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From Banking and Finance Law Daily, December 31, 2014

Report explores House bills to alter CFPB operations and regulations

By Andrew A. Turner, J.D.

A Congressional Research Service report focuses on selected legislation related to the Consumer Financial Protection Bureau that has seen committee or floor action during the 113th Congress. The proposals explained in the CRS report address one of two main policy topics, the structure of the CFPB and the substance of the CFPB’s rulemaking.

The first policy question generally involves debate over whether the CFPB is structured appropriately so as to achieve the correct balance between independence on the one hand and transparency and accountability on the other. On the second question, supporters and critics generally fall on opposite sides over whether the substance of CFPB rulemaking strikes an appropriate balance between protecting consumers from abuse and ensuring that consumers have access to financial products, while lenders are not unduly burdened by new regulations.

Balancing independence with transparency and accountability. Since the CFPB was established, some have argued that it has too much independence and not enough accountability. They point to structural issues, such as that the CFPB is headed by a single director rather than a board, and that it is funded outside the traditional congressional appropriations process. Supporters of the CFPB highlight other aspects that they argue provide transparency and accountability, including the CFPB director’s biannual testimony before Congress and the cap on the CFPB’s funding. The CRS report describes CFPB-related legislation that would alter the structure and design of the bureau to increase its transparency and accountability, such as:

  • H.R. 3183, to provide consumers with a free annual disclosure of information and H.R. 4604, the CFPB Data Collection Security Act—H.R. 3183 would allow individuals to request from the CFPB, at no cost to the individual, all information about the individual held by the CFPB, the source of the information, and any other person or federal department or agency to which the CFPB disclosed the individual’s information. Similarly, H.R. 4604 concerns information that the CFPB has collected about consumers and would allow individuals to opt out of allowing the CFPB to collect personally identifiable information about them.

  • H.R. 3193, the Consumer Financial Freedom and Washington Accountability Act is intended to increase the transparency and accountability of the CFPB. Supporters contend that because the CFPB’s funding is from the Federal Reserve System, “Congress’s traditional use of the ‘power of the purse’ to hold executive agencies accountable to the American people is of little to no use when it conducts oversight of the CFPB.” Subjecting the CFPB to the appropriations process would strengthen congressional oversight. Opponents of the measure argue that changes to the CFPB’s funding, leadership structure, and treatment by Financial Stability Oversight Council are part of an effort to “impede the CFPB in its mission of protecting American consumers.” The existing structure, they argue, is important to reinforce the CFPB’s independence from the political process, an attribute generally found in various forms in other financial regulators as well.

  • H.R. 3389, the Ensuring Harmed Consumers Receive Compensation Act would restrict payments from the CFPB’s Consumer Financial Civil Penalty Fund to the victims of activities for which civil penalties have been imposed.

  • H.R. 3770, the Bureau of Consumer Financial Protection-Inspector General Reform Act of 2013 would create a new, separate “federal establishment” inspector general to audit, investigate, and evaluate the CFPB.

Balancing consumer protection with credit availability and regulatory burden. Some Members of Congress believe that, in its rulemaking, the CFPB has struck the appropriate balance between protecting consumers and ensuring that credit availability is not restricted due to overly burdensome regulations on financial institutions, especially small banks. Others counter that some of the CFPB’s rules have imposed compliance costs on lenders of all sizes that will result in less credit available to consumers and restrict the types of products available to them. The CRS report also discusses CFPB-related legislation that would alter the contents of the CFPB’s rulemaking, including:

  • H.R. 1779, the Preserving Access to Manufactured Housing Act of 2013 would amend the definitions of mortgage originator and high-cost mortgage in the Truth-in-Lending Act. Supporters of the bill argue that the changes would expand credit in the manufactured-housing market. Opponents believe loosening the protections available to consumers could result in consumers receiving relatively high-interest loans without the counseling and disclosure typically associated with such loans.

  • H.R. 2673, the Portfolio Lending and Mortgage Access Act would create an additional category of qualified mortgage. A mortgage would receive QM status so long as it appears on the balance sheet of the creditor that originated it. The criteria that would otherwise need to be satisfied to receive QM status, such as limits on the fees associated with the mortgage or restrictions on certain product features, would not apply.

  • H.R. 3211, the Mortgage Choice Act of 2014 would modify the definition of points and fees for a QM to exclude from the definition insurance held in escrow and certain fees paid to affiliates of the lender.

  • H.R. 4521, the Community Institution Mortgage Relief Act of 2014 would modify CFPB mortgage rules to reduce the regulatory burden of small lenders.

MainStory: TopStory CFPB ConsumerCredit DoddFrankAct Mortgages Privacy TruthInLending

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