CL&P Blog

Bloomberg BusinessWeek Report on Upcoming CFPB Mortgage Disclosure Forms

Here.  An excerpt:

In previewing its proposal, which must be released by July 21, the bureau has also said that over the last few months it is considering modifying core mortgage disclosure requirements, such as how the annual percentage rate is calculated. The plan is drawing fire from banks and consumer advocates alike.

* * *

The consumer bureau announced in a Feb. 21 advisory posted on its website that it is considering major changes to the use of the annual percentage rate, the key metric laid down in the Truth in Lending Act for calculating the cost of a mortgage.

The APR takes the interest rate, incorporates other fees associated with a mortgage, and is designed to give the consumer a single metric to assess the cost of a loan. However, the Truth in Lending law excludes some potentially costly fees from the APR calculation, such as charges for title searches and insurance.

The consumer bureau may propose incorporating other fees, including title costs, into the APR calculation, it said in the Feb. 21 advisory. * * *

Reiss Paper on Qualified Mortgages

David J. Reiss

 of Brooklyn has written Message in a Mortgage: What Dodd-Frank's 'Qualified Mortgage' Tells Us About Ourselves, Boston University Review of Banking and Financial Law (2012).  Here's the abstract:

This essay outlines the ethics that shape federal housing finance policy and situates them in the context of the Dodd-Frank Act. In a way, however, it asks a simpler question: what do our mortgages tell us about our society? The essay proceeds as follows. First, it outlines three ethics that inform American housing finance policy generally. Second, it contrasts two mortgages: the one from the subprime boom of the early 2000s and the other from Dodd-Frank, the “Qualified Mortgage.” It concludes by using the three ethics to answer the question posed above and outlining what is at stake in the housing sector given the choices that we might make.

Will the Consumer Financial Protection Bureau Be Able to Regulate Rent-to-Own Establishments?

Rent-to-own contracts--under which consumers pay "rent" each week to buy a big-ticket item like a television, but typically have the option to cancel the contract after the first week--are an extremely expensive way to buy an item.  They are not regulated by the Truth in Lending Act, or the federal Consumer Leasing Act, which means that no federal law requires disclosures that will convey to consumers how much more they are paying than they would if, say, they bought the item and financed it through a more conventional loan.  An article in the Huffington Post, Rent-A-Center CEO: New Consumer Bureau Won't Have Authority Over Us, explores whether the CFPB will be able to regulate RTOs.  An excerpt:

The Consumer Financial Protection Bureau has yet to decide on a plan of action for rent-to-own retailers. "CFPB has reviewed the rent-to-own industry generally and is monitoring its impact on certain populations, such as military families," a spokeswoman wrote in an email. "We have not made any decision about what action, if any, would be appropriate."

Before the bureau can decide to investigate Rent-A-Center and its competitors, it must first prove that such businesses provide installment loans, not short-term leases, and therefore lie under its jurisdiction. In the past, Rent-A-Center has avoided regulation by shunning the label of "loan provider." The company has claimed that since customers pay on a weekly or monthly basis -- and can cancel contracts anytime by returning items -- its agreements aren't loans. Consumer advocates say that despite the flexibility offered by rent-to-own companies, people effectively use the service like an installment loan, paying small chunks over time toward a final purchase.

Times Article on Disclosure Generally, Including Consumer Disclosures

You can read it at http://www.nytimes.com/2012/01/22/sunday-review/hard-truths-about-disclosure.html?pagewanted=1

Radio's Academic Minute: 100 Seconds on Mortgage Disclosures

Here.

Is Wells Fargo Ignoring the Electronic Funds Transfer Act?

Jeff Gelles has the story here.  The EFTA limits customer losses to $500 under some circumstances, but the bank is charging a customer $4,500.

Debt Settlement Under Fire

The Center for Public Integrity's iWatch News tells the story of a retired teacher who paid a "debt settlement" firm $7000—none of which went toward paying off her debts. West Virginia's attorney general sued the firm on behalf of her and 400 other consumers who paid up-front fees for debt-settlement services. The industry is also on the CFPB's rulemaking agenda.

New Review of 40 States’ Unemployment Compensation Prepaid Cards

This new groundbreaking report from the National Consumer Law Center looks at unemployment compensation (UC) prepaid cards currently used by 40 states (the remaining states are expected to soon follow suit). The comprehensive survey includes a state-by-state highlights comparison chart, including bank issuer and notable fees; a national overview of fees; and recommendations for card improvements.

Unemployment Compensation Prepaid Cards: States Can Deal Workers a Winning Hand by Discarding Junk Fees, analyses the payment options, fees, and access to account information available to workers in every state that uses UC prepaid cards. It also surveys the laws that do (or do not) protect workers and offers recommendations for how states can design a card that works well for both the state and its unemployed workers.

The report singles out as especially problematic the overdraft fees that U.S. Bank has on prepaid cards in five states: Arkansas, Idaho, Nebraska, Ohio, and Oregon. No other bank’s UC prepaid card charges overdraft fees, which the U.S. Department of Labor (DOL) has found are “inconsistent with federal law.” And the Tennessee card (issued by JP Morgan Chase) draws the two of clubs for the card with the most junk fees, including ATM, PIN debit, denied transaction, and balance inquiry fees.

So who holds the winning hand? California and New Jersey currently have the best UC cards (both issued by Bank of America), although both could benefit from fees more clearly and prominently displayed on websites. The State of California loses one trick for not offering direct deposit.

The report urges the new U.S. Consumer Financial Protection Bureau, which starts work in July, and U.S. Department of Labor to work together to ban overdraft fees and other unfair fees and to improve transparency and competition by posting all fee schedules in one place so that states and consumers can compare who has the best hand.

The trump card? States can design an unemployment prepaid card that works well for both the state and doesn't lose workers in the shuffle. They are generally an improvement over paper checks for the unbanked but there is room for improvement to ensure they deliver every penny to unemployed Americans (at last count, more than 13 million folks).

Now that National Consumer Law Center has laid the cards on the table, let's hope states use the report to cut a better prepaid card deal for their unemployed workers.

Margaret Ryznar Paper on the Treatment of Household Income in Consumer Lending

Margaret Ryznar has written Underwriting Credit Cards, Overwriting Congress, and Rewriting Family Law: The Treatment of Household Income in Consumer Lending, St. John's Law Review (forthcoming).  Here's the abstract:

Remarkably, the Federal Reserve has proposed rules that would prevent stay-at-home mothers from opening credit cards in their own names. These rules would require credit card issuers to consider only a person’s independent income, and not the household’s income, when underwriting credit cards in an effort to protect young adults unable to repay debt. However, in addition to keeping credit cards away from young adults, the proposed rules would problematically do the same for a larger group of people: non-income earning spouses, constituted primarily of stay-at-home mothers. Given the possibility that the rules may have exceeded Congressional intent, and given the significantly negative effects of the Federal Reserve rules due to the importance of access to the credit card market - particularly in light of the historical exclusion of women’s participation in legal and economic affairs - the Federal Reserve’s proposed rules require immediate reconsideration. The final rules, or their amendments, should recognize the non-income earning spouse’s financial participation in the household.

 

GAO Report Recommends CFPB Scrutiny of Debt Protection Products

The GAO, fulfilling a mandate in the Credit CARD Act of 2009, has isssued a report to Congress on debt protection products, which will soon be under the supervisory and enforcement authority of the CFPB. The report focuses on debt suspension and debt cancellation contracts sold in connection with credit cards and concludes that “the increased popularity of debt protection products raises the importance of effective regulatory oversight of these products.”

The GAO recommends that the CFPB (1) factor into its oversight of such products, “including its rulemaking and examination processes,” a consideration of the financial benefits and costs to consumers, and (2) direct its consumer financial education efforts toward identifying “ways to improve consumers’ understanding of credit card protection products and their ability to assess whether or not the products represent a good choice for them.” The CFPB agrees with the recommendations and intends to implement them, according to its letter commenting on the report.

In conducting its study, the GAO obtained data from the nation’s nine largest credit card issuers (representing about 85 percent of the general purpose credit card market by volume) and three major insurance companies (representing about 30 percent of the credit insurance market for open-end credit). The GAO’s concerns include the following:

• Federal regulators have generally not addressed the reasonableness of the pricing of debt protection products in their examinations of such products.

• Only a relatively small portion of the fees paid by consumers for debt protection products is returned to them in tangible financial benefit, and such benefits can have modest monetary value, with some issuers even capping the maximum amount of debt that is canceled but charging fees on borrowings above this threshold. 

• The “bundling” of coverage for multiple events that is characteristic of debt protection products can result in consumers purchasing coverage that is not applicable to them, such as unemployment coverage for a self-employed individual who cannot make an unemployment claim.

• Consumers may have difficulty obtaining the full terms and conditions of debt protection products before making a purchase. For example, the report notes that the GAO was told by customer representatives of seven of the nine surveyed issuers that they would not provide the terms and conditions before enrollment.