On Tuesday, March 3, CFPB Director Richard Cordray appeared before the House Financial Services Committee to answer questions regarding the Bureau’s Semi-Annual Report to Congress and the President, which it published on December 4 of last year.  As we anticipated shortly before Director Cordray’s testimony, the report merely provided a backdrop for the hearing, which, in reality, served as a forum for committee members to question the Director on a range of issues significant to their respective constituents.  Much like the report itself, Director Cordray’s testimony largely rehearsed information with which we were already familiar, much of which we have covered on this blog.  Among the talking points we expected, however, a few newsworthy points emerged:

  • The Bureau plans to use its five-year review of the ability-to-repay (ATR) rule, mandated by section 1022(d) of the Dodd-Frank Act, to assess whether to extend, modify, or make permanent the temporary provisions that currently exempt loans backed by Fannie Mae and Freddie Mac from critical portions of the rule’s rigorous underwriting requirements. In response to questions from the committee’s chairman, Rep. Jeb Hensarling, Director Cordray indicated that the Bureau installed the sunset provision at least in part to give Congress time to undertake substantial reform of Fannie and Freddie.  Cordray acknowledged, however, that in light of Congress’s inaction on GSE reform, industry uncertainty tied to the pending sunset of the exemption constitutes a “legitimate concern.”
  • The Bureau plans in short order to convene a Small Business Review Panel (SBRP) to analyze proposals under consideration for a rulemaking governing payday loans and payday lenders. Payday loans and deposit advance products first appeared on the CFPB’s unified agenda in the Spring of 2013, and Bureau staff have since published two whitepapers on the matter—one in April 2013 and another in March 2014.  Hence, the Bureau’s decision to engage the SBRP process, which is a necessary precursor to release of a notice of proposed rulemaking (NPR), comes as no surprise.  That said, it tees up circulation of a document that will offer useful insight into the likely substance and consequence of the forthcoming NPR—the SBRP’s final report.  With respect to timing of the SBRP process for a payday loan rulemaking, Cordray told Rep. Maxine Waters, the committee’s ranking member, to “check back soon.”
  • Director Cordray indicated that the Bureau continues to be interested in learning more about, and potentially crafting responses to, unintended consequences of its various mortgage rules, particularly consequences tied to specific products tailored to, and offered in, limited geographical areas. Rep. Michael Capuano, who represents a large swath of the Boston metro area, raised concern that loans for the purchase of so-called “triple-deckers” (i.e., the three-floor, three-unit dwellings that line many of Boston’s streets) cannot feasibly satisfy the definition of a single-family property under the ATR rule.  Likewise, Rep. David Schweikert, who represents much of Phoenix, expressed concern over the rules’ implications for seller financing arrangements and contracts for land sales, which are popular, relationship-based transaction mechanisms in deed-of-trust states.  Director Cordray invited both members to engage in further discussions at the staff level in an effort to better understand the issues.
  • The Bureau has no plans to push forward the August 1, 2015, effective date for the TILA/RESPA integrated disclosures rule. Director Cordray indicated that CFPB examiners had no intention of “bringing the hammer down on the first day,” but he repeatedly emphasized that institutions will have had 21 months from the date of the rule’s publication to prepare.
  • For better or worse, the Bureau’s much-discussed “Rate Checker” tool appears here to stay. The tool, which allows consumers to view mortgage rates being offered to borrowers in their area, has been the subject of sharp criticism.  Citing concerns over the tool’s accuracy, among other things, the American Banker’s Association called for the CFPB to remove the tool from its website altogether.  Facing questions from the committee about the tool’s accuracy, Director Cordray said only that the tool is “quite accurate,” and he encouraged committee members to direct their constituents to the tool for help in shopping for their next mortgage.

The hearing failed to provide any news of note on other significant issues, including the evolution, if any, of the Bureau’s rulemakings on prepaid cards and home mortgage disclosure, or the progress of pre-rulemaking activities on debt collection.  Director Cordray did indicate in passing that action on overdrafts would likely follow planned rulemakings on payday loans and debt collection, both of which are slated for later this year.  Presumably, then, movement on overdrafts appears relegated to late 2015 at the earliest.

The Director has yet to appear before the Senate Banking Committee, as he typically does following circulation of the Semi-Annual Report.  To date, Senate Banking has not published any schedule for a pending appearance by Director Cordray.