Director Cordray was the sole witness at the hearing held yesterday by the House Financial Services Committee, which was entitled “The Semi-Annual Report of the Bureau of Consumer Financial Protection.” In November 2015, the CFPB issued its eighth Semi-Annual Report to the President and Congress covering its activities from April 1, 2015 through September 30, 2015.
As has become the norm at the Committee’s hearings on the CFPB’s semi-annual reports, the report merely provided a backdrop and Committee members used the hearing as a forum to question the Director on a range of issues significant to their constituents. Director Cordray’s written testimony and much of his live testimony repeated familiar information that we have covered in various blogs. Nevertheless, several noteworthy points emerged:
- In response to questions about the timing of CFPB rulemaking, Director Cordray indicated that the CFPB still expects to issue a final prepaid card rule in Spring 2016 and to also issue a proposed rule on payday (and other small-dollar, high-rate) loans in Spring 2016. However, his added observation that Spring 2016 begins next week and continues until the third week of June might be viewed as a signal that the rules are most likely to be issued in late rather than early Spring. Director Cordray also indicated that a proposed overdraft rule would not be issued in Spring 2016.
- Despite the fact that the U.S. Supreme Court’s Inclusive Communities decision did not address whether disparate impact claims are cognizable under the Equal Credit Opportunity Act, Director Cordray indicated that he views the decision as confirming the validity of using disparate impact to prove discrimination by auto finance companies. When a Committee member took issue with Director Cordray’s view, noting that Inclusive Communities involved the Fair Housing Act and not the ECOA and that the ECOA and FHA use different statutory language, Director Cordray responded that the two statutes “are applied hand in glove.”
- In June 2015, a group of more than 80 House and Senate Republicans sent a letter to Director Cordray asking the CFPB to reopen its arbitration study. Among the study’s deficiencies highlighted in the letter were the CFPB’s failure to estimate “the transaction costs associated with pursuing a claim in federal court as compared to arbitration” or “the ability of a consumer to successfully pursue a claim in federal court without a lawyer, despite the fact that consumers often are self-represented successfully in arbitration proceedings.” In response to a question asking whether the CFPB has considered these issues, Director Cordray dismissed criticism that the study has “major flaws.” He stated that the CFPB “has looked at what [critics of the study] have to say” and concluded that the criticism was not “credible.” He continued to defend the study as showing that arbitration is not beneficial to consumers.
- Although it was unwilling to agree to a formal grace period from enforcement of the TILA/RESPA Integrated Disclosure (TRID) Rule that became effective on October 3, 2015, the CFPB stated that it would initially take a “sensitive” approach to enforcement with respect to entities deemed to have made a good-faith effort to come into compliance. In his comments, Director Cordray indicated that the period during which the CFPB intends to continue this approach is “open-ended” and that an enforcement action would only be brought for a “blatant failure” to implement the TRID Rule. He also indicated that the CFPB would provide more guidance on the TRID Rule and commented that several trade groups were working on joint questions to be submitted to the CFPB. Director Cordray was asked if the CFPB intended to address the TRID Rule approach to the disclosure of title insurance premiums in simultaneous issuance situations. That approach requires the disclosure of the lender’s title premium and owner’s title premium based on a formula set forth in the rule even though the disclosure does not reflect that actual amount charged for each policy. Director Cordray indicated only that the issue continues to be under active consideration.
- In its second biennial report on the credit card market issued in December 2015, the CFPB identified deferred interest products as an “area of concern.” In response to a question about such products, Director Cordray indicated that the CFPB is looking at such products “very carefully” and will be taking action “as appropriate.” He also commented that card issuers should be mindful of deferred interest products and their potential to harm consumers.
- In September 2015, the CFPB and DOJ announced a proposed consent order with Hudson City Savings Bank to settle allegations that the bank had engaged in a pattern or practice of redlining in its residential mortgage lending. Director Cordray characterized the settlement as “a shot across the bow” to the entire marketplace.
- Director Cordray continued to resist calls from Committee members for the CFPB to create broader exemptions for community banks and credit unions from CFPB rules, stating that the CFPB would not provide such a “broad override” but would consider creating tailored exemptions “where appropriate.”