Delay in U.S. consumer bureau authority spares non-bank lenders
By Ted Knutson
WASHINGTON, July 21 (Thomson Reuters Accelus) – A political stalemate over the consumer protection bureau created under the Dodd-Frank financial regulation overhaul is allowing payday loan firms and other non-bank lenders to escape the agency’s authority for now, but industry participants say they have nonetheless boosted lending and disclosure standards.
Institutions including non-bank mortgage companies, student loan providers and payday lenders, and their trade organizations discussed their views with Thomson Reuters before Thursday’s official launch of the Consumer Financial Protection Bureau.
If the Senate had confirmed a director nominated by President Barack Obama, Thursday would have been the first time the bureau, or CFPB, had the authority to oversee non-bank lenders. But with Senate Republicans saying they will refuse to vote for any nominee unless the Dodd-Frank Act is amended, and without talks to resolve the months-long impasse, the non-bank lenders will be without CFPB compliance obligations for the foreseeable future.
But non-bank lenders have had to live up to plenty of tightened federal, market and self-imposed compliance benchmarks in the year since Dodd Frank was passed, said John Johnson, chairman and chief executive of one of the biggest firms, Mortgage America, headquartered in Birmingham, Alabama.
Johnson said his company has had to comply with the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act, and was complying with the Dodd Frank ability-to-repay mandate because secondary mortgage investors are demanding more proof they will be repaid.
Mortgage America has strengthened a number of lending criteria, not just because of Dodd-Frank but to limit its risk exposure, Johnson said, adding, “If there are any imperfections in the ways loans are documented and originated, we, the originating lender, are at risk.”
Hank Cunningham, president of Cunningham & Company, a Greensboro, North Carolina-based non-bank mortgage lender that did $400 million in residential loans in 2010, said as a result of Dodd Frank, he has hired his first compliance officer.
Cunningham has assigned his operations manager to review policies and procedures with the new hire to make sure they are compliant with existing rules, such as recently-imposed Federal Reserve guidelines on loan officer compensation and a Department of Labor ruling that loan officers are eligible for overtime pay.
Even without the CFPB, the nation’s largest payday lender, Advance America Cash Advance Centers Inc, said it has plenty of compliance obligations with the Truth in Lending Act, “strict regulatory regimes” in the 30 states it operates in, legal restrictions on loans to military personnel, and the Securities and Exchange Commission.
“We have a robust compliance focus,” said Advance America vice president of public affairs Jamie Fulmer.
Fulmer said the business wants to help the CFPB shape a regulatory structure to help consumers avoid abusive practices, while preserving payday lenders’ ability to offer commercially viable short-term credit products. But he said it would be premature to change compliance operations yet because the consumer agency has not issued rules.
Looking at the payday lending industry as a whole, Jean Fox, Consumer Federation of America director of financial services, said she has not found any modification of the products in anticipation of potential CFPB measures.
The industry has made changes based on stiffer state regulations, Fox said. But she noted that while an Ohio law in 2008 put a cap on payday loan interest rates, the lenders made up for the lost revenues and profits with fees.
“The net effect has been zero,” Fox said.
Banks are getting into the payday business and taking advantage of state and federal loopholes as well, the Center for Responsible Lending reported. It called recent Office of the Comptroller of the Currency guidance on bank payday loans weak in part because it still allows short-term balloon repayments.
One of the largest for-profit educators in the country that offers loans to its students, DeVry Inc., has increased counseling and financial literacy efforts to ensure that students better understand how much they are borrowing and the implications of taking on that debt, said Ernie Gibble, senior director of corporate communications.
Deanne Loonin, National Consumer Law Center student loan borrower assistance project director, said she hasn’t heard of any changes in for-profit college loan operations, which she said are known as “the Wild West of consumer lending for a reason.”
Loonin said two of the largest bank-based student lenders, Sallie Mae and Wells Fargo, are tightening credit requirements but aren’t offering borrowers much more relief such as flexible payments, forbearances and loan modifications.
Dodd-Frank’s proponents said from the beginning that banks would be among the biggest beneficiaries of subjecting their non-bank competitors to regulation for the first time.
But bank lobbyists would not say whether the law is creating a level playing field. Independent Community Bankers of America spokesperson Aleis Stokes said her group does not talk to the press about the CFPB and American Bankers Association spokesperson John Hall said there was no one there who would be able to comment.
(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete (http://accelus.thomsonreuters.com/solut ions/regulatory-intelligence/compliance- complete/) provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges.)