‘We Need a Regulator That Helps Remove the Gray’

June 7, 2018

ALTA President Steve Day NTP testified during a lively two-hour Congressional hearing that addressed ways to improve transparency and accountability at the Bureau of Consumer Financial Protection (bureau).

The House Financial Services Committee Subcommittee on Financial Institutions and Consumer Credit held the hearing to help develop specific recommendations and reforms to improve transparency and accountability at the Bureau. In the Bureau’s April 2018 Semi-Annual Report to the President and Congress, Acting Director Mick Mulvaney expressed concerns that “the Bureau’s lack of accountability to any representative branch of government should be a warning sign that a lapse in democratic structure and republican principles has occurred. This cycle will repeat ad infinitum unless Congress acts to make it accountable to the American people.”

Mulvaney outlined four areas Congress must act in an effort to establish meaningful accountability. First, he pointed to the need to fund the bureau through the Congressional appropriations process. Second, Mulvaney said the bureau director should be subject to the full power of the President’s executive authorities. Third, Congress should require legislative approval of major bureau rules. Finally, the acting director said Congress should establish an independent inspector general to oversee agency, its leadership and staff.

Chairman Blaine Luetkemeyer (R-Mo.) offered opening comments to start the hearing, saying that the bureau’s mission is to “regulate the offering and provision of consumer financial products or services under the Federal consumer protection laws, and to educate and empower consumers to make better informed financial decisions.”

“Unfortunately, the bureau has failed to carry out its mission,” he said. “The American people deserve a (bureau) that enforces law rather than creates it; and that gives power and choice back to the consumers.” 

Day kicked off the testimony by saying the best step Congress can take to improve the accountability and transparency at the bureau would be to require the agency to provide the businesses it regulates with written, reliable guidance on how to comply with the law and protect consumers in real-world scenarios.

Day urged support for H.R. 5534, the Give Useful Information to Define Effective Compliance Act, a bipartisan bill introduced by Reps. Sean Duffy (R-Wis.) and Ed Perlmutter (D-Colo.) that would standardize the Bureau’s process of providing rules and guidance to better protect consumers.

Having traveled the country talking with ALTA’s small business members, Day said he’s learned a simple truth: “more information is never a bad thing when it comes to decision making.” The GUIDE Compliance Act is narrowly tailored to do just that. It requires a process to provide more information and examples, so businesses can make better decisions and comply with the law.

“As an industry predominantly made up of small- and medium-sized businesses, we need a regulator that helps remove the gray,” Day said. “We need a regulator that matches simple and clear regulations with helpful and illustrative guidance and examples. The GUIDE Compliance Act makes this part of the Bureau’s DNA and we urge Congress to pass this legislation. This would help not only businesses like the ones ALTA represents, but also the consumers our members strive to protect every day.”

Several members of Congress asked Day to provide examples of how the lack of guidance has affected ALTA members. He said the industry acutely felt the need for clear direction when implementing the TILA-RESPA Integrated Disclosures (TRID) rule, “where both the quality and quantity of the Bureau’s guidance was lacking.”

At nearly 2,000 pages, the TRID rule includes plenty of detail and discrete instructions for completing the mortgage disclosures. Along with regulatory text, the bureau produced more than 100 official staff interpretations. However, hundreds of questions percolated after implementation. The bureau hosted five webinars to review and respond to frequently asked questions but told industry professionals that the presentations “did not represent legal interpretation, guidance or advice of the bureau.”

“This disclaimer made it impossible for industry to rely on the information provided in the webinars,” Day said. “They essentially said, ‘Trust us, but don’t rely on us.’”

Additionally, the bureau could have provided sample completed disclosure forms for different transactions. The bureau did produce 11 sample completed disclosures. These included samples of a Loan Estimate and Closing Disclosure for a simple fixed-rate purchase and refinance mortgage loan, along with samples showing closing costs increasing in excess of the good-faith requirement, the issuance of a simultaneous second mortgage loan and disclosure of funds paid outside of the closing.

Samples, however, were needed for more complex transactions such as those involving construction loans, loans with specific fee limits and requirements like Federal Housing Administration and Veterans Administration loans, and loans on properties that required unique fees (homeowners association transfer and flood zone determination fees).

“The Bureau declined to provide these mock-ups,” Day said. “The rationale conveyed to us was that the bureau wanted to be flexible and not limit the industry by suggesting there was only one way to complete the disclosures. The problem with this flexibility is that the lack of examples only made it harder to make decisions. This is why we support the GUIDE Act. We need guidance that our members can rely on. We are an industry very willing to take guidance. We just need that level of certainty that the GUIDE Act would provide.”

Another instance where additional guidance would have been helpful was when the bureau issued its bulletin on third-party service providers. The bulletin restated longstanding guidance and reminded supervised banks and nonbanks that they are expected to oversee their business relationships with service providers in a manner that ensures compliance with federal consumer financial law. Unlike similar guidance from regulators, the bureau’s bulletin provided little direction to banks and nonbanks.

“This lack of guidance provides businesses with many unanswered questions about how to demonstrate compliance,” Day said. “Because of the bulletin, some lenders require small title companies only doing a handful of closings with them a year to follow the same processes as a large company doing thousands of closings. This uncertainty pushed some small businesses to exit the market, reducing consumer choice.”

Ultimately, by not providing clear rules of the road, some lenders chose to severely limit consumers’ options when selecting settlement services providers in order to manage risk.

In addition to Day, other panelists offering testimony included:

  • Richard Hunt, president and CEO, Consumer Bankers Association
  • Kate (Larson) Prochaska, director, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce
  • Hilary O. Shelton, director, NAACP Washington Bureau, senior vice president, advocacy and policy, National Association for the Advancement of Colored People
  • Elmer K. Whitaker, CEO, Whitaker Bank Corporation of Kentucky

While everyone agreed there’s a need for the CFPB, the majority of the hearing debated the bureau’s structure. All of the panelists except for Shelton championed a five-person commission versus the current single director.

Rep. David Scott (D-Ga.) encouraged support for H.R. 5266, which would transition the governance structure of the bureau from a sole director to a five-person, bipartisan commission. He said the current debate was caused by a structure that shifts with administrations. Co-sponsors of the bill include Scott, Dennis Ross (R-Fla.), Kyrsten Sinema (D-Ariz.), Ann Wagner (R-Mo.), Luetkemeyer, Vincente Gonzalez (D-Texas) and Patrick McHenry (R-N.C.).

“If you want stability and accountability, that has to come from the entity that birthed it,” Scott said. “We did this in Congress. We must reclaim our position of responsibility and bring back accountability. We can come together with this legislation and do it the way it should have been in the first place.”

ALTA commissioned a poll last year with the Consumer Bankers Association and Independent Community Bankers of America that found 58 percent of registered voters in key battleground states believe the CFPB should be run by a bipartisan commission.

Hunt pointed out how dramatic political shifts caused by changes in presidential administrations make it difficult for the financial services industry to plan for the future, which ultimately stifles innovation, limits access to credit and hurts consumers.

“A bipartisan commission would bring more certainty and stability to the highly regulated financial services marketplace so that banks can properly plan for the future and better serve consumers,” he said. “A commission would also bring much-needed transparency to the (bureau) as it would provide an open forum for dissenting voices and viewpoints from multiple stakeholders. A sole director can unilaterally make decisions, oftentimes behind closed doors and without public debate. Alternatively, a commission structure would require open debate of opposing ideas, viewpoints, and solutions, encouraging both sides to work together to come to moderated rulemakings that can better stand the test of time.”

Contact ALTA at 202-296-3671 or communications@alta.org.