CFA News Update- February 23, 2011
The Administration recently released plans for mortgage finance reform that housing advocates argue could threaten consumers’ access to affordable mortgage credit. Promised in the wake of the real estate bust and failure of mortgage giants Fannie Mae and Freddie Mac, the plan contains three options for future action and additional recommendations for immediately shrinking the share of the mortgage market in which private investments are backed by government.
“The Administration has laid out a series of options that could lead to the abandonment of a nearly 70-year commitment to affordable homeownership for working American families,” CFA Director of Housing Policy Barry Zigas said in a press statement released in response to the Administration plan. “American consumers need policies that will foster affordable, long term fixed rate mortgages as well as a stable supply of capital that will be available to lenders of all sizes, including community banks and credit unions.”
Only one of the plan’s three options would retain a strong, ongoing role for the government for consumers throughout the mortgage market. Under this third option, which is similar to a proposal released two weeks ago by the Mortgage Finance Working Group, the federal government would provide a form of insurance to protect investors against catastrophic losses because of mortgage failures. Such insurance would be available for fully documented, long term fixed rate loans, would protect the investors in mortgages but not the entities issuing securities, and its cost would be included in the mortgage payment. CFA also prepared a White Paper and extensive comments to the Administration on these issues.
“The implicit guarantee that stood behind Fannie Mae and Freddie Mac is not a feasible option for the future,” Zigas noted. “We agree that in the future any guarantees should be explicit and paid for, just like deposit insurance which has protected depositors since the Great Depression. But it is important that this cost not be set so high that it prices consumers out of the marketplace or that the future system tilt the playing field against community banks and credit unions in favor of Wall Street Banks and hedge funds. We look forward to working with the Administration and Congress on refining such a concept,” he added.
Consumer advocates cheered the recent announcement that the Federal Deposit Insurance Corporate had notified Republic Bank & Trust of Kentucky that its high cost refund anticipation loans are “unsafe and unsound.” The bank was the refund anticipation loan partner of Jackson Hewitt and Liberty Tax Service, the second and third largest tax preparation chains in the country.
The FDIC action, which was announced in a Securities and Exchange Commission filing by Republic, followed on the heels of a similar action by the Office of Comptroller of Currency. OCC issued a regulatory directive on Christmas Eve against HSBC, H&R Block’s partner bank, prohibiting that bank from making refund anticipation loans. With JPMorgan Chase having voluntarily exited the market in April, only Republic and two other FDIC-regulated banks had remained as refund anticipation loan lenders. Following a recommendation from the FDIC, the Board of Directors of Ohio Valley Bank determined that Ohio Valley will discontinue offering RALs through tax preparers after April 19, 2011. It is not clear if River City Bank, the other state RAL bank, will also terminate RALs.
“We are pleased that the bank regulators may have effectively put an end to loans that siphon off hundreds of millions in taxpayers’ hard-earned money and federal benefits meant to lift hard-working Americans out of poverty,” said CFA Financial Services Director Jean Ann Fox.
On a related issue, CFA joined with other organizations to write to the IRS urging the agency to proceed with plans announced last August to create a limited split refund option to allow taxpayers to pay for tax preparation fees. “One of the features of RALs [refund anticipation loans] is their ability to permit taxpayers to pay for preparation fees out of the refund,” the groups wrote. “With fewer RALs, there may be a need for an alternative method to permit taxpayers to pay for preparation services out of the refund … Thus, we are supportive of the concept of allowing a split refund option that would enable taxpayers to pay for preparation services out of their refunds.”
Rep. Jackie Speier (D-CA) recently introduced two bills that would give consumers better control of their personal information. The “Do Not Track Me Online” bill would give consumers the right to tell companies not to collect and use certain information about their activities on the Internet. The “Financial Information Privacy Act of 2011” would require financial institutions to get consumers’ affirmative consent before sharing their personal information with unaffiliated third parties except when necessary for narrow purposes such as providing services that consumers have requested. It would also prohibit financial institutions from sharing consumers’ account numbers with unaffiliated third parties for marketing purposes, give consumers opt-out rights when information is shared with affiliates, and protect consumers from discrimination, such as being denied services, if they choose not to have their information shared where that information is not necessary to provide the service.
“These bills are aimed at putting consumers in the driver’s seat when it comes to their privacy,” said CFA Director of Consumer Protection Susan Grant in a press statement praising the bills. “They reflect a growing recognition that consumers want more say about the collection and use of their personal information and easier ways to assert their privacy preferences.”
A remarkable collection of consumer policymakers and commentators will present their thoughts on a wide range of consumer protection issues at CFA’s annual Consumer Assembly, which will be held March 17th and 18th at the Embassy Suites Convention Center Hotel in Washington, D.C. The conference covers a broad array of topics, with a special focus on consumer protection, financial services, and health and safety. This year, policymakers speaking at the conference will include Congressman and Ranking Member of the House Energy and Commerce Committee Henry Waxman, U.S. Product Safety Commissioner Robert Adler, and Federal Trade Commissioner Julie Brill. Additionally, keynote speeches will also be given by Scott Keeter, Director of Survey Research at the Pew Research Center; Dante Chinni, author of Our Patchwork Nation; and Michael Barr, Professor of Law at the University of Michigan Law School and former Assistant Secretary for Financial Institutions at the U.S. Department of Treasury. Conference panelists include Lee Rainie, Director of the Pew Internet and American Life Project, David Vladeck, Director of the Bureau of Consumer Protection at the Federal Trade Commission, Steve Streit, CEO of GreenDot Corporation, and Barrett Burns, President and CEO of VantageScore Solutions.