Consumer Law & Policy Blog

Debate On the CFPB's Constitutionality at Georgetown Law

For those of you in Washington: Tomorrow afternoon at Georgetown Law, I'll be at debating C. Boyden Gray on the constitutionality of the CFPB and Rich Cordray's recess appointment. Here's the announcement:

The Consumer Law Society, The Federalist Society, and The Georgetown Center for the Constitution present:

The Constitutional Challenge to the Consumer Financial Protection Bureau: A Debate

Thursday, March 21, 2013 at 3:30 p.m.

Gewirz Student Center, Twelfth Floor

Speakers:

C. Boyden Gray

Founding Partner, Boyden Gray & Associates LLP

Deepak Gupta, ‘02

Founding Principal, Gupta Beck PLLC

Moderated by:

John D. Ohlendorf

Fellow, Georgetown Center for the Constitution

Does the Consumer Financial Protection Bureau violate the Separation of Powers doctrine?  What are the implications of the D.C. Circuit’s recess appointments decision in Noel Canning for the actions already taken by the Consumer Financial Protection Bureau?

Please join us for a debate between C. Boyden Gray, former White House Counsel to George H.W. Bush, and counsel for the plaintiffs in National Bank of Big Spring v. Geithner – a constitutional challenge to several parts of Dodd-Frank, including the CFPB and the appointment of Richard Cordray as the CFPB’s director – and Deepak Gupta, prominent consumer law attorney, Supreme Court advocate, and Adjunct Professor at Georgetown Law.

Senate Banking Committee to Vote on Cordray Nomination Tuesday

So says The Hill.  Of course, that doesn't mean the Republicans will allow the full Senate to vote on the nomination. As for the merits of his nomination (not that that matters to the Republicans), The Hill states:

There really haven't been any questions about Cordray's ability to do the job. In fact, he's gotten decent reviews from banks and credit unions in how he is proceeding with the burdensome task of rule-making, especially under the Dodd-Frank financial reform law.

CBSNews Report: Lawmakers grill Cordray in duel over consumer watchdog

Here. It's a report on the Senate Banking Committee's hearing on whether he should be confirmed to head the CFPB. 

Minnesota Star-Tribune on Whether the CFPB Will Regulate Prepaid Cards

Here.  One concern is that fees are not described uniformly, and apparently that makes it hard to comparison shop for such cards.  Excerpt:

“It’s like the Wild West in terms of the different fees and policies,” said Odysseas Papadimitriou, CEO of CardHub.com. “The card issuers have a million different fees and everyone calls it something else. Consumers are completely confused about them.”

But the article discusses other issues as well.  Such cards, along with mobile payments, may represent the frontier in consumer payments.

Reuters: States probing top U.S. banks over debt collection

by Jeff Sovern

Here.  An excerpt:

As with the mortgage cases, the investigation focuses on the banks' poor paperwork and their weak tracking of the debts.

When they sold delinquent credit card debt to the buyers, often at only a few cents on the dollar, they allegedly failed to provide them with the evidence that the borrowers owed the money. It is unclear, however, if the incomplete information was used to pursue borrowers who were not delinquent.

* * *

Investigators are finding that the banks often did not provide buyers of the debt with evidence that individual credit card accounts were delinquent. Instead the banks only provided basic information about how much money they thought was owed and who the borrower was, without providing original contracts, past statements, or other additional documentation.

I would be curious to know the cause of action  My guess would be a UDAP violation.  The FTC and CFPB are also looking into the matter; perhaps the CFPB could use its power to curtail abusive practices.  One interesting feature about this is that consumers are not parties to the sales of the debts, yet they are the ones who are injured.  The probe raises a host of questions: for example, if creditors are obliged to furnish the underlying information when selling the debts, presumably their costs will increase.  Will they respond by raising prices to debt buyers?  And will those higher prices make the purchase uneconomic for the debt buyers?  If debt buyers have the paperwork, will they use it to prove their claims, thus depriving the rare consumers who are represented by counsel or otherwise well-advised of a successful defense that the debt buyer can't prove the claim?  Will debt buyer claims end up being for lower amounts because the paperwork doesn't substantiate the amounts they have been claiming?  Or will the only change be better-substantiated default judgments?

American Banker Reports House Financial Services Chair Jeb Hensarling Resumes Attacks on CFPB

by Jeff Sovern

Here.  According to the story, Representative Hensarling called the CFPB "Orwellian-titled."  So I guess he doesn't think the Bureau actually protects consumers (or maybe he thinks it isn't really a bureau).  I would love to hear Representative Hensarling's reasoning on that one.  Does he believe, for example, that clearer disclosures are harmful to consumers?  Or that barring lenders from making mortgages to consumers who can't repay them is bad for consumers? 

CFPB Wants Comments on Making Student Loans More Affordable

Here's an excerpt from the announcement:

Today, the Consumer Financial Protection Bureau (CFPB) announced that it is gathering information to develop options for policymakers to make repayment of private student loans more manageable for struggling borrowers. The CFPB has found that private student loan borrowers who wish to pay their loans, but face high payments, lack alternative repayment and refinance options.

 

“Too many private student loan borrowers are struggling with unwieldy debt that prevents them from
climbing the econoic ladder,” said CFPB Director Richard Cordray. “We will be analyzing plans for policymakers to consider that might help avoid a repeat of the mortgage meltdown for today’s student loan borrowers.”

 

In October 2012, the CFPB Student Loan Ombudsman released a report noting that consumers had trouble negotiating affordable repayment plans with their lenders and servicers for private student
loans – loans that are not designed with income-based payment options. This report to the Secretary of the Treasury, the Secretary of Education, the CFPB Director, and Congress recommended that policymakers explore options to spur the availability of alternative repayment and refinance options. 

 

In July 2012, Director Cordray and Secretary of Education Arne Duncan submitted a report to Congress on the private student loan market. The study indicates there are more than $8 billion in defaulted private student loan balances, representing 850,000 distinct loans, with even more in delinquency.
Unlike distressed borrowers with federal student loans, private student loan borrowers generally do not have long-term forbearance, income-based repayment, or rehabilitation options if they default. The study concluded that many borrowers are struggling to pay off private student loans, especially in tough economic times.  

Today, the CFPB released a Notice and Request for Information in the Federal Register. With the
information gathered from that notice, the CFPB plans to explore more detailed recommendations to policymakers in order to facilitate greater repayment affordability of private student loans.

 

The Bureau is looking for ways that private student loan borrowers can have more flexible repayment options and is seeking input on a variety of issues related to repayment affordability, including:

 

• How student loan burdens might impact the broader economy and hinder access to mortgage credit and automobile loans;
• How distressed borrowers manage their student loan obligations;
• What options currently exist for borrowers to lower their monthly payments on private student
  loans;
• Examples of successful alternate payment programs in other markets and which features could
  apply to this market; and
• The most effective mechanisms for communicating with distressed borrowers.

 

Members of the public, including financial institutions, colleges and universities, professional associations representing health professionals and educators, housing finance experts, students, and families are encouraged to submit comments. The notice, along with information on how the public will be able to electronically submit comments, is located on the CFPB’s website. Comments will
be accepted until April 8, 2013.

More information here. And the American Banker opines here that the Bureau's plan may have a "narrow impact" because 85% of student loans are government loans, and the Bureau is looking at private loans.

Senator Warren and the Confirmation of Richard Cordray to Head the CFPB

Politico puts out an often-interesting email newsletter, titled Morning Money, every weekday. This morning's edition quoted "a person close to" Senator Elizabeth Warren as saying the following:

'It should be obvious to anyone paying attention that the large banks would have more ground to stand on with Elizabeth if they figured out a way to get Rich Cordray confirmed finally.

"Some of the key trade associations and big banks spun up the opposition to the CFPB at the beginning and authored all the structural talking points, and they are responsible for the current stalemate in a lot of ways. ... They are also now happy with Cordray's work, and the agency is doing a lot of good for consumers. The fight over structure is settled, stale and going nowhere, and it would do everyone a lot of good if they could figure out how to bring the drama to an end, make some peace, and create long overdue certainty with Cordray's confirmation.'

There's a lot of interesting stuff in that quote.  It suggests that there might be a way to confirm Cordray.  There's also the claim that the banks are behind the effort to change the CFPB's structure from a single director to a commission.  If that's true, it would explain why the talking points have not included until recently changing other bank regulators to commissions, since those other regulators have tended to be far more supportive of banks than the CFPB.

Senator Warren Petition: Senators, Give Richard Cordray an Up-or-Down Vote

You can sign the petition here.  GoLocalWorcester.com has more here. 

Now that the OCC Head is Not a Bank Lobbyist, Republicans Want a Commission There Too

by Jeff Sovern

The Office of the Comptroller of the Currency is a bank regulator that, like the CFPB, has a single head rather than a commission structure and gets its funding outside the appropriations process.  I have pointed out before two things about this: first, that unlike with the CFPB, Republicans have been happy to confirm OCC directors. And second, that the OCC has historically been very protective of banks, even going to court to block the New York Attorney General from trying to enforce fair lending laws against the banks the OCC regulates, and declaring state anti-predatory lending laws inapplicable to the OCC's clients--subjects of the OCC's regulation.  But now that the OCC has a new leader appointed by the president, Thomas Curry, Senator Mike Crapo, the ranking Republican on the Senate Finance Committee, has called for a commission structure for the OCC too. 

What is behind this shift?  It could be an honestly-held view.  But another possibility is that commissions suddenly look more attractive than directors when a banking agency is not led by a former bank lobbyist, as was true for much of the Bush administration.  Another possibility is that pushing for a commission undermines arguments that the Republicans are leaving the OCC alone while tackling the CFPB structure because they want to protect banks rather than consumers.  And unlike with the CFPB, Republicans won't have to make good on the argument for years by blocking confirmation of the head of the OCC because they just confirmed a new one last year. 

And as for the merits of commission versus director, the SEC is a commission. How's that working out?