Reading the CFPB’s Tea Leaves

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Written by Bernadette Clair, Regulatory Compliance Counsel, NAFCU

This year promises to be jam-packed with regulatory compliance issues. Credit unions are starting off the year with an anticipated spring 2013 deadline for compliance with the remittance transfer rule, as well as the arduous task of implementing mortgage-related CFPB final rules. But the CFPB will not be resting on its laurels once it has complied with the Dodd-Frank mandate to finalize certain mortgage rules by January 21.

At the same time that it has been working to finalize rules related to mortgage servicing, high-cost mortgages and appraisals, the CFPB has also been busy working on a proposal to combine Truth in Lending Act and Real Estate Settlement Procedures Act disclosures and making inquiries into a variety of consumer financial services products. The CFPB is not limiting itself to rulemakings required by Dodd-Frank nor is it wasting any time in its quest for opportunities to beef up consumer protections. Some of the areas likely to see further scrutiny and potential rulemaking activity include: prepaid cards, private student lending, overdraft protection programs and checking account disclosures. We'll take a look at each of these in turn.

Prepaid cards 

The CFPB has already begun taking steps towards extending Regulation E's consumer protections to certain prepaid card products. In May of last year, the CFPB issued an Advance Notice of Proposed Rulemaking seeking comment on how to best ensure that consumers' prepaid card funds are protected and that consumers receive transparent disclosures about prepaid card terms and fees. The CFPB intends to focus its rulemaking on "general purpose reloadable" (GPR) prepaid cards, which consumers are increasingly using as an alternative to checking accounts.

GPR prepaid cards allow consumers to add funds to the card after they have been issued and can be used anywhere that accepts payment from retail electronic payment networks such as Visa, Master- Card, American Express or Discover - making these cards a convenient alternative to checking account debit cards. The CFPB is evaluating the disclosure of card terms and fees, consumer liability protections for unauthorized transactions and other card features. The CFPB also notes that the GPR market is one of the fastest growing segments of the prepaid market, citing projections from the Mercator Advisory Group that total GPR card value is expected to reach $167 billion in 2014. Given the rapidly increasing popularity of these products and the relatively limited federal regulation addressing prepaid cards, they are ripe for increased consumer protection regulation.

Private student lending 

Dodd-Frank also established a student loan ombudsman within the CFPB to address private student lending concerns. To date, the CFPB has entered into a memorandum of understanding with the Department of Education to coordinate on student loan complaints, released consumer education tools to help borrowers and started accepting student loan complaints from consumers. Dodd-Frank also requires the ombudsman to submit an annual report and make recommendations to the director of the CFPB, the U.S. education secretary and Congress.

The first annual report, issued by the ombudsman in October 2012, noted that private student loans account for more than $150 billion in outstanding student loan debt and at least $8 billion of private student loans are in default.

On the heels of this report, the CFPB's Office of Servicemember Affairs also issued a report expanding on the student loan ombudsman's report by highlighting specific issues servicemembers face.

Complaints received by the CFPB to date predominantly center around loan servicing issues, including fees, billing, deferment, forbearance, fraud reporting, default and collections. This has been compared to some of the very same issues in the mortgage loan servicing market that prompted Dodd-Frank and many of the CFPB rulemakings that credit unions are now facing. Credit unions should not be surprised if new legislation and regulations target private student lending practices, particularly in the area of loan servicing.

Overdraft protection programs 

Despite consumer opt-in rules that amended Regulation E in 2010, overdraft and courtesy pay protection programs remain a target. Although Regulation E now prohibits institutions from assessing overdraft fees for ATM and one-time debit card transactions without first obtaining the consumer's opt-in, overdraft fees can still be charged for other transactions, such as checks, online bill payments and recurring debits, without an affirmative opt-in. Concerns also remain over the dollar amount of overdraft fees in relation to the transaction amount, manipulation of transaction order processing to increase overdraft fees and consumer confusion about overdraft programs in general.

In February 2012 the CFPB launched an inquiry into overdraft programs to collect data and input from interested parties and seek public feedback on a prototype checking account statement disclosure called the "penalty fee box." The inquiry focuses on several areas, including transaction order processing, disclosures provided to consumers, overdraft program marketing practices and the impact these programs have on low-income and young consumers.

The model "penalty fee box" disclosure form the CFPB has been testing in conjunction with its inquiry is designed to highlight the amount a consumer has overdrawn, total overdraft fees charged during a statement cycle and tips on lowering overdraft fees. If the CFPB adopts such disclosure requirements, extensive formatting changes would likely be necessary. Still in the early stages, the information collected during this inquiry will greatly influence the CFPB's next steps - including future rule changes.

Checking account disclosures 

The CFPB has also publicly expressed support for transparent checking account disclosures, taking note of recent studies that examine checking and savings accounts available to consumers. Studies by the Public Interest Research Group and the Pew Charitable Trust have reported on checking and savings account terms and fees, as well as bank and credit union compliance with Truth in Savings disclosure requirements. Based on these studies, some have called on the CFPB to exercise its rulemaking authority to require that checking and savings account key terms and conditions be provided in a tabular format, similar to the "Schumer Box" disclosure required for credit card disclosures.

The CFPB released a press release in October 2011 pointing out that problems with checking accounts include unexpected costs and the variety of names used by different institutions for the same type of fee. The CFPB also reiterated its ability to regulate checking account disclosures under Truth in Savings, perhaps a not-so-subtle hint that credit unions should expect regulatory action on this issue sometime in the near future.

Conclusion 

These are just several of the consumer financial products currently under scrutiny by the CFPB. While credit unions are busy implementing the current round of CFPB final rules, they should also keep an eye out for new consumer protection requirements that impact the products they offer. Whether credit unions will see regulatory action in these areas this year or the next remains to be seen, but the CFPB's unwavering focus on its consumer protection mission likely means increased regulation of these products in the not too distant future.

Article originally appeared in Jan/Feb 2013 The Federal Credit Union magazine.