LA Times.

During its study, the CFPB found that hundreds of millions of contracts include arbitration provisions and that companies have used the clauses to keep fights out of court almost two-thirds of the time. Very few consumers even consider bringing individual actions against financial-service providers in court or in arbitration.

Despite the rule’s near-certain erasure, Christine Hines, legislative director for the National Assn. of Consumer Advocates, told the LA Times that the CFPB isn’t thumbing its nose at Republican lawmakers who have insisted for years that the agency is a rabid regulatory pit bull in need of either a very short leash or a trip to a farm.

“The agency has to continue doing its job,” she said, “even though there are very anti-consumer people in power.”

Other consumer advocates echoed that sentiment.

“The rule will help to combat the culture of companies profiting from charging illegal fees and committing other crimes against their customers,” said Rohit Chopra, senior fellow at the Consumer Federation of America.

Said Lisa Donner, executive director of Americans for Financial Reform: “The consumer agency’s rule will stop Wall Street and predatory lenders from ripping people off with impunity, and make markets fairer and safer for ordinary Americans.”

The new rule will cover new agreements for products such as credit cards, auto loans, credit reports and even mobile phone services that provide third-party billing. Companies can still include arbitration clauses in contracts, but they must state that those can’t be used to stop individual consumers from joining class-action cases.

According to Bloomberg, it is also possible that industry groups will sue to overturn the CFPB rule. Groups including the US Chamber of Commerce have said arbitration is a valuable tool to prevent frivolous, expensive lawsuits that often don’t do much to benefit borrowers. Meanwhile, consumer advocates say restricting arbitration clauses will deter bad actors and force companies to reconsider certain activities because consumers will be more inclined to sue.



Considering an SBA Loan Program

Entrepreneurs and small businesses are a vital part of the U.S. economy. The nation’s 28 million small businesses account for 54 percent of all domestic sales, provide 55 percent of all jobs and have added 8 million jobs to the economy since 1990, according to the U.S. Small Business Administration (SBA).

It’s no coincidence this growth has occurred in tandem with an increase in the accessibility and range of SBA loan programs. Why should commercial mortgage brokers care? Because SBA loans provide a unique opportunity for brokers to expand their offerings beyond conventional mortgage loans.

With an SBA loan option for their clients, mortgage brokers can offer businesses access to the same type of long-term, fixed-rate financing enjoyed by larger companies. Interest rates are equivalent to favorable bond-market rates and are backed by an SBA loan guarantee.

Each SBA loan program is structured under government-directed guidelines to include maximum loan amounts and interest rates, guarantee fees, use of proceeds, eligibility criteria and more. Matching clients to the right program requires a deep understanding of these intricacies.

Plus, SBA requirements are constantly changing. Brokers need to be plugged in to keep up, so the support of a team of SBA loan specialists is a critical first stage of client engagement.

What are SBA loans?

SBA loans are long-term, low-interest loans tailored to small businesses, the definitions of which vary widely among industries. Small-business loans also are backed by a government guarantee, alleviating risk for lenders and opening doors to financing for businesses that have struggled to get a traditional loan.

“ SBA loan programs have capped interest rates and offer lower downpayments, making upfront costs more affordable. ”

SBA loan programs have capped interest rates and offer lower downpayments, making upfront costs more affordable. They also feature longer repayment terms, which reduces monthly payments. The programs include refinancing options to reduce debt and release cash flow; programs for providing easier access to credit for so-called “high-risk” industries like construction, gas stations and home-based businesses; and programs that help free up capital for real estate investments.

The SBA 7(a) program, for example, with loans up to $5 million and fees as low as zero percent, can be used to purchase real estate or equipment — including the cost of construction or renovation — purchase an existing business, or to refinance debt.

Certified Development Company (CDC)/504 loans are ideal for businesses looking to expand through investments in land or buildings — but not speculation or investments in rental real estate. The CDC/504 loan provides long-term, fixed-rate financing up to $5.5 million. Soft costs like architectural and legal fees also can be rolled into the loan. Downpayments as low as 10 percent are a big attraction of this program, because banks often require 20 to 30 percent of the purchase price. That downpayment is based on total project costs in most cases, which includes renovations and soft costs. That allows a business to preserve cash for working capital.

Advantages for mortgage lenders include lower risk, because the SBA guarantees the loan; a lower loan-to-value (LTV) ratio; Community Reinvestment Act credits; and being able to offer another option for keeping growing, small-business clients happy. Essentially, SBA loans offer a valuable financing option that enables brokers to expand offerings to eligible businesses beyond their current purview by teaming with an SBA lending partner.

Work with the right lender

It’s important to understand that the SBA lending landscape is not equal. To service small businesses more efficiently, the SBA has three categories of lender programs – General Partner (GP), Certified Lender Partner (CLP) and Preferred Lender Partner (PLP).

PLP status is the most desirable accreditation that an institution can receive because it gives the lender the authority to make the final credit decision, simplifying and expediting the loan-approval process for all parties. Nonpreferred lenders must submit loans to the SBA for approval, a process that can take several weeks, delaying approvals and yields.

 Key Points

Questions to ask before expanding into SBA loan programs

SBA loans are a valuable resource for commercial mortgage brokers seeking to expand their base, reduce risk and offer clients alternatives to conventional mortgages. But to participate fully and successfully, brokers must understand the market well and partner with an accredited SBA loan expert. If you’re considering adding SBA loan programs to your brokerage service, consider the following:

  • Does your brokerage have a full understanding of the intricacies of the SBA lending market, so you can determine which loan will work best for your borrowers?
  • Is your team familiar with the complexities of the SBA loan-application process and the precise requirements needed to ensure a successful application?
  • Could you act as an effective middleman to guide and inform your clients as they proceed through the underwriting and post-closing reviews?
  • Do your referral options include SBA-accredited banks that have the skills and expert staff to service and report on these loans in accordance with SBA guidelines (1502 reporting)?
  • Does your lending partner have sufficient back-office capacity and know-how to support SBA lending requirements?

Achieving PLP status requires lenders to have in-house staff expertise and a track record of success in the processing and servicing of SBA loans. To ensure a successful SBA loan application for your client, it’s recommended that mortgage brokers work with an SBA lender that has PLP status.

SBA loans offer many unique opportunities for lenders and brokers alike, but can be complex, and require significant resources and expertise. Here’s a breakdown of the process:

  • Loan application and underwriting. Applying for, structuring and underwriting SBA loans is a multifaceted process handled by a lender, not the SBA. The lender must determine a borrower’s eligibility, complete a credit analysis and package paperwork, all in accordance with SBA requirements. Brokers should work with lenders that have clear policies on credit parameters and what defines an “acceptable” loan.
  • Staffing and skill sets. To participate fully and successfully in SBA financing, lenders and brokers must understand the market well by investing in training and specialized staff, as well as integrating new risk and compliance protocols to ensure they meet government requirements. Small businesses are encouraged to seek out lenders with a solid track record of processing SBA loans. Again, this makes it critical for brokers to work with an SBA lender, preferably one with PLP status.
  • Loan servicing. Once the SBA approves a loan, lenders must administer it in accordance with federal guidelines and regulations. Complex standard operating procedures (SOPs) govern the 7(a) and CDC/504 programs. If a lender fails to demonstrate continued ability to evaluate, process, close, disburse, service and liquidate small-business loans, the SBA may refuse or revoke its SBA lending status.

Real estate red flags

Even with the right SBA partner, there are several proactive steps that mortgage brokers can take to ensure a winning SBA loan application and bring additional value to their client relationships.

Appraisals can trip up any real estate deal. With construction costs rising each year and the potential for material costs to change during the approval process, financial projections can easily go awry. Work with a good appraiser or get multiple appraisals to ensure you’re reflecting the big-picture financials.

Another surprise that can ruin any deal is an environmental issue, such as mold, radon or other land contaminants, as well as a failure to comply with applicable environmental laws. Work with an environmental consultant to identify and manage these problems before they derail your client’s property transfer or financing transaction.

Whether a client is looking to buy an existing facility or construct a larger facility, it’s likely they already have business debt tied up in existing assets. Rather than increase their debt or hurt their chances of being approved for a loan, become knowledgeable about how SBA refinancing options can consolidate existing debt. Work with your client to understand their debt and how they can save money through refinancing.

• • •

Partnering with an SBA lender is an essential step in not only ensuring your clients are matched with the right loan, but that the loan has the best chance of being approved by the SBA and serviced in accordance with SBA requirements. Sending along a loan referral also can pay dividends in terms of your client relationship and the added bonus of a nice referral fee. •



Small Banks Competing with Big Data Mining

When you talk to Jeffery Lee, it’s hard not to hear how excited the chief marketing officer of Seacoast National Bank is about the power of big data. The same goes for Robert Stillwell, the head of analytics at the $4.7 billion asset bank based in Stuart, Florida. With a small handful of colleagues in Seacoast’s marketing department, Lee and Stillwell have combined data analytics and marketing automation software to gain insights into their customers and run dozens of targeted marketing campaigns that, in some cases, generate returns on investment in excess of 100 percent.

Seacoast proves that a bank doesn’t have to be big to benefit from big data. In Lee’s estimation, in fact, just the opposite is true. “Our size is an advantage because our data isn’t trapped in a bunch of different silos,” says Lee. “We have one core banking provider, everything flows through it, and the data is readily available.” This eliminates the technical challenge of wrangling data from disparate sources. It also means that Seacoast “doesn’t have to fight battles about who owns which data,” explains Lee.

The chief information officer of Memphis, Tennessee-based First Horizon National Corp., the holding company for First Tennessee Bank, says the same thing. “This may be an advantage of smaller institutions,” says Bruce Livesay. “Because our environment is less complex, we can use a single tool across all of our channels. And it’s easier for us to do that than the big guys,” he continues, referring to the $29 billion asset bank’s data-driven marketing platform.

Of 13 global and regional banks surveyed by consulting firm McKinsey & Co. recently, almost every one listed advanced analytics among its top five priorities, with many investing heavily in it already. Yet, the expected results haven’t materialized. The problem is that these “efforts remain unconnected and subscale; they have not yet tied together their disparate efforts into a single, unified business discipline.”

Costs no longer serve as an impediment either, even for banks without hundreds of billions of dollars in assets. “The cost of software is unbelievably attainable. I had no idea it had dropped that much,” says Lee, who worked for a major credit card company before joining Seacoast in 2013. This includes the bank’s marketing automation platform as well as its analytics software.

“Because the [cost of] technology required to gather and store relevant data has gone down, it is no longer cost prohibitive for small and midsized financial institutions to get into big data analytics,” says David Macdonald, vice president of financial services at SAS, a leading company in business analytics software and services. Livesay agrees. While he wouldn’t disclose how much First Tennessee’s data-driven marketing automation platform from IBM costs, he made it clear that it “more than pays for itself.”

A direct mail campaign conducted by Seacoast over the past year offers a case in point. By analyzing branch visits, the bank identified customers who frequented branches to deposit checks instead of using mobile deposit. To encourage these customers to switch, Seacoast sent checks for nominal amounts to them with instructions on mobile deposit. Seven percent responded by permanently changing their behavior. That’s seven times the conversion rate one would ordinarily expect from a campaign that isn’t informed by advanced analytics, says Lee.

But if scale and cost aren’t impediments, what’s keeping smaller banks from taking better advantage of their data?

The answer is: Talent. Seacoast hired Stillwell, who had been using data analytics software for 15 years when he joined the bank in 2014. Like Lee, Stillwell came from the credit card industry, which has a reputation of being especially effective purveyors of data. Stillwell started on a shoe-string budget, with analytics software from SAS that ran on a personal computer. This worked as a proof of concept, giving Stillwell the tools and programming language needed to analyze large amounts of data without requiring a substantial investment. Seacoast then upgraded to a more expensive server-run version a year later.

Stillwell has since gone on to use the software to develop a customer lifetime value model that estimates per-customer profitability—it also specifies why a customer is or isn’t profitable. He built an opportunity-sizing engine, too, which identifies the next best product to sell a customer based on the product’s profitability and the customer’s current product portfolio. The bank is now combining these tools with its marketing automation platform to complete and automate the circle between insights and execution.

Once this happens, Lee believes Seacoast will be able to scale up its highly targeted marketing campaigns from the 40 or so it runs right now to more than 10 times that amount. “Most banks our size are doing one marketing campaign a quarter; we’re doing 40 at all times,” says Lee. “And we could be running 400 campaigns.”

Seacoast’s marketing department is now rolling these tools and insights out to a broader audience at the bank. Stillwell built a user interface atop the analytics platform to enable remote access, and the bank has begun educating frontline employees about how the insights from the data can help serve customers more effectively. It does so by offering insight into the products and services each of Seacoast’s customers would benefit most from, as well as the best channels over which to engage them, explains Lee.

These efforts have been well received, though they have at times run up against long-held assumptions. This is especially true in the context of customer profitability. “You ask someone in the branch who their best customer is, and they say it’s the person who comes in every day,” says Lee. But because it costs a bank more to service these customers compared to those who bank remotely, Seacoast’s profitability model comes to the opposite conclusion. “It’s a big cultural change because there are perceptions that don’t always align with what the data tells you,” says Lee.

First Tennessee saw a similar cultural change after implementing its own customer profitability model. “There’s absolutely no doubt that it’s changed the culture of the company. Most banks can’t give these kinds of insights to their bankers,” says Livesay. “The fact that we can has changed the behavior of our sales people. It prioritizes which customers they should be talking to and informs those conversations.”

At the end of the day, there’s no question that big banks derive many benefits from their massive balance sheets, but there are some areas where scale can be a disadvantage. The timely implementation of a fruitful data analytics program may be one of them.


2018 HMDA Q&A – Get the Facts

“When the HMDA rule was originally enacted in 1975, it required depository and non-depository institutions to collect and report data about mortgage originations. On October 15, 2015, the scope of the rule changed—expanding reporting coverage for non-depository institutions, increasing transactions covered, and increasing data elements to report. The new HMDA rule now requires 48 data points be collected, recorded and reported: 25 are new data points (including total loan costs or total point and fees, automated underwriting system, and open-end line of credit) and 14 are modified from the previous rule.”[1]

Enough said. With this type of expansive change to the HMDA-reporting and -recordkeeping rules, there are bound to be questions. Here’s a sample.

Q: For HMDA recordkeeping and reporting, what’s the story on HELOCs?

A: Beginning January 1, 2018, covered loans under the HMDA rule will include not just closed-end mortgages, but also “open-end lines of credit secured by a dwelling” (i.e., HELOCs). Not every financial institution will be subject to the rule. Institutions that originated at least 25 closed-end mortgages or 100 HELOCs in each of the two preceding calendar years will be required to collect, record, and report HELOC data under HMDA.

Q: We have always relied on the Federal Financial Institutions Examination Council’s software (reporting to the Federal Reserve Board) each year for HMDA reporting. We’ll be able to continue using it, right?

A: There are no changes to the submission process for HMDA data collected by financial institutions in 2016. Financial institutions will file HMDA data with the Federal Reserve Board (FRB) using the FRB’s instructions, file specifications, and edits familiar to HMDA users. Please visit the FFIEC website for resources to help you file.

There is a new data submission process beginning with HMDA data collected by financial institutions in or after 2017. Financial institutions will file HMDA data with the Consumer Financial Protection Bureau (CFPB). The HMDA agencies have agreed that filing HMDA data collected in or after 2017 with the CFPB will be deemed submission to the appropriate Federal agency. You should refer to the FFIEC and the CFPBwebsites for resources to help you file.

Q: What if we need to resubmit HMDA data following the change to the reporting process?

A: There is a new data resubmission process beginning with HMDA data collected by financial institutions in or after 2017. Financial institutions will resubmit HMDA data collected in or after 2017 by filing with the Consumer Financial Protection Bureau (CFPB). Refer to the FFIEC and the CFPB websites for resources to help you file.

Q: We keep the loan application register (LAR) to aggregate data for HMDA reporting? Is there anything we need to know about identifying our loan transactions on the LAR under the new HMDA rules?

A: If your organization originates loans that will be required to be reported on a HMDA Loan Application Register (LAR), you will need to obtain a Legal Entity Identifier, or LEI. This string of 20 characters is used in part to create the 45-character Unique Loan Identifier (ULI) that must be assigned to each loan reported on the LAR. You may obtain your LEI from the Global Market Entity Identifier Utility website at[2]

Have more HMDA recordkeeping and reporting questions? Ask the Compliance Experts, or, use these additional resources:


Around the Industry:

Effective Now:

The time to comply with new HMDA rules is now.

On the Horizon:

FDIC Summer 2017 Consumer News highlights 10 popular scams plaguing customers. How do they compare to your risk management?


How are you recapturing EPO or EPD fees? How might it affect your loan officer compensation practices? See this for more.

[1] Wu, B. (2017, June). Keep Calm and Compliance On. Mortgage Compliance Magazine, pp 40-43.

[2] Kilka, L. (2017, June). The Roadmap to HMDA Implementation. Mortgage Compliance Magazine, pp 36-39.


Why are Small Banks Disappearing ?

n 1994, nearly 500 banks were headquartered in California. Today, there are fewer than 180. By the end of the year, if current trends hold, Californians will have only one-third the number of banks to choose from for their mortgage, small business and personal savings needs than they did just a couple of decades ago.

There are a few reasons for this disturbing trend, which is happening across the country. But the most important one — the reason I hear more than any other from bankers who decide to merge, sell or close their institution — is the increasing federal regulatory burden.

That doesn’t mean I oppose all regulation. In the wake of the financial crisis, regulatory changes were necessary, and provisions in the Dodd-Frank Act passed in 2010 helped improve financial stability. But nearly a decade after the crisis, we’ve ended up with too many duplicative and sometimes contradictory rules that don’t always promote safety and soundness, and may actually hinder banks from serving their customers and growing local economies.

For example, I recently heard from a bank in Southern California that, to its great regret, had to end its mortgage loan program. Dodd-Frank’s mortgage regulations and disclosures meant the bank would have to purchase expensive software to manage the new layers of red tape — so expensive, in fact, that the bank was going to lose money on every single loan.

Getting community banks out of the business of helping qualified Americans buy homes can’t have been what Congress intended when it passed Dodd-Frank. It makes sense to recalibrate some elements of that law to ensure that it’s working properly.

A proposal in the House would take important steps in that direction. The Financial CHOICE Act, which the Financial Services Committee recently voted to send to the floor, includes several sensible provisions that the banking industry endorses, as well as others that require further study and analysis.

Among the measures I support: The legislation would allow regulators to tailor their oversight to the unique risk profiles of individual financial institutions; provide greater opportunities for banks to appeal decisions by their examiners; and ease some requirements on mortgages that banks hold in their own portfolios (meaning they retain all the risk). The overall effect of these and other provisions would be to give banks more breathing space and consumers more choices.

Though banks adjust as best they can for the sake of their customers, the smallest banks have too few assets to keep up with ever growing compliance costs. Indeed, the vast majority of banks that have disappeared are community banks. At the end of 2016, California had just 11 small banks left; in 1994, these banks accounted for nearly half of the industry in the Golden State.

Some have pointed to strong bank profits as an argument for why reform is unnecessary. Profitability is, of course, a sign of economic strength that we should celebrate; profitable banks benefit their customers, investors, employees and broader communities.

However, the topline profit figure doesn’t tell the whole story. Increased regulatory compliance costs limit bankers’ ability to reach underserved communities. Moreover, tunnel vision on bank profits ignores macro-level trends.

Since Dodd-Frank was passed, just four new banks have formed nationwide. (The newest, I’m pleased to report, is in Orange County.) This abysmal pace of startups is principally due to the extraordinary regulatory burden placed on small banks and the excessive sums of capital new-bank investors are required to put up.

Our economy performs best with a healthy and diverse mix of banks to meet customers’ needs — large, small and everywhere in between. Without reasonable reform in Washington, California’s banking sector will continue to shrink and become less diverse. Californians — and all Americans — will pay the price in terms of lost opportunities for growth.

Depositors Biggest Complaints With Their Banking

As a new report from reveals, complaints filed against the six most popular banking services — bank accounts, consumer loans, credit cards, credit reporting, mortgages and student loans — have been steadily climbing over the past five years.

Last year was particularly tough for the bank-client relationship: Nearly all six services saw more complaints in 2016 than in any other year since 2012.

Most consumers are griping about mortgages. Of the 722,684 complaints made to financial institutions in 2016, more than 30 percent of them were regarding those particular loans.

“It could be that some banks have recognized this kind of loan may not be good for business,” explains. “In a memo to shareholders, JPMorgan CEO Jamie Dimon outlined that mortgages are offered as a benefit to customers, not because it’s a sound investment for the bank.” And since mortgage lending is not necessarily “good for business,” banks may be less motivated to accommodate consumers, which could explain the high number of complaints.

After mortgages, debt collection accounted for 18.7 percent of complaints filed and credit reporting accounted for 17.9 percent.

As for the recent rise of complaints overall, offers one possible explanation: “In a quest for higher profits, many [banks] have looked to acquire other banks and reduce or limit services to meet their investors’ needs.”


Major Challenges on the Horizon for Commercial Banks

Investors should avoid bank stocks as the sector’s fundamentals will deteriorate in the coming months, closely followed analyst Dick Bove said Thursday on CNBC’s “Fast Money Halftime Report.”

Bove, vice president of equity research and financial sector analyst at Rafferty Capital, said bank stocks “are even more treacherous than you think.”

“Over the last six months the ability to sell loans has evaporated. Basically commercial and industrial loans, which were roaring at 7 or 8 percent year-over-year gains, are struggling to grow at 1 percent,” he said. “The one thing you can be sure of with the banks over the next few months is loan losses are going to grow pretty substantially.”

Bove noted that bank loan underwriting standards have worsened especially in the subprime auto loan market.

“If you take a look at the consumer sector, you’re seeing major difficulties arising, in selling if you will, credit card loans. You’re seeing difficulties in the automobile space,” he added.

On the flip side, Bove praised regional lender First Republic Bank saying it has “an ability to lock into a concept that is really working” by issuing shares and not buying back stock.

A First Republic spokesperson declined to comment for this story.


CFPB’s Impact on Credit Unions

Putting an end to remarks from the Consumer Financial Protection Bureau that its regulations are, in fact, helping credit unions, the Credit Union National Association published a detailed report that outlines exactly how the new rules have suffocated growth.

CUNA is a national association that advocates on behalf of all of America’s credit unions, which are owned by more than 100 million consumer members.

CFPB Director Richard Cordray has commonly gone on record to denounce doomsayers who say that new regulations are killing the banks, especially when it comes to credit unions and community lenders.

In response, CUNA submitted a letter to the CFPB detailing each of the ways the agency’s rulemakings have affected America’s roughly 6,000 credit unions.

The letter also includes recommendations on how the bureau can improve its regulations to provide relief to credit unions and their members.

“We urge the bureau to take immediate action and implement our suggestions for the protection of credit union members, who have fewer choices and are incurring increased costs due to CFPB rules,” said Jim Nussle, CUNA president/CEO. “CUNA, our state league partners, and credit unions—the original consumer protectors—stand willing to provide the CFPB any further details or analysis necessary to achieve regulatory relief, the ultimate goal of our Campaign for Common-Sense Regulation.”

“The CFPB continues to cite the very minimal accommodations it has made in some rules for credit unions,” Nussle explained.

“However, in practicality, credit unions’ ability to provide top-quality and consumer-friendly financial products and services has been significantly impeded by a one-size-fits-all regulatory scheme that favors large banks and less regulated nonbank lenders—institutions that have more resources for overly complex compliance requirements,” he said.

While CUNA is are pleased to hear that the CFPB recognizes the very important role credit unions play in serving consumers, there are still plenty of areas to improve on, which is outlined in the letter and recommendations.

According to CUNA’s Regulatory Burden Study, it found that in 2014, regulatory burden on credit unions caused $6.1 billion in regulatory costs, and an additional $1.1 billion in lost revenue.

And this data doesn’t even include the CFPB’s recent regulatory additions to the Home Mortgage Disclosure Act (HMDA) and Truth in Lending Act/Real Estate Settlement Procedures Act Integrated Disclosure (TRID) requirements.

“The CFPB regularly cites modest thresholds and accommodations it has provided in some mortgage rules and the remittances rule as proof that it is considering the impact its rules have on credit unions and their members,” the letter stated. “Regrettably however, credit unions continue to tell us that the accommodations the CFPB continues to cite are not sufficient exemptions and they do not fully take into consideration the size, complexity, structure, or mission of all credit unions.”

The letter breaks down the following four categories:

1. Ability to Repay/Qualified Mortgage (ATR/QM)

According to a recent survey of CUNA members, 43% cited the QM rule as most negatively impacting the ability to serve members with mortgage products.

So even though the bureau commonly cites the expanded qualified mortgage (QM) safe harbor for small creditors as proof that it has helped credit unions continue to serve members, CUNA explains that it did not provide full relief for many credit unions.

2. Mortgage servicing

The CFPB claims that it has tailored its servicing rules by making certain exemptions for small servicers that service 5,000 or fewer mortgage loans, but the latest survey results from CUNA members say otherwise.

In the recent survey, more than four in 10 credit unions (44%) that have offered mortgages sometime during the past five years indicate they have either eliminated certain mortgage products and services (33%) or stopped offering them (11%), primarily due to burden from CFPB regulations.

3. Home Mortgage Disclosure Act (HMDA)

CUNA cites that it is hard to say HMDA is tailored to minimize the impact on small entities given that prior to the rule credit unions were not required to report HMDA data on HELOCs.

CUNA’s recent survey of its members showed that nearly one in four credit unions (23%) that currently offer HELOCs plan to either curtail their offerings or stop offering them completely in response to the new HMDA rules. And CUNA says it believes this is a conservative estimate.

4. Remittances

Although the CFPB regularly cites the exemption to entities that provide fewer than 100 remittances annually as an example of providing relief to small entities, CUNA states that this is probably the clearest example that the CFPB is simply not listening.

Instead, the letter states, “This rule has made it more expensive for members to remit payment and has drawn consumers away from using credit unions and into the arms of the abusers for which the rule was designed.”


PACE Financing for Clean Energy is the New Mortgage Loan ??

Residential Property Assessed Clean Energy (PACE) programs have been an unqualified success story for consumers’ pocketbooks and the economy, helping to finance almost $4 billion in clean energy upgrades and create tens of thousands of jobs. Despite this success, some in Congress are advancing a bill that would undercut the future of these programs.

In early April, Senator Tom Cotton (R-AR) introduced legislation that aims to increase consumer protection for homeowners using PACE financing to upgrade their homes. ACEEE applauds Senator Cotton for his attempts to ensure that vulnerable consumers, particularly seniors, have the information they need to decide whether to use PACE financing.

We appreciate the good intentions behind S. 838. Unfortunately, instead of helping consumers make more informed choices, the bill could leave consumers unable to make any choice at all. The bill would force regulators to treat PACE financing as a mortgage, which it isn’t. Forcing PACE financing into a regulatory structure designed for a different industry would impose requirements that would be extremely difficult, or even impossible, to meet. The result might not be a safer residential PACE industry, but rather no residential PACE industry.

The bill seems innocuous enough: It would require that PACE financing be regulated under the Truth in Lending Act (TILA).

It’s hard to oppose something that sounds as virtuous as “Truth in Lending,” and TILA is a very important safeguard for people who want to take out mortgages and borrow money in other ways. As its name suggests, TILA requires lenders to be clear in disclosing the details of the loans’ terms. It offers additional protections for mortgages, triggering added requirements for anyone engaged in making mortgage loans.

Requiring PACE programs to disclose financial terms and details the same way mortgages and other loans do is a great idea. Markets function best when both lender and borrower understand what they are getting into, and some of the additional protections that TILA gives mortgage borrowers make sense for the PACE industry as well. In particular, giving prospective borrowers three days to change their minds for any reason and without penalty seems like a common sense addition and is one that the PACE industry supports.

However, regulating PACE as though it were a mortgage goes much further and has broader consequences. The Cotton bill would trigger other state and federal regulations intended specifically for the mortgage industry. The combination of regulations would require PACE financers to be licensed mortgage originators, which also doesn’t sound like a bad idea, until you realize that residential PACE programs require local governments to participate. The local governments would have to become licensed mortgage originators, something that would be practically impossible. It would also place restrictions on how the local governments could bill PACE recipients, which would impact their entire property tax collection system. These and related problems demonstrate the perils of trying to apply a regulatory system meant for one industry to another. It would be a shame if well-intended efforts to protect consumers resulted in the elimination of residential PACE.

As we noted in a previous blog post, the Department of Energy, PACE financers, and consumer advocates have been working together to develop guidelines that protect borrowers and still allow PACE to function. California, which is home to the vast majority of PACE activity, recently passed its own legislation to regulate the PACE industry, including the same kind of disclosure requirements and three-day right to cancel as in TILA. That bill had the support of California Realtors, mortgage bankers, and the PACE industry. Leaders in the PACE industry are actively asking Congress to regulate them in a way that offers security for homeowners and allows PACE to continue.

ACEEE is a strong proponent of energy efficiency – when it makes sense. We won’t support a program that takes advantage of consumers. We support efficiency in large part because of the benefits it provides them. Consumers deserve protection, but that doesn’t mean we should throw the baby out with the bathwater.

Rather than pursue a strategy to shoehorn PACE into a regulatory framework meant for something else, a better approach would be to create a new structure that fits the specific features of PACE financing. That would bring security to both sides of the equation and help make the benefits of PACE available to more consumers, not fewer.


Dodd Frank Changes Are Coming and the Potential Impact on Commercial Banks

The House Financial Service Committee approved the Financial CHOICE Act 2.0 today, signaling the first concrete move to roll back consumer protections and gut the Dodd-Frank Wall Street Reform and Consumer Protection Act. 

The committee voted today to send the Financial CHOICE Act 2.0 — introduced by bank-backed Texas Rep. Jeb Hensarling last month — to the full house for consideration, likely sometime next month.

According to The Hill, today’s 34-26 party-line vote came after nearly 24 hours of debate and markups of the bill, which included several amendments that would have preserved some of the provisions under the Dodd-Frank Act.

The 589-page legislation [PDF], which has received significant opposition from advocates, retailers, and others, is a revision of the previous Financial CHOICE Act introduced by Hensarling last year.

As it stands, the Financial CHOICE 2.0 Act would, among other things:

• Require the Consumer Financial Protection Bureau to get congressional approval before taking enforcement action against financial institutions

• Restrict the Bureau’s ability to write rules regulating financial companies

• Revoke the agency’s authority to restrict arbitration

• Revoke the CFPB’s authority to conduct education campaigns

• Prevent the Bureau from making public the complaints it collects from consumers in its Consumer Complaint Database

• Revamp the agency’s structure by allowing the CFPB director to be fired at will by the President

• Require the agency’s budget to be subject to the annual congressional appropriations process

• Prevent the CFPB from having oversight over the payday lending industry

• Rename the CFPB to the Consumer Law Enforcement Agency

• Require banks to undergo stress tests every other year, with banks agreeing to increase their capital never having to undergo stress tests

• Revoke the so-called qualitative test that evaluates a bank’s plan for managing capital and risk

• Remove requirements under the Durbin Amendment [PDF] that guided how much credit card networks could charge retailers for processing debit card transactions

The bill’s approval by the House Financial Service Committee was met with strong opposition by consumer advocates, the retail industry, and other lawmakers.

Our colleagues at Consumers Union say the bill’s approval puts consumers at risk while protecting the financial interests of big banks and shady lenders.

“Congress created the CFPB to ensure consumers get a fair deal and to protect them from predatory practices that can undermine their financial security,” Pamela Banks, senior policy counsel for Consumers Union, said in a statement. “This bill strips the CFPB of most of its power and would leave consumers vulnerable to fraud, hidden fees and costly gotchas by banks and unscrupulous financial firms.”

Several groups, including the National Consumer Law Center, Americans for Financial Reform, and Public Citizen, lambasted the bill’s provision restricting the CFPB and Security and Exchange Commission’s authority to restrict forced arbitration.

“Contrary to its title, H.R. 10 would deprive consumers and investors of any choice of their day in court when resolving serious disputes with powerful financial institutions and force them into a rigged system,” Amanda Werner, arbitration campaign manager with Americans for Financial Reform and Public Citizen, said in a statement.

Werner noted that forced arbitration clauses “only serve to kill consumer class action lawsuits and cover up widespread fraud and abuse.”

The Center For American Progress said in a statement that the Financial CHOICE Act is only the right choice for Wall Street bankers.

“It shows a blatant disregard for the painful lessons learned during the 2007–2008 financial crisis,” Marc Jarsulic, Vice President for Economic Policy at the Center for American Progress, said in a statement. “The so-called CHOICE Act removes protections against taxpayer-funded bailouts, erodes consumer protections, and undercuts necessary tools to hold Wall Street accountable.”

Even the retail industry, which had urged Congress to not roll back financial reforms involving debit card transactions, called out the Committee for moving forward with the legislation.

The Retail Industry Leaders Association — which counts a number of major retailers, such as Apple, Best Buy, Gap, Target, Walmart, and others, as members — said in a statement that it would keep fighting the Financial CHOICE Act’s provisions related to swipe fees. RILA and other industry groups believe that by revoking the swipe fee reforms, retailers would pass on the new, more expensive processing costs to consumers.

“While we believe in financial reforms that make sense for America’s community banks and local credit unions, the repeal of hard-fought debit swipe fee reform included in the CHOICE Act gives big banks and card networks a green light to raise costs on every business in America that accepts debit cards,” Austen Jensen, Vice President of Government Affairs and Financial Services for RILA, said in a statement.

On the other side of the debate, the American Bankers Association called today’s vote an important step.

“We commend Chairman Hensarling and members of the Committee for their tireless efforts to help our nation’s banking industry serve their customers and communities,” Rob Nichols, ABA president and CEO, said in a statement, calling the Financial CHOICE Act “needed regulatory relief.”


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