CFPB to issue whitepaper on methodology for identifying auto finance discrimination and consider use of advisory opinions

by Ballard Spahr LLP

While Director Cordray’s appearance at the House Financial Services Committee’s hearing on the CFPB’s fifth Semi-Annual Report yesterday was accompanied by the usual dose of political theater, his testimony did yield the following items of noteworthy information:

  • The CFPB will be issuing a white paper later this summer regarding use of the proxy methodology for identifying discrimination in indirect auto financing. In March 2013, the CFPB issued its bulletin warning banks and finance companies that purchase motor vehicle installment sales contracts that, under existing law, any dealer finance charge participation may violate the Equal Credit Opportunity Act and Regulation B. Since that time, industry and numerous members of Congress have been pressing the CFPB for information as to how it determines that practices that are neutral on their face are nonetheless discriminatory.
  • The CFPB is considering the issuance of advisory opinions “in appropriate cases,” with Director Cordray acknowledging that the CFPB “can probably do more in this area” and stating that “you will see more from us in this area.” During the hearing, both Democratic and Republican committee members voiced support for the CFPB’s use of advisory opinions to provide guidance to industry. (Among the CFPB-related bills passed last week by the House Financial Services Committee was H.R. 4662, titled the “Bureau Advisory Opinion Act,” which would require the CFPB to establish a process for issuing advisory opinions.)
  • In the fall, the CFPB will begin the process of convening panels under the Small Business Regulatory Enforcement Act in connection with a proposed small dollar loan rule.
  • By the end of this summer, the CFPB plans to also issue a white paper on issues related to manufactured housing loans. Both Republican and Democratic committee members, as well as the manufactured housing industry, have charged that the CFPB’s new mortgage rules have severely restricted the ability of moderate and low income consumers to obtain financing to purchase manufactured homes. Director Cordray acknowledged at the hearing that the CFPB had received data from leading manufactured housing lenders.
  • The Department of Defense (DOD) will soon be sending a proposed rule to the Office of Management and Budget to implement amendments to the Military Loan Act (MLA) enacted in January 2013. The amendments directed the DOD to consult with the CFPB, FTC and federal banking regulators, in developing the proposal. The proposal is expected to include an expansion of MLA coverage. Current MLA regulations impose a 36% rate cap on, and prohibit the use of certain terms in connection with, extensions of “consumer credit,” which as currently defined, only includes tax refund loans and certain closed-end payday and auto title loans made to active duty armed forces members and their dependents.

During the hearing, Director Cordray defended the CFPB’s ability-to-repay/qualified mortgage rule against claims that it has reduced the availability of mortgage credit. He attributed the rule’s “success” in part to the CFPB’s creation of a temporary QM category for mortgage loans that are backed by the GSEs. (The temporary category covers mortgages that satisfy certain QM criteria and are eligible for purchase, insurance, or guarantee by, Fannie Mae or Freddie Mac while they operate under federal conservatorship or receivership (or a limited-life regulatory entity that is a successor to Fannie Mae or Freddie Mac), the Federal Housing Agency (FHA), the Department of Veterans Affairs, or the Rural Housing Service.)

Several Republican committee members focused their questions on the National Mortgage Database which the CFPB is developing jointly with the FHA. The database is being built using a nationwide sampling of credit bureau files on mortgage loans. As did members of the Senate Committee on Banking, Housing and Urban Affairs when Director Cordray appeared before that committee at its hearing last week on the CFPB’s fifth semi-annual report, several House Republicans expressed their concern to Director Cordray regarding the breadth of the information to be collected. They also expressed concern over the security of the data, a concern that was shared by a Democratic committee member. 

When asked whether the CFPB is working with the FDIC and Department of Justice in connection with Operation Choke Point, Director Cordray responded by saying that the CFPB works regularly with the other agencies on issues involving “know your customer.”  

Not surprisingly, Director Cordray was taken to task by Republican committee members, and defended by Democratic members, as to the amounts the CFPB is spending on its Washington, D.C. office renovations.


Written by:

Ballard Spahr LLP

Ballard Spahr LLP on:

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