CFPB Final Rule Cements Important Consumer Mortgage Protections

After nearly two years of work and public comment, the Consumer Financial Protection Bureau (CFPB) issued a final rule earlier this month implementing the Dodd-Frank Act’s “ability to repay” and “Qualified Mortgage” (QM) provisions.  In a press statement, CFA Director of Housing Barry Zigas gave the rule mixed reviews, praising the Bureau for expanding the qualified mortgage test to include more mortgages but expressing disappointment that the rule fails to provide the highest level of consumer protection for prime QM loans.

“The ability to repay and qualified mortgage rules were mandated by Congress in response to rampant misbehavior and exploitation of consumers by mortgage lenders in the run up to the mortgage bust,” noted CFA’s Director of Housing Policy Barry Zigas. “The rule does cement in place critical protections that are overdue and will benefit consumers by establishing clear rules of the road, but falls short of the level of protection we had pushed for.”

The most critical point of disagreement during the comment period between industry and consumers was whether lenders who make so-called “Qualified Mortgages” should receive legal safe harbor protection from consumer charges of failing to adequately assess the consumer’s ability to repay the loan, or only a rebuttable presumption that they did. CFA and other consumer advocates strongly pushed for the latter in comment letters to the Bureau.  In the end, the Bureau adopted the rebuttable presumption standard for higher priced loans, but a safe harbor for “prime” loans.

Safe Low- and Moderate-Income Drivers Pay More for Auto Insurance

Large auto insurers frequently charge higher premiums to safe drivers than they charge to those who recently caused an accident, according to a CFA study released this week.  These higher prices for “good drivers” mainly reflect insurer use of rating factors, such as education and occupation, that disproportionately disadvantage low- and moderate-income drivers.

The study, which is CFA’s third evaluating premiums charged by the largest auto insurers, examined 60 different cases in 12 cities, using the websites of the five largest auto insurers.  In two-thirds of the cases studied, the insurer charged a higher premium to the moderate-income individual with a clean driving record than they charged to the higher-income individual with an at-fault accident on their record.  Moreover, in more than three-fifths of the cases in which the better driver was charged a higher premium, the difference in premium was at least 25 percent.  As detailed in the release, practices varied dramatically among the five large insurers.

“State insurance regulators should require auto insurers to explain why they believe factors such as education and income are better predictors of losses than are at-fault accidents,” said CFA Director of Insurance J. Robert Hunter. “Policymakers should ask why auto insurers are permitted to discriminate on the basis of non-driving-related factors such as occupation or education.”  “Unfortunately, the discriminatory practices of auto insurers mainly harm low- and moderate-income drivers,” added CFA Executive Director Stephen Brobeck. “This damage can be considerable since all states but one require drivers to carry auto insurance, and most Americans need a car to pursue work opportunities.”

Long-stalled Food Safety Rule Proposals Finally Released

Two important food safety rule proposals that have been under review by the Office of Management and Budget (OMB) for more than a year were finally released earlier this month.  Required as part of the Food Safety Modernization Act (FSMA), the rules propose new regulations for produce safety and preventive controls for food.  However, two other rules that were sent to OMB at the same time – a proposed rule addressing preventive controls for animal feed and one for imported food safety – still remain under review.  In a press statement, Chris Waldrop, Director of CFA’s Food Policy Institute, called release of these proposals “a good first step towards fulfilling the promise of the new law.”

In passing the food safety law, “Congress granted FDA essential new food safety authorities aimed at preventing foodborne illness and protecting consumers,” Waldrop said. “Preventive controls and produce safety are cornerstones of FDA’s new preventive system. We are eager to review the proposals and provide comments to the agency. We encourage the Administration to release the remaining rules soon so that stakeholders can understand how the rules work together.”

President Announces Key Financial Appointments

President Barack Obama announced two key appointments to his financial team last week. He nominated Richard Cordray to serve as Director of the Consumer Financial Protection Bureau (CFPB), a position he currently holds under a recess appointment, and he named former federal prosecutor Mary Jo White as Chairman of the Securities and Exchange Commission (SEC).

Under Cordray’s leadership, the CFPB has furthered the Bureau’s mission of protecting consumers in the financial marketplace and ensuring that industry oversight is fair, consistent and transparent, CFA stated in a press statement praising the Cordray nomination.  “The establishment of an independent agency to protect consumers in the financial marketplace was one of the most important results of the 2010 Dodd-Frank financial reform legislation,” said CFA Legislative Director and Senior Counsel Rachel Weintraub. “The public deserves a well-qualified confirmed director at the head of this important agency.”

White is more of an unknown, at least when it comes to her positions on the major policy questions currently before the SEC.  White was the first woman to serve as the U.S. Attorney for the Southern District of New York, where she developed a reputation as both a good administrator and a tough and aggressive prosecutor.  She now serves as a corporate defense attorney at the law firm of Debevoise & Plimpton.  “White has apparently been very good at every job she’s taken on,” said CFA Director of Investor Protection Barbara Roper.  “The hope is that she will bring those same qualities to the SEC chairmanship.  However, with two-thirds of the Dodd-Frank rules still not finalized and all of the JOBS Act rules still pending, the SEC needs a chairman who is committed to implementing these laws in a way that protects investors and the stability and integrity of our financial markets.  On those key issues, White is a blank slate to us.”

Mark Your Calendar for Consumer Assembly ‘13

Consumer Assembly ’13 will be held March 14-15 in Washington, D.C.  Information on the conference and an online registration form are available here on the CFA website.  The conference will include a special focus on consumer protection, financial services and health and safety, with two roundtable discussions and at least one general session on each of these topics.  The roundtables will feature comments from a broad array of experts drawn from the consumer movement, academia, government, and business.