Filed under: Consumer Financial Protection Bureau
Earlier this week the Consumer Financial Protection Bureau (CFPB) issued guidelines for how indirect auto lenders can avoid violating the Equal Credit Opportunity Act (ECOA). In recent months, the CFPB focused on auto lenders potential violations of the ECOA.
The ECOA prohibits lenders from discriminating against borrowers based on specific protected classes which include race, color, religion, national origin, sex, marital status or age. Allegations of violations of ECOA arise when similarly situated consumers are provided different credit opportunities, and an allegation is made that the different credit opportunity arose because of a consumer’s protected class status. While other factors may contribute to the difference in credit offered, the financial institution bears the burden of proof of establishing that the different credit was based on factors other than race, color, religion, national original, sex, marital status or age.
Indirect auto lending occurs when a consumer seeks financing directly at the car dealership. The car dealer uses information about the consumer and applies for financing with various financial institutions. The financial institution then evaluates the consumer and either agrees to provide financing or passes on offering financing. Some financial institutions give parameters to the car dealer, such as that they will buy the loan at a set interest rate, but the dealer may charge additional interest or a reserve, which they will keep as a profit.
The CFPB is primarily concerned with situations where the dealer charges additional interest or a reserve. The concern is that members of protected classes may be charged higher rates for their loans, which may violate ECOA.
While some indirect lenders may claim that they are not liable under the ECOA because they are not originating the credit or directly accepting the application, the CFPB indicated that they would still be liable if they make a credit decision (such as offering a rate or agreeing to buy a loan at a set rate) or if they know that the car dealer is violating the ECOA.
Although the CFPB has been focusing on indirect auto lenders for ECOA violations, they offered tips for indirect auto lenders which include:
- Imposing controls on dealer markup, or otherwise revising dealer markup policies;
- Monitoring and addressing the effects of markup policies as part of a robust fair lending compliance program; and
- Eliminating dealer discretion to markup buy rates, and fairly compensating dealers using a different mechanism that does not result in discrimination, such as flat fees per transaction. (See CFPB Bulletin March 21, 2013).
Indirect auto lenders are facing stricter scrutiny under the CFPB. They should develop or revise their programs to ensure that the dealers they work with are not engaging in discriminatory practices. Because an indirect auto lender may be using multiple lenders across the country, liability can be established based on discriminatory practices at one dealership or multiple dealerships.
Auto lenders will need to make sure they have a well-developed program and continued monitoring of its dealers. In this age of heightened scrutiny, the best defense may be a good offense.
Jennifer Monty Rieker is a partner of Litigation & Defense located in the Cleveland office of Weltman, Weinberg & Reis Co., LPA (WWR) who can be reached at 216.685.1136 and email@example.com. Amy Holbrook is a partner of Consumer Collections located in the Cleveland office of WWR who can be reached at 216.685.1141 and firstname.lastname@example.org.
By Timothy K. Spencer, Attorney
Recently, the Consumer Financial Protection Bureau (CFPB) indicated an interest to delve further into overseeing and making recommendations concerning the private student loan market. Chiefly, the Bureau may seek to regulate student loan servicers and mandate (or at least highly suggest) the implementation in the private student loan market many of the borrower options available in the federal student loan market.
Under the Consumer Financial Protection Act (Section 1035 of the Dodd-Frank Act) , the CFPB has supervisory authority over all nonbank covered persons offering or providing private education loans. The Dodd-Frank Act authorizes the CFPB to supervise nonbank covered persons for the purposes of: (1) assessing compliance with Federal consumer financial law; (2) obtaining information about such persons’ activities and compliance systems or procedures; and (3) detecting and assessing risks to consumers and consumer financial markets. Acting in this capacity, the CFPB may, amongst other things, conduct examinations on and request information from supervised entities; the CFPB is empowered to then use this information for the purpose of making policy recommendations to the Secretary of the Treasury, the Secretary of Education, and Congress.
The CFPB recently proposed a new rule that will permit the CFPB to supervise some nonbank student loan servicers and place new restrictions on the quickly expanding market. The new rule would give the CFPB access to servicers’ information relating to the whole process of student lending, from issuing loans to debt collection and credit reporting for both federal and private student loans. CFPB Director Richard Cordray stated that the purpose of the new rule “help[s] ensure that tens of millions of borrowers are not treated unfairly by their servicers” as “servicers are now facing the stress of an increasing number of delinquent borrowers” brought on by “[t]he student loan market…grow[ing] rapidly in the last decade… .” The CFPB currently oversees student loan servicing at larger banks; this rule would expand that oversight to nonbank servicers.
The CFPB has also issued an initiative to address the growing concern over defaults and delinquencies in the private student loan market. This initiative is in the form of a request for information to determine options that would increase the availability of affordable payment plans for borrowers with existing private student loans. The CFPB hopes to use this information in forming its “student loan affordability plan,” an effort aimed at easing the burden on private student loan borrowers and decreasing the amount of defaulted and delinquent private student loans. Options include imposing on the private student loan market various repayment features such as income-based repayment, long-term forbearance, rehabilitation options if a borrower defaults and refinance options. While these features are available with federal student loans, no requirement exists that private student loans have these features as well.
 12 U.S.C. 5301 et seq.
 12 U.S.C. 5514(a)(1)(D).
 12 U.S.C. 5514(b)(1).
The Northern Ohio Credit Association (NOCA) is hosting a luncheon on Tuesday, May 21, featuring presenter Sharon Asar, the Associate Ombudsman for the Consumer Financial Protection Bureau (CFPB). Sharon will present on “Alternatives for Resolving CFPB Issues”.
Sharon will speak about her role as an alternate, informal way to resolve issues. The CFPB Ombudsman’s Office was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Doff-Frank Act), which created the CFPB. The CFPB Ombudsman’s Office is an independent, impartial and confidential resource to help resolve process issues arising from CFPB activities.
DATE: Tuesday, May 21, 2013
TIME: 12:00 PM
PLACE: Crown Plaza, 5300 Rockside Rd, Independence, OH
COST: $20 for NOCA Members; $25 Non-Members/Guests
RSVP: Jennifer Dorton at email@example.com by Friday, May 17, 2013
NOCA is a non-profit organization in the State of Ohio, whose mission is to support, research and provide other services for those whose businesses or professional affiliation is to provide financial services or to extend credit for consumer, business or agricultural purposes, or to provide investigation, collection, computer or other ancillary services. For more information on NOCA, please visit www.NOCAonline.org.
By Amanda R. Yurechko, Attorney
The Consumer Financial Protection Bureau is set to have a major impact on the creditor’s rights arena. Colleges and universities, even private K-12 institutions, are not immune to the effects of the CFPB as it begins to look at student lending, financial aid offers and how credit cards and other financial products are marketed to students.
On January 31, 2013, the CFPB, led by its director Richard Cordray announced that it will begin examining the impact of the marketing of financial products to students through colleges and universities. Cordray stated, “We have seen many colleges establish relationships with financial institutions to offer banking services to their students. The Bureau wants to find out whether students using college-endorsed banking products are getting a good deal.” The CFPB is specifically looking beyond the requirements of the 2009 CARD Act to see to what extent colleges and universities are pairing with financial institutions, or allowing them access to their students, and if those relationships provide students with sound financial opportunities. One example that the CFBP may focus on is allowing a financial institution, or university affiliated bank to include credit card or checking account applications with other informational materials provided to incoming students by the school.
The CFPB has published a Notice and Request for Information, open through March 18, 2013, on the topic of campus financial products, including student identification cards that double as debit cards, cards used to access scholarships and student loans, and school-affiliated bank accounts. They are specifically seeking information on the following:
- What information schools share with financial institutions when they establish these relationships;
- How campus financial products are marketed to students;
- What fees students are being charged to use these products;
- How schools set up marketing agreements with financial institutions; and
- Student experiences using campus financial products in their day to day lives.
The CFPB has previously looked at student loans and financial aid offers, and has attempted to provide students with information and tools to evaluate the offers received. For example, the CFPB website has published information to help educate students on the difference between federal student loans and private loans , and a tool to help graduates decide how best to repay their loans or what to do if they miss a payment .
Last year the CFPB published a report on private student loans based on input from students, their families, and from colleges and universities touching on the marketing, origination, repayment and debt collection efforts with regard to private school loans. In this 131 page report, the CFPB compiled statistics on student and families that sought private school loans, and comments on their experiences with those loans. The Report concludes by making recommendations including requiring school certification of private loans, the review of treatment of private school loans in bankruptcy, modernizing and clarifying the definition of a “private school loan” under the Truth-in-Lending Act, a mechanism for the borrower to understand a complete picture of their student loans, and a recommendation to determine whether additional data was needed to enhance consumer decision-making and lender underwriting for private school loans. The CFPB assisted the Department of Education, which plans to publish a standardized form for schools to use when awarding financial aid, which it claims will allow students to compare “apples to apples” when evaluating offers from different schools. Until there is a standard form the CFPB provides a tool to compare offers.
Amanda Yurechko is a partner based in the Cleveland office who manages the Utility Damage Claims and Service Collection group for Weltman, Weinberg & Reis Co., LPA. She can be reached at 216.685.1060 and firstname.lastname@example.org.
Filed under: Consumer Financial Protection Bureau
By Matthew D. Urban, Attorney
As many politicians and pundits are fond of saying, elections have consequences, and in the case of the Consumer Financial Protection Bureau (CFPB), this old adage certainly holds true. Although much of the rhetoric of the campaign did not specifically touch on the current and future role and impact of the CFPB, an election night victory by President Obama ensured that it would continue to have the necessary support of the executive branch over the next four years to become an entrenched part of the federal government. When you take into account the Senate remaining in the hands of the democrats, it is abundantly clear that the CFPB is here to stay.
While the CFPB has only been in operation since July 21, 2011, a report just issued on December 14, 2012 by the House Oversight and Government Reform Committee reflects on the overall impact the CFPB has had on financial institutions, including credit unions along with the overall consumer credit market since its inception. Specifically, the report found that the CFPB has increased the cost of consumer credit by $17 billion and has depressed job creation by approximately 150,000 jobs. In addition to the impacts on the general economy, the regulations issued by the CFPB have created a trickle down effect by substantially increasing the regulatory burden on all financial institutions, including credit unions. Despite the CFPB only having supervisory authority over financial institutions with $10 billion or more in assets, all financial institutions are bound by the regulations it issues and as such, credit unions are left to navigate through complex regulations without having the benefit of an entire compliance department like many of the larger banks.
A specific area that the CFPB focused on in 2012 was the mortgage market. Specifically, the CFPB has spent substantial time and resources on proposed changes to the current requirements of the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) to the tune of 1,099 pages. In fact, the CFPB felt it necessary to post a blog on its website explaining why it took so many pages to create a three page disclosure form. Unfortunately, while the CFPB believes it is reasonable to take almost 1,110 pages to make these changes, the real world impact for credit unions is that they now must wade through all of the pages just so they can ensure they are in compliance with the new rules. Onerous requirements such as these may ultimately lead credit unions to re-examine whether or not they should even be in the mortgage business, which in turn will ultimately impact a consumer’s ability to secure a competitively priced mortgage from a wide variety of lenders.
Another example of CFPB interventionism surrounds its involvement in regulating and enforcing the Equal Credit Opportunity Act (ECOA). On April 18, 2012, the CFPB issued bulletin 2012-04, which in their own words stated that they were providing lenders with “fair notice on fair lending” and that they intended to vigorously enforce the fair lending principles outlined in Regulation B. Along similar lines, the CFPB has spent substantial time and resources in the past year exploring alleged lending abuses being perpetrated against the elderly. More recently, they have begun looking into student loan lending practices.
While it may seem that the CFPB is doing its best to create an unmanageable regulatory environment for financial institutions, particularly credit unions, it is actually attempting to comply with one of its mandates by streamlining the regulations it inherited from the Federal Reserve. Specially, the Senate recently approved a House bill (H.R. 4367) which amended the Electronic Fund Transfer Act to eliminate the requirement that a fee disclosure be placed in a prominent and conspicuous location on or at an ATM. Provided the bill is signed into law by the president, the fee disclosure will only need to be made on the ATM screen and not physically on the machine. While this represents more of an isolated example of eliminating a regulation as opposed to creating a new one, the fact of the matter is that the requirement likely would still be in effect but for the work of the CFPB, thus giving credit unions one less compliance concern regarding their ATM’s.
As we enter 2013 however, one thing is clear and that is that the CFPB is here to stay. If credit unions are still of the belief that the CFPB does not impact them, they will soon discover that not to be the case. Whether your credit union has been monitoring the actions of the CFPB or not, now is the time to begin to develop a comprehensive strategy for navigating the ever-changing regulatory environment that exists.
Matthew Urban is the managing attorney of the Credit Union Group of Weltman, Weinberg & Reis Co., LPA, in the Pittsburgh office. He can be reached at 412.338.7134 and email@example.com.
Filed under: Consumer Financial Protection Bureau | Tags: attorney-client privilege
By David S. Brown, Esq.
The ABA and the Banking Industry Respond by Supporting Legislation that Would Impose Consistency
The U.S. Consumer Financial Protection Bureau (CFPB) has issued a final rule stating that the submission of protected information to the CFPB during the course of an investigation shall not be construed as waiving the attorney-client privilege or the attorney work product doctrine. Specifically, 12 C.F.R. § 1070.48(a) reads:
In general. The submission by any person of any information to the CFPB for any purpose in the course of any supervisory or regulatory process of the CFPB shall not be construed as waiving, destroying, or otherwise affecting any privilege such person may claim with respect to such information under Federal or State law as to any person or entity other than the CFPB.
Moreover, the CFPB also pledged to honor the attorney-client privilege when it shares information from banks with other federal and state agencies. To this end, the CFPB amended 12 C.F.R. § 1070.47(c) to read, “The CFPB shall not be deemed to have waived any privilege applicable to any information by transferring that information to, or permitting that information to be used by, any Federal or State agency.” The new rules became effective on August 6, 2012.
Under Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), the CFPB was established as an independent agency within the Federal Reserve System responsible for regulating the offering and provision of consumer financial products and services under the Federal consumer financial laws. The Dodd-Frank Act also gave the CFPB the authority to “prescribe rules regarding the confidential treatment of information obtained from persons in connection with the exercise of its authorities under Federal consumer financial laws.” The CFPB claims that it has the authority to compel all “supervised entities” to submit privileged or work product protected information.
Although the new rules were created to govern the disclosure of information related to consumer transactions, it’s conceivable that the information disclosed could impact commercial accounts as well. After all, financial institutions and their servicers – law firms, collections agencies, etc. – often treat the numerous accounts in a debtor’s defaulted portfolio as one for collection purposes. For instance, consider a small business owner who personally guaranteed a business line of credit (a commercial account), and who also has a personal credit card and a home equity line of credit (both consumer accounts) all with the same bank. Once the bank obtains a judgment on any one of these accounts, it will likely want to conduct a debtor’s examination – or similar post judgment execution – to determine the debtor’s collectability. If all three accounts are being handled in house, or by the same law firm or collection firm, it’s probable that a single debtor’s examination will be conducted for all three accounts and that the information obtained will be shared for the collection of all three accounts. Thus, the commercial account, and the information obtained through it, may become part of a CFPB investigation if the CFPB determines that it was used as a vehicle to obtain information about the debtor’s collectability with respect to the consumer accounts.
Now, the CFPB has already made clear that it will be sharing privileged information about consumer accounts with other federal and state agencies. The concern, of course, is that third parties will attempt to obtain the disclosed information through document subpoenas, public records requests or depositions – resulting in the disclosure of information otherwise protected by the attorney-client privilege. Such information could be used to defend still pending matters, to prosecute FDCPA violations, to support a motion for relief from judgment and to otherwise interfere with the collections process. Moreover, the American Bar Association (ABA) has made clear that the CFPB’s new rule will undermine the attorney-client privilege and the work product doctrine by causing supervised entities to routinely waive these protections in an effort to avoid being labeled as “uncooperative” by the CFPB, and by chilling and seriously undermining the confidential lawyer-client relationship.
In an effort to avoid such situations, the ABA and the financial industry as a whole, are supporting legislation in Congress that would “preserve the privileged status of materials submitted to the CFPB”. Specifically, H.R. 4014 and S. 2099 are identical bills pending in Congress that would, “clarify that sharing privileged information with the Consumer Financial Protection Bureau (CFPB) does not waive certain legal privileges and would not open that information or a financial institution up to a third-party subpoena.” Under current law, sharing privileged information with a covered agency during the course of a supervisory or regulatory process does not waive attorney-client, work-product, or other privileges recognized under federal or state law. Covered agencies include, for example, any federal banking agency, the Farm Credit Administration, the Government Accountability Office, and the Federal Housing Finance Agency. H.R. 4014 and S. 2099 would add the CFPB to the list of covered agencies, thus protecting information shared with the bureau in a similar manner. Although the CFPB’s new rules require it to follow this practice in the absence of legislation, enacting this H.R. 4014 or S. 2099 would eliminate any uncertainty about whether the CFPB can protect such information.
This is a development that should be monitored closely over the coming weeks as Congress is expected to adjourn sometime in the middle of December. In order for either of these bills to become law, Congress will need to act on them before the adjournment. Additionally, financial institutions will need to work closely with their legal counsel to establish when it is proper to share information, both internally and with the CFPB, and when the attorney-client privilege or the work product doctrine should be raised.
12 C.F.R. § 1070.48.
Carter Dougherty, U.S. Consumer bureau Issues Rule on Attorney-Client Privilege, Bloomberg, June 28, 2012.
12 C.F.R. § 1070.47.
The Federal Register, The Daily Journal of the United States Government, Confidential Treatment of Privileged Information, https://www.federalregister.gov/articles/2012/07/05/2012-16247/confidential-treatment-of-privileged-information
Wm. T. Robinson, III, President, Comment Letter, American Bar Association, April 12, 2012, http://www.americanbar.org/content/dam/aba/uncategorized/GAO/2012apr13_attorneyclientprivileges_l.authcheckdam.pdf
Congressional Budget Office, Cost Estimate, March 19, 2012, http://www.cbo.gov/publication/43112
Filed under: Consumer Financial Protection Bureau, Dodd-Frank Act | Tags: politics
By Matthew D. Urban, Esq.
As the 2012 presidential campaign heats up, so does the partisan rhetoric between political parties. Beyond the rhetoric however, the fallout from the Dodd-Frank Act continues to ripple through the financial sector. The agency tasked with implementing Dodd-Frank is the Consumer Financial Protection Bureau (CFPB). Since the CFPB is tasked with overseeing financial institutions with assets over ten billion dollars in assets, almost all credit unions will not come under its enforcement jurisdiction. Despite not being directly regulated by the CFPB, credit unions are subject to the regulations it enacts and as a quick search of the CFPB’s website reflects they have been given broad authority to regulate the financial sector, as well as those directly and indirectly involved. Since many credit unions may not yet realize the impact that the actions of the CFPB will ultimately have over their day-to-day operations, they may also fail to realize that the growing political polarization in America, which ultimately led to its creation, is also allowing it to continue to grow in size and influence, much of which is unchecked by any branch of government.
Of course, an excellent example of where credit unions are losing out in today’s current environment is in the regulation of the mortgage loan market. One of the main focuses of the CFPB has been to establish and define what is or is not deemed to be a quality mortgage. While the final rules continue to be ironed out, the message has been sent that financial institutions must carefully establish, document and report the standards being used in their lending practices while continuing to ensure that those lending practices do not discriminate against any group. However, it appears that the ultimate goal is to regulate the risk out of risk based lending.
While this appears to be a laudable goal, attempting to eliminate the risk from lending is not based in economic reality. That aside, most credit unions simply do not have the resources to comply with the onerous regulation being enacted by the CFPB and enforced by their NCUA regulators. Instead of completing their mission of serving their membership, credit unions must devote untold time and resources towards complying with one-size-fit-all regulations that do not account for the unique place credit unions hold in the financial sector. A fitting example of the increased regulatory burden within the mortgage market being placed on credit unions can be seen in the NCUA’s reporting requirements of first and second mortgages.
Specifically, in the NCUA’s Second Quarter Call Report (Call Report), credit unions are being required to report loans, including home equity lines of credit that are secured by a first lien as first mortgages for interest rate risk purposes on form 5300. While the requirements on its face may not seem particularly onerous, credit unions are now being instructed by their examiners that in order to comply with the requirements of the current Call Report that they must also report loans initially having second lien position which subsequently assume first lien position as a first mortgage on form 5300. Setting aside the fact that a loan with second lien position subsequently assuming first lien position is one of the least risky types of loans a credit union can have in its loan portfolio, the position being taken by the NCUA and the examiners in enforcing this reporting requirement borders on the absurd. The practical application however, is that credit unions will have to endure additional and unnecessary costs in terms of both time and money to comply with this requirement.
Credit unions have always had to endure the results of political battles in Washington. Unfortunately, the political climate in America continues to become increasingly polarized which has led to rules and regulations not necessarily based in economic reality, but rather that are developed to score political points. As a result, credit unions are having to devote more time and resources to comply with an ever-growing regulatory burden in lieu of focusing on providing services to its members. Unfortunately, the current political polarization is likely to continue even after the election in November. As such, it is up to the credit unions, its members and the supporters of the movement to ensure that the politics of the day do not continue to further impact the ability of credit unions to serve their current members and to attract new ones.
By Cheryl D. Cook, Esq.
Student loan debt was recently identified as the “leading source of U.S. household debt outside of mortgages,” approximately $150 billion of which represents private loans. At $904 billion as of the end of March 2012, the total amount of student loan debt is more than the amount of credit card debt in the United States, according to the New York Fed Quarterly Report (May 2012). Of the total amount of student loan debt, more than $8.1 billion is in default.
Richard Cordray, Director of the Consumer Financial Protection Bureau (“CFPB”), and United States Secretary of Education, Arne Duncan, recently presented their findings to various Congressional committees, concluding that a significant number of student loan borrowers “simply did not understand what they signed up for.”
At a July 24, 2012, hearing before the U.S. Senate Banking subcommittee, Rohit Chopra, student loan ombudsman for the Consumer Financial Protection Bureau, testified that borrowers struggling with private student loan debt would benefit from refinancing options.
The CFPB’s “Know Before You Owe” program (discussed in the Winter 2012 Newsletter) includes a project to help consumers “Know Before You Owe” about private student loans. In connection with this project, they have developed a new online tool called the Student Loan Debt Collection Assistant, along with a Financial Aid Shopping Sheet, that can be accessed on the CFPB website. The goal is that colleges and universities will use the tools, especially the Financial Aid Shopping Sheet, to assist student loan borrowers in understanding and evaluating the types of loan products available, based on their own qualifications.
The CFPB has asked for feedback about the tools, asking responders to rank items in their order of usefulness. Both the CFPB and the Department of Education plan to use the feedback to improve the tools. In addition, the Department of Education plans to publish a model form that schools could use to provide clear student loan and financial aid information to prospective students. International credit rating agency, Fitch Ratings, also pointed out that analysis of post-graduation outcomes may prove useful in underwriting, as borrowing and earning potential tend to influence default and delinquency rates.
While declining to speculate about what the CFPB may do to regulate private loan terms, Cordray, Duncan and Chopra emphasized greater transparency in the lending process, greater coordination between schools and lenders to educate student loan borrowers, and mandatory school certification of private student loans.
 Report to the Senate Committee on Banking, Housing, and Urban Affairs, the Senate Committee on Health, Education, Labor, and Pensions, the House of Representatives Committee on Financial Services, and the House of Representatives Committee on Education and the Workforce., July 20, 2012, CFPB.
 Fitch Report, July 20, 2012.
Filed under: Consumer Financial Protection Bureau
By Douglas Hattaway, Attorney
Regulations scheduled to take effect next year may force some credit unions to stop offering its members an important service: the ability to send money electronically to foreign countries. Earlier this year the Consumer Financial Protection Bureau (CFPB) issued its final rule on electronic remittances. The final rule amends Regulation E, which implements the Electronic Funds Transfer Act.
Under the new rules, businesses will have to make certain disclosures—such as the exchange rate, fees, and the amount of money to be delivered—before the consumer pays for a remittance transfer. However, the ability to cheaply and accurately provide these disclosures can depend on the process a company uses to facilitate remittances. Many major providers of remittance transfers use “closed networks,” where the remittance transfer provider has a contractual relationship with every network and agent involved in the remittance process. Many credit unions, however, facilitate electronic remittances using “open networks,” such as international wire transfers and international automated clearing house systems (ACH), where the remittance transfer provider does not have a contractual relationship with, and thus does not have the same ability to monitor and control every institution involved in the transaction. For credit unions and other users of open networks, the regulatory burden imposed by these new rules could be enough to force them out of the electronic remittance market.
The new rules do provide a potential safe harbor: the rule only applies to a remittance provider that provides remittance transfers “in the normal course of its business.” But what constitutes the “normal course” of business? A business that makes no more than 25 remittance transactions in a calendar year is deemed not to provide remittance transfers in the normal course of its business, but beyond that the standard gets murky. The comment to the current version of the rule states that what constitutes the normal course of business “depends on the facts and circumstances, including the total number and frequency of remittance transfers sent by the provider.” Obviously, this fluid standard does little to ease compliance concerns and could potentially strip the safe harbor of much of its usefulness.
Fortunately, the CFPB has shown that it is willing to consider implementing a clearer (and possibly higher) threshold for the “normal course of business” standard, and has requested public comment on what this threshold should be. On April 6, 2012, the National Association of Federal Credit Unions (NAFCU) sent a letter to the CFPB arguing that the 25-transaction standard is useless because no business with such a low demand would expend the time and resources necessary to establish remittance transfer capability in the first place. Instead, NAFCU suggests that the threshold should be 600 transactions a year. Similarly, the Credit Union National Association (CUNA) sent a letter to the CFPB urging the Bureau to raise the safe harbor from 25 transactions to 1,000 transactions a year, or alternatively, having the safe harbor protect any institution that does not earn more than 30% of its total net income from remittances. Both letters suggest that credit unions may be forced to stop offering remittance transactions if the safe harbor provision is not expanded.
Hopefully the CFPB acts quickly to address these concerns. The final rule takes effect in February 2013.
DOUG HATTAWAY. Doug is an associate in Consumer Collections located in the Grove City, Ohio office. He can be reached at 614.801.2739 and firstname.lastname@example.org.
 See 77 Fed. Reg. 6194
 A copy of the NAFCU letter is available here: http://www.cuinsight.com/456/media/news/nafcus_comments_to_cfpb_on_remittance_transfers.html
 A copy of the CUNA letter is available here: www.cuna.org/download/cl_040912.pdf
Filed under: Consumer Financial Protection Bureau, Dodd-Frank Act, Regulation E
By David A. Wolfe, Attorney
In order to remain competitive in the marketplace, financial institutions compete to produce attractive financial products and increasingly with regard to their customer service. Maintaining a sound, clear and transparent legal framework for the administration of business activities in the financial market is important to maintain stability and promote competitiveness, and sets a major challenge for state and federal lawmakers.
Over the past few years, government supervision of the financial services industry has increased significantly. New regulatory measures attempt to reduce the risk of future financial crises and increase consumer protection, which sounds reasonable, but imposes a huge collective burden. Stronger regulation significantly changes financial institution management and procedures, leading to necessarily higher costs.
Most notable is the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and its establishment of the Consumer Financial Protection Bureau, (CFPB), which transferred rulemaking authority for several consumer financial protection laws from various federal agencies, including the National Credit Union Administration (NCUA), to the CFPB on July 21, 2011. At more than 2000 pages, the legislation requires almost 400 different rules from more than 20 different federal agencies. The Dodd-Frank Act requires the CFPB, when issuing a rule, to consider “the potential benefits and costs to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services resulting from such rule.”
Regulatory challenges are also reshaping financial business models. While new consumer protection laws may restrict banking fees and increase transparency, they will also reduce revenue and profit margins for many financial products and services.
For example, in 2010, the Federal Reserve Board amended the Electronic Fund Transfer Act (Regulation E), which prohibited banks from charging overdraft transaction fees for ATM withdrawals or one-time debit card transactions, unless the consumer has specifically opted in for this overdraft coverage. The Federal Reserve estimates this change will reduce industry gross revenues for banks and credit unions by more than $15 billion annually. Financial institutions have diverse products and customers, which allows cross-product and cross-customer subsidies, but efforts to recapture this lost revenue will cause financial institutions to eliminate free services and reallocate fees and charges across all products and customers.
While there appears to be increased recognition of the impact that rulemaking activity has on the financial sector as well as on the broader economy, attention to economic cost-benefit analysis in rule making activities should continue to be a priority for any regulatory agency.