Monday, June 22, 2015

CFPB center stage at ABA annual regulatory show

By Katalina M. Bianco, J.D.

The American Bankers Association held its annual regulatory compliance conference in Washington, D.C. this week, and the banking trade association put on quite a show. As in the last few years, the Consumer Financial Protection Bureau was the main attraction at the conference, but there were plenty of non-bureau performances, providing something for everyone.

Last year’s conference emphasized building compliance programs in areas that are new to the banking and financial services industries since the advent of the CFPB, such as consumer complaints and everyone’s favorite—UDAAP. This year, the ABA followed up with effective management of the newly-created programs. In light of the ever-growing threats to data security, courses on strong IT protection tactics were bulked up this year, and the conference “marketplace” was heavy on data security vendors.

CFPB Town Hall. Each year, the ABA presents town hall sessions broken down by regulator. Given the overwhelming attendance at the CFPB sessions in the past, conference-goers were happy to find that this year’s bureau town hall was held in the largest conference meeting room available. Generally, the CFPB staff members that have appeared on panels at these sessions were representatives from each division of the bureau, and the discussions were quite broad rather than specific. This year, the panel was made up of Deputy Assistant Directors in Supervision. Each panel member is responsible for an area of supervision: credit/debit/gift cards, servicing in mortgages, student loans, and the indirect auto lending industry, for example. The most popular guest at this party was Calvin R. Hagins, responsible for the 2013 mortgage rules, referred to as the Title XIV rules, and the current Truth in Lending/Real Estate Settlement Procedures integrated disclosure rule, widely known as TRID.

TRID. The day after the conference, CFPB Director Richard Cordray announced that the implementation date of the rule was extended from August 1 to October 1 to rectify an “administrative error.” The implementation date being a hot topic in the industry, Hagins had addressed it at the town hall, stating unequivocally that in his letter to Sens. Joe Donnelly (D-Ind) and Tim Scott (R-SC), Cordray did not say there would be an extension or a grace period. However, Hagins said that there will be no immediate enforcement of the rule. He pointed out that the CFPB held off taking enforcement action for violations of the 2013 mortgage rules after the effective date to allow for “fixes.” The same will hold true for TRID, according to Hagins. What the CFPB expects is that the products will be tested, problems identified, and appropriate corrections made during the period of time following the implementation date.

Hagins concluded his presentation with an offer to speak with anyone interested in discussing TRID. He had on hand a stack of business cards, all of which disappeared into the crowd surrounding the Deputy Assistant Director at the end of the town hall.

Payday lending. A CFPB staff member working in the payday and other “high-cost” lending areas told attendees that a proposed rule on such loans would be issued “in the coming months.” According to her statements, the proposal will target the “debt trap” aspect of such loans and collection of debt stemming from the loans. Payday loan “debt trap” refers to the common problem of consumers borrowing, then failing to repay the loans, leading to rollover of the loans along with more fees. The borrowers end up owing far more than the original loan amount. Under the proposal, lenders would have two options when making a loan. The first option would be to apply the Ability-to-Repay standards to verify that the borrower is able to repay the loan by checking income, other outstanding debt, and other factors before making the loan. This is the “prevention” aspect of the proposal. Should the lender decline to use ATR standards, the lender would be required to apply the CFPB’s terms as outlined in the proposal. The lender also would be prohibited from rolling over the loan beyond a certain number of times so as to prevent the consumer from taking on more debt.

The second aspect of the proposal would address debt collection of the loans. In many cases, lenders have access to consumers’ bank accounts and are able to automatically tap those accounts to collect on the loans. The proposal would prevent lenders from accessing the accounts more than twice before having to get another authorization from the consumer. Should the consumer deny access to the account, the lender would have to move into more standard debt collection practices without use of the account.

UDAAP. No CFPB panel discussion would be complete without a talk about UDAAP. Attendees did not get a definitive answer to the question of the day: Just what is “deceptive” and “abusive” anyway? But they did get some advice. ABA speakers have long advocated following CFPB enforcement actions to get clues as to what the bureau finds UDAAP-adverse. The panel at this year’s conference confirmed that advice. According to staff members, the CFPB deliberately words its consent orders to be used as learning tools. Each one is intended to be another piece in the UDAAP puzzle. The “I’ll know it when I see it” nature of UDAAP makes it difficult to get a handle on. Studying bureau enforcement activity can help prevent UDAAP from being “I’ll know it when the CFPB comes calling, civil investigative demand in hand.”

The conference sessions were quite UDAAP-heavy. There were some dedicated UDAAP sessions, but in many sessions on other regulations, UDAAP was present. There was a good amount of fair lending coverage that was interwoven with UDAAP concerns, and UDAAP showed up in discussions on the Home Mortgage Disclosure Act proposed rule, mortgage servicing, and most other consumer compliance topics. An informative UDAAP sample risk assessment checklist was on offer to attendees of one session.

BSA/AML. The Bank Secrecy Act and anti-money laundering practices were prominent this year, in the sessions and in the vendor marketplace. One of the reasons is a case that has caused concern in the industry. The Treasury Department, specifically the Financial Crimes Enforcement Network, filed suit against a company called MoneyGram for allegedly assisting fraudsters in wire fraud scams from 2004 through 2008. FinCEN also held an individual MoneyGram employee, Thomas E. Haider, personally liable to the tune of $1 million dollars for AML program violations and failing to report suspicious activity. The case, U.S. Department of Treasury v. Haider now is on appeal.

In a second case, an employee was held personally liable for failing to put the company on notice of suspicious activity and following up on that notice. The point of the session was that giving notice in the proper channels no longer is enough to protect an employee. If the proper person to whom the employee reports does nothing to address the problem, the employee should keep going up the company hierarchy. If nothing is done, drastic action is called for: in other words, resign and then inform the proper authorities. Also, check to see if the company has an insurance policy that covers employees and what activities specifically are covered.

Wrapping up. The conference offered a variety of sessions addressing current issues: protection of servicemembers and financial exploitation of elders, notably. The discussion on elder abuse was centered on the Oklahoma Bankers Association model and led by a former police officer now with the association and passionate in her goal to stamp out elder abuse. Rounding out the conference were discussions on building a relationship with regulators (Are you going steady or just friends?) and how to identify the compliance expectations of today’s regulators. The ABA celebrated its 140th anniversary with yet another fine show.
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