Consumer Finance Law Blog : Consumer Finance Lawyer & Attorney : Kelley Drye & Warren Law Firm : Financial Privacy & Security

In a March 8 speech to the National Association of Attorneys General (NAAG), Richard Cordray, the top enforcement official for the new Consumer Financial Protection Bureau (CFPB), outlined his agenda for enforcement once the CFPB’s powers become effective on July 21, 2011. Prior to being appointed to his current position, Mr. Cordray served as attorney general of Ohio. In that capacity he brought lawsuits against many types of financial companies, including global banks, mortgage servicers, credit rating agencies, and subprime lenders.

The plan laid out in Cordray’s speech is consistent with his priorities as attorney general, and Cordray’s remarks signal an intent to work closely with state enforcers. He emphasized the need to police “unfair, deceptive or abusive” lending tactics by both banks and the “tens of thousands” of non-depository institutions not previously subject to federal agency supervision. While payday lenders are the only type of non-depository institution specifically mentioned in the speech, the CFPB will also have supervisory authority over several other types of non-depository entities who have never been supervised by federal agencies, including money transmitters, private educational lenders, and debt collectors.

Cordray also emphasized the “sloppy” underwriting practices once prevalent in the mortgage origination market, and stated that the CFPB will endeavor to learn from the experience of state attorneys general in policing such practices. His remarks suggest that before getting significantly involved with this issue, the CFPB may let state enforcers continue to resolve problems in their own backyards.

He also noted that in response to the CARD Act, which became effective in February 2010, credit card issuers have abandoned certain business practices which surprised consumers with fees they had no reasonable basis to expect. This sentiment echoed recent remarks by Elizabeth Warren, Assistant to the President and Special Advisor to the Secretary of the Treasury on the CFPB.

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Earlier this week, the Federal Trade Commission (“FTC”) and the Federal Reserve Board issued proposed amendments to the Risk-Based Pricing Rule (“Rule”) that would require creditors to disclose credit score information when a credit score is used to set or adjust credit terms. The proposed changes would implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and become effective July 21, 2011.

The Rule, promulgated under the Fair Credit Reporting Act, currently requires creditors to send a risk-based pricing notice if, based on the consumer’s credit report, the creditor provides materially less favorable credit terms than the most favorable terms it provides to a substantial portion of other consumers. A recipient of the notice can obtain a free credit report to check its accuracy.

The proposed amendments would require credit score disclosure if a credit score is used to make the determination, add content to the notices, and provide new model notices. There will be a 60-day comment period once the proposal is published in the Federal register.

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In anticipation of hearings on how the Dodd-Frank Act will impact small businesses, the a U.S. Chamber of Commerce-led coalition of business groups provided Treasury Secretary Timothy Geithner with recommendations regarding the formation of the Consumer Financial Protection Bureau (“CFPB”). The group is urging the creation of a CFPB that is “nimble, effective, transparent, and fair” while ensuring adequate access to affordable credit by consumers and small businesses alike. The group’s recommendations, as listed below, seek to empower consumers through the use of clear disclosures and to reduce regulatory duplicity by increasing coordination among federal and state agencies.

1. Develop an Effective and Efficient Structure to Facilitate Protection of Consumers and Promotion of Economic Growth. Avoid the mistakes of the past and promote effective and efficient oversight and enforcement without impacting competition.

2. Empower Consumers by Rationalizing Disclosure Requirements. Work with businesses to improve disclosure requirements.

3. Prevent Duplicative and Inconsistent Regulation of Main Street Businesses. Ensure strong coordination with the FTC and other federal agencies; exempt financial products service providers and limit further expansion of CFPB jurisdiction; provide guidance to state Attorneys General; and limit data collection requirements.

4. Preserve Small Business Access to Credit. Ensure that regulations do not impeded access to credit.

5. Ensure Coordination with Federal and State Prudential Regulators. Involve prudential regulators early and often.

6. Defer Rulemaking Until After Confirmation of a Director. Appointment of a CFPB director ensures proper congressional oversight.

In a speech yesterday before the Credit Union National Association, Elizabeth Warren touched on a number of the issues raised by the coalition. With regard to disclosures, Ms. Warren noted that additional clarity will serve both consumers and small businesses alike. She stated that the CFPB plans on “making … clarity up front … the norm for all financial service providers. When that’s the case, the effort you invest in creating a valued partnership with your members becomes a real competitive advantage.” On the importance of protecting small businesses, she went on to state that "I look forward to testifying about … how the consumer bureau's focus on transparency can make the markets work better for consumers and small providers alike. And I look forward to discussing how we have worked hard to make outreach to small institutions – credit unions and community banks – part of the new consumer bureau's DNA."

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