Volume II of the Consumer Financial Protection Bureau's (CFPB or Bureau) Taskforce on Federal Consumer Financial Law Report contains 102 of the Taskforce's recommendations, arranged alphabetically into 19 areas. At 100 pages, it's a brisker read than Volume I, which clocked in at 600 pages. We'll look at each topic and cover the highlights.
A reminder: this is a report of recommendations to the CFPB, not mandates or recommendations from, (although they may become mandates at some point in the future if acted on by the Bureau's director).
The Taskforce is interested but worried.
Alternative Data are pieces of consumer information not traditionally incorporated into a consumer's credit report: rent payments, for example, or utility bill payments. Deepening the pool of information available to creditors can help both the creditor and the consumer. So, as far as that goes, the Taskforce is for it.
The concern is the Fair Credit Reporting Act (FCRA). Alternative data providers typically have not had to worry about the FCRA, because they have not been seen as a furnisher by credit reporting agencies. But the Taskforce believes someone needs to double-check that, because they might be, and that is significant.
- Eliminate undue/unnecessary restrictions on who can report.
- Because the data is useful.
- Make the whole thing easier, and especially 18 U.S. Code § 2702 - Voluntary disclosure of customer communications or records. That's in the section on Crimes & Criminal Procedures. Specifically, though, in this case, it's just changing it to allow providers of electronic communications services to the public to furnish account information to CRAs.
The report is a little introspective here. At first, the organizing principle for the Bureau's structure was its tools: regulation, enforcement, supervision, research, and consumer education.
The concern, though, was that when you're a hammer, every problem looks like a nail.
So, the Taskforce is recommending that the Bureau organize itself around markets instead. For example, "credit cards, mortgages, small-dollar loans, FinTech, and third-party service providers (such as debt collectors and mortgage servicers)." In this way, the Bureau can allocate its resources better.
- Coordinate operations across the Bureau, and add a "competition and consumer protection advocacy" function.
The Taskforce looked at competition in several different ways:
- The Bureau's effects on competition
- Cost of credit
- Facilitating competition in bank accounts
- State licensure
- RESPA settlement service packaging
In addition to protecting consumers, the Bureau should make sure it is also protecting competitive markets.
- More money to researching competition.
- Look at "threshold effects" when establishing those thresholds on larger market participants.
- Establish regular studies of the cost of lending.
- Better understand cost structures across markets.
- Make it easier for people to change banking institutions, which will promote competition.
- Are creditor licensure laws necessary?
- "States should consider eliminating or streamlining licensing requirements for providers of financial services to avoid anticompetitive barriers to entry."
- Remove regulatory barriers to allow guaranteed prices on settlement services and mortgages.
Consumer Credit Reporting
This, the Taskforce also broke down into sections:
- Rulemaking and interpretative issues (they spend awhile on this)
- Research issues
- Security freezes
- Clarify obligations of consumer reporting agencies (CRA) and furnishers w/r/t disputes.
- The Bureau should look at the FCRA, specifically the Federal Trade Commission's (FTC) interpretations, and adopt those.
- And while they're at it, update and revise the FCRA's summary of consumer rights, notice to furnishers, and notice to users.
- The Bureau should assess credit reports for accuracy and completeness. (This ties into Alternative Data above.)
- Look into consumer reporting issues specifically that arise from bankruptcy.
- Cap class action damages for FCRA suits.
This really focuses on the CFPB's mandate to assist consumers with financial education.
- Understand how to intervene with consumer education better.
- "The Bureau should continue to experiment and conduct research on how to operationalize the normative goals of its 2015 Report on financial well-being."
- Establish a method of continually testing the consumer education products they produce.
- "The Bureau should create a new program analogous to its Tech Sprint program around financial education at financial institutions and in the private sector generally."
- Look into the effects of student loan debt.
- Reward, in some way, young consumers for their financial literacy.
Cost-benefit and Bureau Activities Analysis
The report splits this up into several sections:
- Regulatory cost-benefit analysis
- Evaluation of Bureau activities
- Retrospective examination of the Bureau's impact
- Work on accountability and transparency.
- Regularly review its cost-benefit analyses.
- Conduct or sponsor work to monetize reductions in risk that better protect consumers.
- "The Bureau should involve staff responsible for conducting regulatory CBA in the development of the regulation at the earliest possible point in the process."
- Include inclusion and credit availability as part of any cost-benefit analyes as appropriate.
- "The Bureau should supplement the performance metrics its developed for the GPRA with additional metrics that track the general health of the markets they regulate."
- Research and evaluate the benefits and costs of supervision and enforcement activities.
- Case retrospectives to examine costs.
- And retrospective research on the effects of Bureau regs on consolidation of financial institutions.
Focuses on the un- and underbanked. This section is also critical of payday loans.
- Expand access to the payment system by unbanked and underbanked consumers.
- Speed up payments clearance system.
- Continue following an amended Reg D.
The Taskforce splits this up into several sections:
- Regulatory principles for disclosures
- Credit advertising rules
- Equal Credit Opportunity Act (ECOA) adverse action notices
- Disclosures in electronic transactions
- Marketing to consumers with limited English proficiency
- Research needed
- Focus shopping disclosures on reducing the cost to consumers of locating the product or service they want.
- Disclosures mandated by Congress and the Bureau should consist of only the minimum information consumers need to make an informed decision and to verify they received the product terms promised.
- The Bureau should only issue disclosure-related rules guided by research into what information is important to consumers.
- Revise credit advertising disclosure requirements in Regulation Z.
- Amend Reg B: adverse actions
- Amend Reg B: notification of adverse action
- Develop a foreign language disclosure scheme.
- Look into the availability of information.
Electronic Signature and Document Requirements
Required disclosures in the E-Sign Act can be more than 1,000 words long, and take two to eight minutes to read. Or several irritating seconds of scrolling if you're just trying to get to the end and say yes. So, the Taskforce thinks Congress needs to replace or revise E-Sign.
- Eliminate E-Sign's antiquated requirements.
- Define what a "reasonable demonstration" is to show that a consumer can access info in electronic records.
- Consider what the phrase "in writing" means, and maybe update that.
A lot of this document was written in 2020, when the pandemic started. The Taskforce realized it had no way to make things easier for consumers to access financial services.
- The Bureau should be able to suspend or modify specific provisions during a declared emergency.
- Explore the preemptive powers the Bureau has over states.
- Implement automatic policy responses.
The Taskforce separates Enforcement into several sections:
- Enforcement guidance
- Civil penalty assessment standards
- Issue a policy statement on the concept of consumer harm.
- Adopt a public statement on how it will determine appropriate consumer restitution and civil penalties in matters.
- Reconcile the civil penalty and consumer redress authorities of the prudential regulators, the Bureau, and the FTC.
- Issue "Enforcement Highlights" (similar to their "Supervisory Highlights")
- "The Bureau should not set new standards for industry practices in settlements of enforcement actions, especially regarding practices deemed unfair or abusive. Instead, it should use its rulemaking authority to ensure that all affected parties have an opportunity to express views through notice-and-comment rulemaking and provide relevant data."
- Adopt the 1998 FFIEC Interagency Policy Regarding Assessment of Civil Money Penalties
- Adopt and publish a civil penalty matrix.
Equal Access to Credit
This section is broken out into several points:
- Discrimination based on disability
- Modernization of Regulation B
- Disparate impact
- Enhanced antidiscrimination protections in auto finance
- Think about amending ECOA to include disability as a prohibited basis group.
- Modernize Regulation B.
- Issue a rule that sets forth the standard it will apply to disparate impact (including whether it is the same as the Inclusive Communities standard) and how it will apply that standard.
- Address future concerns about credit discrimination in pricing by auto dealers.
- Evaluate auto dealers' compliance with ECOA, keeping in mind legitimate reasons a dealer may vary the APR.
- Amend the Commentary to Regulation B to provide that good-faith implementation of the Fair Credit Compliance Program or comparable program constitutes one method of preventing discrimination in pricing credit offered by retail sellers.
In this section, the report explains the necessity — and complexity — of making sure financial products are offered to more consumers, while at the same time managing the risk some financial products have for lower-income people, as well as the un-/underbanked.
The Taskforce broke Financial Inclusion down into several points:
Expanding credit unions' ability to seve under-served areas
- Card Act Reform
- Costs to provide financial services
- Competition to promote access
- Areas for further research
- Allow all credit union charter types to serve underserved areas given the potential to increase inclusion.
- Consider Dodd-Frank effects on inclusion, access, and choice.
- Facilitate creditor access to credit report information about recent immigrants and to translate that information so that credit information from their financial lives prior to arrival in the United States can be used in credit decisions.
- Analyze all costs related to the CARD Act
- Consider the repeal of the restrictions on marketing credit cards to consumers age 21 and under.
- Repeal the CARD Act’s restrictions on fees for unsecured subprime credit cards.
- Research Anti-Money-Laundering (AML) laws and Bank Secrecy Act effects on inclusion and access to credit.
- Repeal the provision in Section 1075 of the Dodd-Frank Act that imposes price controls on debit card interchange fees.
- Explore mechanisms, identify barriers, and make appropriate recommendations to Congress and other regulators for expanding access to the payments system by non-bank providers.
- Conduct research and develop policies tailored to the unique challenges of formerly incarcerated people.
- Conduct further research and develop policies designed to address the growing problems of financial inclusion in rural communities.
Here, the Taskforce recognizes that regulatory uncertainty and unnecessary regulatory costs prohibit FinTech innovation.
- Authorize the Bureau to issue licenses to nondepository institutions that provide lending, money transmission, payments services.
- Consider the benefits and costs of preempting state law in some specific cases in which the potential for conflict can impeded provisions of valuable products and services.
While the Traskforce seems focused on expanding the accessibility of financial products to more consumers, it is also deeply aware of privacy issues inherent in all financial products.
- Seek regulatory solutions that control the possibility of harm to consumers rather than relying on disclosure.
- Enact a law authorizing national preemptive standard for data breach notifications adopted by a relevant regulatory agency.
- Study the effectiveness of GLBA privacy notices to ensure that information is relayed in a manner that is useful to consumers
Financial institutions with CFPB oversight are also subject to regulation by other federal and state regulators. The Traskforce sees value in coordinating the regulation efforts among these entities, if for no other reason than to clean up confusion and bring clarity.
- Continue to identify and focus on opportunities to coordinate regulatory efforts.
- Increase dialogue with state regulators to bridge knowledge gaps and streamline regulation.
- Work with other agencies to create a unified regulatory regime for new and innovative technologies providing services similar to banks.
- Work with the FTC to explore opportunities to streamline jurisdiction and enforcement of consumer financial protection regulation of third-party financing offered at automobile dealerships and other retail sellers.
The Taskforce here considers the pros and cons of highly specific regulations versus flexible principle-based standards. The section almost, but doesn't quite, suggest that the Bureau needed to start out strong and intractable when it was first enacted, but that there is space, and necessity, for a reexamination of those principles.
- Apply a principles-based regulation wherever possible, with sufficient flexibility for crises and change.
- Use plain language and be easy to understand.
- Clarify regulations with appropriate guidance.
- Build upon its process of ongoing review of existing rules to identify regulations that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned.
- Evaluate and streamline, as appropriate, the process by which questions that come throughthe Office of Supervision Examinations, the Office of Regulations, the Office of Innovation, and other policy-interpretation areas of the Bureau are shared with other parts of the Bureau so that guidance can be consistent and shared publicly.
- Continue to support and encourage the development of its No-Action Letter, Compliance Assistance Sandbox, and Trial Disclosure Sandbox programs.
Small Dollar Credit
Small dollar credit isn't going away. As the Traskforce writes, "Many of the reasons cited by customers for using small-dollar loan products are intractable or will not change based on anything the Taskforce can recommend here." Since small dollar credit is here to stay, primarily because of its effectiveness in meeting the needs of consumers with poor credit, low income, and other hurdles, it's an area the Taskforce feels should be top of mind when looking at ways to bolster consumer protections in these affected communities.
- Research how much small dollar credit use and potential associated consumer harms are caused by delays in payment processing and to support regulatory efforts to adopt a faster payments system.
- Exercise caution when setting interest rate caps when implementing regulations on small dollar credit loans.
- Reconsider, update, or eliminate usury laws as appropriate, recognizing the high costs they impose by denying valuable services to consumers who need them.
- Conduct recently announced research on payday loan disclosures with an eye toward making sure consumers understand what they are signing up for, rather than prescribing normative disclosuresdesigned to influence consumer behavior.
This is divided into several smaller sections:
- Defining a "larger participant"
- Leveraging technology in examinations
- The role of Compliance Management System Review
- Appeals of exam findings and ratings
- Examining for Military Lending Act (MLA) compliance
- Consider conducting automated or data-based examinations.
- Focus its supervision activity on financial institution compliance with the consumer protection laws.
- Maximize supervisory impact by redirecting resources from grading a CMS to expanding the scope, depth, and frequency of examinations, especially for covered institutions that may not currently be on an examination schedule.
- Change its current supervision appeal process to increase fairness and consistency.
- Revisit its larger participant rules to assess the cost and benefits of the rules in conducting effective supervision and promoting consumer protection.
- Grant the Bureau explicit authority to conduct examinations specifically intended to review compliance with the MLA.