Director Cordray testifies on CFPB’s impact on credit access

by Ballard Spahr LLP

[author: Barbara S. Mishkin]

On July 24, after reading his prepared testimony, CFPB Director Richard Cordray responded to questions at a hearing held by the House Committee on Oversight & Government Reform. The hearing’s title was “Credit Crunch: Is the CFPB Restricting Consumer Access to Credit?” 

Although Director Cordray acknowledged the possibility that overregulation by the CFPB could compound the difficulties faced by consumers and small businesses in obtaining credit, he insisted that the CFPB’s rulemaking process was mindful of that concern. One newsworthy item that emerged from Director Cordray’s testimony was that “within the next month or so,” despite no statutory requirement to do so, the CFPB plans to establish special advisory panels for community banks and credit unions.

In response to questions about the CFPB’s bulletin announcing its plans to use the “disparate impact” test to prove lending discrimination and the uncertainty that test creates for lenders, Director Cordray observed only that the CFPB’s position was consistent with the position of other federal agencies. A committee member noted that the committee is investigating whether the Department of Justice had pressured the City of St. Paul  into making the City’s last minute decision to dismiss its appeal before the U.S. Supreme Court in Magner v. Gallagher, a case that would have decided whether disparate impact claims are available under the Fair Housing Act. (The issue may soon come before the U.S. Supreme Court again because a petition for certiorari filed in June by the Township of Mount Holly, New Jersey raises issues that are virtually a carbon-copy of those in Magner.)

With regard to the CFPB’s ongoing rulemaking to implement the Dodd-Frank ability to repay provisions and provide special status under the rule for qualified mortgages, Director Cordray stated that “it has been conveyed to [the CFPB]” and “[the CFPB] is pretty much convinced” that most residential mortgage lending will be limited to qualified mortgages for at least the first three years after the rule is adopted. He then acknowledged that it is therefore important for the CFPB to be “more inclusive” when defining a qualified mortgage, noting that it would be “an example of a [regulation] restricting access [to credit]” if the definition were to be drawn too narrowly.

The need for a broad qualified mortgage definition to avoid unduly restricting access to credit is something on which industry and consumer groups generally agree. This was among the points included in comments the Mortgage Bankers Association submitted to the CFPB in response to the reopening of the comment period on the ability to repay rule. Ballard lawyers assisted in the preparation of the MBA’s comments. 

A video of Director Cordray’s full testimony can be viewed on the Committee’s website.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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