Congress Rolls Back Post-Crisis Bank Regulations

Last week, Congress passed and President Trump signed into law the “Economic Growth, Regulatory Relief, and Consumer Protection Act,” a bill that repeals or weakens a number of provisions in the Dodd-Frank Act and other critical laws designed to ensure consumers, investors, and honest market participants are appropriately protected from abuses in the marketplace.

“This bill makes a future banking crisis more likely,” explained CFA Financial Services Director Christopher Peterson. “At the same time, Congress is turning its back on millions of Americans struggling to make ends meet.”

Among other problematic features, the bill:

• Eliminates monitoring, standards, and oversight designed to prevent giant banks from collapsing. The bill undermines the ability of the Federal Reserve to ensure adequate oversight of large banks by raising the asset threshold for enhanced regulatory controls from $50 billion to $250 billion, eliminating enhanced oversight of 25 of the largest 38 banks in the country.
• Creates a blindfold for the government on data and patterns in the home mortgage markets. The bill exempts 85 percent of banks from the Home Mortgage Disclosure Act’s data reporting requirements, making it more difficult to spot discrimination and reckless lending patterns.
• Opens the door to abuse of millions of vulnerable families by eliminating key protections from manufactured-home loans. The bill exempts manufactured-home retailers from the mortgage originator compensation rule that prevents borrowers from being steered toward loans that are more expensive than those for which they qualify. This will increase the cost of a home by thousands of dollars over the life of the loan and poses a particular threat to low-income Americans living in rural communities.
• Weakens crucial consumer protections, including the Consumer Financial Protection Bureau’s Qualified Mortgage (QM) rule and Ability-to-Repay standards for home mortgage loans. The bill expands an exemption to the QM rule for financial institutions that have less than $10 billion in assets and hold their loans in portfolio. This means that many banks will be free to avoid the common sense rules requiring that borrowers have the ability to repay their home mortgage loans.

Earlier this month, CFA released an analysis of a similar bill introduced in the House of Representatives, H.R. 3072, The Bureau of Consumer Financial Protection Examination and Reporting Threshold Act of 2017. This bill would cut the number of banks subject to CFPB supervision and enforcement from 124 to just 43 by changing the asset threshold from $10 billion to $50 billion. According to the analysis, changing this asset threshold – a seemingly technical adjustment – would have momentous ramifications for American consumers.

Among other findings in the report, H.R. 3072 would:

• Cut the number of banks subject to CFPB supervision and enforcement by 65%.
• Eliminate CFPB oversight of nearly 50 of the largest banks bailed out during the financial crisis.
• Eliminate critical CFPB law enforcement cases against large banks that have violated federal law in the past.

“After bailing out these banks with taxpayer money, Congress is now considering excluding them from the law enforcement jurisdiction of the agency designed to prevent some of the same behavior that caused the crisis in the first place,” concluded Peterson.  “American families deserve a financial regulator that will stand up to banks that use tricks or traps to pad their bottom line.”

Senate Confirms CFA’s Rohit Chopra to Serve as Federal Trade Commissioner

After being confirmed unanimously by the U.S. Senate, former CFA Senior Fellow Rohit Chopra was sworn in as a Federal Trade Commissioner on May 2nd. “The Federal Trade Commission (FTC) is at the forefront of key issues facing consumers, and Chopra is well-equipped to guide the Commission as it faces these challenges,” said CFA Executive Director Stephen Brobeck

Chopra’s work at CFA focused on consumer protection issues facing young people and military families. He previously served as Assistant Director of the Consumer Financial Protection Bureau (CFPB), where he oversaw the agency’s work on behalf of students and young consumers. He was also named by the Secretary of the Treasury to serve as the CFPB’s Student Loan Ombudsman. Chopra later served as Special Adviser to the Secretary of Education to seek enhancements to student loan servicing and to develop stronger consumer protection standards.

“Clearly the Senate recognizes Rohit for being fair-minded and independent, as well as committed to a marketplace that works for consumers and honest businesses,” said Brobeck. “He is well-respected by those with all points of view, and his experience and character will be valuable assets in this critical role.”

Groups Urge SEC to Extend Reg BI Comment Period As Effort to Save DOL Rule Fails

A broad coalition of public interest groups, financial planning organizations, and state securities regulators wrote to the SEC last week urging the agency to extend the comment period on its sweeping “Regulation Best Interest” regulatory package until the proposed disclosures can be tested for effectiveness and the results of that testing are made public.

The regulatory package maintains different standards for broker-dealers and investment advisers and relies on up-front disclosures to help investors understand key differences in the two business models and the standard of conduct that applies. Although the Commission has indicated it plans to test the disclosures for effectiveness, the deadline for comments on the proposal is August 7, long before effectiveness testing is likely to be completed and made public.

“Getting the results of the disclosure testing before the end of the comment deadline is particularly important given that past testing has shown how difficult it is to convey even the most basic concepts in a way that investors understand,” said CFA Director of Investor Protection Barbara Roper.

“A fundamental premise of the Commission’s proposed regulatory approach is that a summary disclosure document can be developed that will enable investors to better understand the differences between brokerage accounts and advisory accounts, including the standards of conduct that apply, and make an informed choice among the available accounts and services,” the groups wrote. “Until testing verifies that this is a reasonable assumption – including with regard to the least financially sophisticated investors most in need of enhanced protections – we cannot fairly evaluate the Commission’s proposal to maintain separate and unequal standards for securities professionals that the Commission has deemed to be providing essentially the same service, investment advice, through different business models.”

The ability of the SEC to develop a strong rule took on added importance, as the Fifth Circuit Court of Appeals denied efforts by AARP and state attorneys general to intervene to save the Department of Labor’s conflict of interest rule.

After the DOL finalized its conflict of interest rule in April 2016, the major industry opponents sued the agency, claiming the DOL exceeded its authority in promulgating the rule and that the rule was unlawful in other ways. Although the DOL won this case in the district court, the industry opponents were successful on appeal. In March, the Fifth Circuit vacated the DOL rule, effectively killing it.

Following the court’s decision, it became clear that the Trump Administration would not appeal or seek rehearing of the Fifth Circuit panel’s decision. State attorneys general from California, New York, and Oregon as well as AARP tried to intervene, effectively trying to step into the DOL’s shoes in order to continue to defend the rule. However, the same panel that vacated the rule denied motions from both the state attorneys general and AARP. The states then sought a reconsideration of this ruling, but that too was denied.

Meanwhile, the Fifth Circuit has still not issued the mandate to make its ruling effective. There is speculation that one or several judges on the circuit is “holding the mandate,” stopping the court from making the ruling effective. If indeed this is happening, it is still possible for the entire circuit to vote to rehear the case on its own. Recognizing that the odds of rehearing are slim, however, CFA is seeking to ensure that the SEC proposal is the strongest it can be.

CFPB Shutters Student Protection Unit That Returned $750 Million to Consumers

Earlier this month, Acting Director Mick Mulvaney announced plans to shut down the Consumer Financial Protection Bureau’s (CFPB) Office for Students and Young Consumers, according to sources familiar with the decision and documents obtained by CFA.

The Office for Students is the only unit in the federal government solely focused on protecting student loan borrowers and young adults from predatory actors in the financial sector. Since the CFPB opened its doors, the work of the Office for Students and Young Consumers has helped to return more than $750 million to student loan borrowers and halted predatory practices that harmed millions in pursuit of the American Dream.

“Shuttering the CFPB’s student lending office is an appalling step in a longer march toward the elimination of meaningful American consumer protection law,” said CFA Financial Services Director Christopher Peterson in a press statement. “This action actively promotes greater profits for a handful of debt collection businesses at the expense of mistakes, neglect, and confusion for millions of student loan borrowers.”

For seven years, the Bureau’s Office for Students and Young Consumers, led by an independent Student Loan Ombudsman, accomplished the following:

• Returned more than $750 million to student loan borrowers and halting predatory practices that harmed millions in pursuit of the American Dream.
• Helped more than 60,000 borrowers demand answers from student loan companies.
• Held predatory companies like Navient and ITT Tech accountable for their predatory practices.
• Exposed the effects of student debt on the economy and society.
• Called out widespread abuses by student loan debt collectors.

“The Trump Administration’s decision to close the one office in the federal government exclusively dedicated to protecting student loan borrowers is an about-face on the President’s student lending campaign promises,” said Peterson. “The Trump Administration is turning its back on a generation of student loan borrowers.”

Advocates Gather in D.C. for Lobby Day, Consumer Assembly

More than 140 consumer advocates from 35 states gathered in Washington, D.C. earlier this month for the second annual Consumer Lobby Day. Advocates had over 200 meetings with members of Congress about the need for stronger consumer financial protections for families living in their towns and cities, highlighting efforts to weaken the effectiveness of the Consumer Financial Protection Bureau (CFPB) and threats to protections against high-cost predatory payday loans that put families in a debt trap.

The effort was coordinated by the CFA and co-sponsored by Americans for Financial Reform, Consumer Action, Consumers Union, The Institute for College Access & Success, National Association of Consumer Advocates, National Consumer Law Center, National Consumers League, Public Citizen, and U.S. PIRG. “The second annual Consumer Lobby Day provided an opportunity for consumer advocates from across the country to speak in a united voice to their elected officials about the importance of strong consumer financial protections for working families,” said CFA Legislative Director and General Counsel Rachel Weintraub.

The lobby day was held in conjunction with CFA’s 52^nd annual Consumer Assembly. The conference featured keynote speeches from: Congressman Jamie Raskin (D-MD); Scott Keeter, Senior Survey Advisor at Pew Research Center; Illinois Attorney General Lisa Madigan; Norm Ornstein, Resident Scholar at the American Enterprise Institute; and U.S. Consumer Product Safety Commission Acting Chairman Ann Marie Buerkle.

In addition, conference sessions addressed a wide array of topics, including: Consumer Protections for Servicemembers & Military Families; Combating Auto Sales Abuses; The Future of Net Neutrality and Universal Service; Fintech: Implications for Consumers and Advocates; and Effective Strategies for Convincing Agencies to Put Consumers First.