When Rich Riese, a federal regulator prior to joining ABA, looks at the Consumer Financial Protection Bureau, he sees a young federal agency with a broad and deep agenda that has been finding its way, and finding its way to finding its way, on an everyday basis.
“We’ve emerged out of the ‘terrible twos,’” says Riese during a roundtable discussion with fellow regulatory analysts at the association. “Everything about what comes next isn’t clear, but we all have a better sense of who does what at the bureau. Relationships that were brand new have evolved. From the standpoint of government relations professionals, we now have more mature connections there that we’ve been able to establish over time.”
A notable shift is a willingness to hear the industry’s views, and actually consider them in formulating rules and revisions to rules, according to Riese, who is senior vice-president in charge of ABA’s Center for Regulatory Compliance.
“We’ve seen the advent of a bureau that has given every indication of willingness to change its positions, sometimes stepping back and refashioning things,” says Riese.
One example is the remittance rule, where eventual willingness to rethink things helped produce a more workable rule, to the benefit of the consumer-user, whom CFPB sees as its client in all matters, but also for industry providers. Another is in the mortgage area, where the decision to provide a temporary exception for government-sponsored enterprise mortgages signaled some willingness to work with the markets as they had long functioned, even as the major shifts of the Qualified Mortgage and Ability to Repay rolled on.
That’s a necessarily truncated summary of both issues. But the point is that ABA has found ways to work with CFPB.
“There’s no doubt that the consumer comes first,” says Riese. “That will always be CFPB’s approach. The best way for us to go forward is to seek a market of responsible consumers served by responsible providers. CFPB is all about making responsible providers. They do speak of the need for consumers to also be responsible, and it’s for us to work to strengthen that side of policy.”
None of this is to say that bankers will, or should be, totally happy with what the bureau issues or how it handles examinations, publicized research, or the spin put on issues in its dealings with the media and directly with the public through its website (www.consumerfinance.gov). But it illustrates that common ground can be found.
“It’s not just been a matter of us getting to know the new regulator,” says Rod Alba, vice-president and senior regulatory counsel, ABA Mortgage Finance. “It’s also been everybody getting to know this monster called Dodd-Frank. As this thing keeps unfolding, we see and raise new elements, and CFPB staff may do the same.” He says that the regulators there have often had to sort out how the law’s requirements with how the mortgage industry does business.
Because of this, plus the bureau’s urgency to get the rules in place, Alba, who specializes in originations issues, and associate Krista Shonk, vice-president and senior regulatory counsel specializing in mortgage servicing, see the mortgage rules as being subject to a degree of future evolution that bankers have rarely seen before. As development of rules progressed, says Alba, all involved saw how “the different tentacles of Dodd-Frank impact each other and how lenders provide their services.”
On the servicing side, Shonk points out, every loan already in the servicing book is affected by new rules, not just new production as on the origination side. “Servicing is different,” she explains, “because you can’t stop servicing unless you decide to sell your servicing rights.” Thus the quest for clarifications to CFPB’s actions had an additional urgency.
“We’ve all found it very refreshing that we’ve been able to work closely with many on CFPB’s staff,” says Alba. “Whether they take our advice or not, they’ll get on the phone with us, they’ll get the experts on the line, and provide us a response.” The iterative nature of this process has meant a continuing series of clarifications right into December, with implementation only weeks in the future, Shonk and Alba point out. Both note that bankers appreciate the clarifications, but the drip, drip, drip of changes is frustrating for people striving to comply.
Alba warns bankers that this process will continue past the effective dates. “CFPB has said this is not where we are going to stop the rulemaking,” he says. “They will continue to monitor the markets. They have said that they will be willing to dive back in and readjust, retighten, and tweak the rules over the coming year or two.”
Such a process can be nerve-wracking, to say the least, to an industry that likes solid, bright lines to comply by. Steve Kenneally, vice-president in the Compliance Center, worked intimately on the remittance rule. He notes that the industry would have preferred to see the right rule from the get-go, even as the bureau makes changes when issues are raised. “We’ve tried telling them on a variety of issues that getting the right rules late is just as big a problem as having the wrong rules out there,” says Kenneally.
Will urge for speed slow?
As a focal point for Dodd-Frank implementation, and a new agency aiming to make its presence felt in a very public way, CFPB has often worked at breakneck speed while courting media attention and striving to change the way consumer financial services are handled at the federal level. As any compliance officer who religiously watches the CFPB website knows, the bureau cranks out documents, viewpoints, consumer outreach, and a massive consumer complaint system at a speed often equated with Google and Amazon. It is fair to say that CFPB has never let an opportunity to get the word out go by.
Sometimes, this results in shifts in direction as the bureau gets feedback. “At CFPB, there has been a willingness to engage in an iterative process,” says Nessa Feddis, vice-president and deputy chief counsel in the Center. “But bankers don’t want to be part of that process. They want to know, ‘What do I have to do?’ and ‘When do I have to do it by?’” In short, a good learning experience for the bureau can be an exercise in wheel-spinning for compliance officers trying to get a big job done.
On the other hand, in some areas CFPB has been far more deliberate. Virginia O’Neill, senior counsel II at the center, points to the bureau’s long-running investigation and work on the overdraft issue as an indication that CFPB doesn’t always plunge ahead. In that and some other areas, there seems to be a conscious effort to slow down a bit. Overdraft research conducted by ABA may have helped (for details, visit http://tinyurl.com/abaoverdraftresearch).
Looking to the future
One thing CFPB can’t be faulted on is solicitation of viewpoints in numerous forums. Rich Riese says a positive sign that CFPB wants industry input—not only from professional association analysts, but also bankers themselves—is the bureau’s advisory groups. The Consumer Advisory Board includes a wide range of players, including representatives of some larger financial companies. There also is the CFPB’s Community Bank Advisory Council, which includes several bankers who serve, or have served, on ABA banker councils.
“Have they learned about us?” asks Riese. “Yes, and it’s still a work in progress. They are on a learning curve—somewhat north of where they were, but somewhat south of where they need to be.”
As the bureau moves forward, more involvement in leading edge financial services should be expected, in ways that are still forming.
Feddis points at mobile banking as an example. CFPB has indicated concerns about mobile disclosure. “On a little screen, a multi-page disclosure isn’t going to work,” she says.
Kenneally, who specializes in technology issues, points out that such disclosures are still in early days. Even when presented with massive printed disclosures, he says, consumers often don’t read what’s provided. When people get any company’s disclosures online, they may click to indicate they’ve read the information, but they likely haven’t done so.
A good watchword, going forward, suggests Riese, is to continue to approach the consumer market honestly. “I think that as long as we can be forthcoming about what the value proposition is, we can meet the expectations of all of our regulators in the UDAAP area,” he says, referring to the guidance on unfair, deceptive, and abusive acts and practices. “They want to be sure customers are getting information at the front end that allows them to be clear about downside consequences.”
And, as Riese concludes: “If we’re pretty clear up front, I think we are in a good starting place. As an industry that wants to be the trusted provider, that shouldn’t be too much of a reach.”