The latest report from ALTA concerning the ongoing efforts by Congress to improve transparency and accountability at the Consumer Financial Protection Bureau. The question remains, are we getting any closer to having the CFPB act as it was originally intended to be, that is, for the good and well-being of the American citizens?
ALTA President Rob Chapman testified May 21 before the Financial Institutions and Consumer Credit subcommittee of the House Committee on Financial Services and offered proposals to improve transparency and accountability at the Consumer Financial Protection Bureau.
During the hearing titled “Legislative Proposals to Improve Transparency and Accountability at the Consumer Financial Protection Bureau (CFPB)” Chapman presented several bipartisan ideas to improve how the CFPB regulates providers of financial services.
“When the Bureau operates in a transparent, open, and iterative manner, the results are generally positive,” Chapman said. “However, when the Bureau makes unilateral decisions, rolls out initiatives, rules or processes in a more closed deliberation, the results are far more likely to be problematic.”
The CFPB’s service provider memo it released in April 2012 is an example of how the lack of transparency can create negative consequences. Although the CFPB bulletin restated longstanding guidance from other federal regulators, the bulletin shook up the industry and as it reminded banks and nonbanks that the Bureau will hold them liable for the actions of their vendors. Some believed that this bulletin was issued in advance of potential supervisory and enforcement actions. In fact, later that year the bulletin was used to support enforcement action against credit card companies for actions of their third party vendors. Unlike similar longstanding guidance from regulators, including the Office of the Comptroller of the Currency (OCC) in 2001, the Federal Deposit Insurance Corporation (FDIC) in 2006, Mortgage Servicing Settlement and accompanying consent judgments in 2012 as well as subsequent guidance from the OCC and Federal Reserve Board in 2013, the Bureau’s bulletin provided little guidance to banks and nonbanks, according to Chapman.
“This lack of guidance provides businesses with many open, unanswered questions about how to demonstrate compliance,” he added. “This degree of uncertainty has driven disruptive, inconsistent, costly and inefficient changes in the business relationships and operations between mortgage lenders and ALTA members. We fear that this uncertainty will result in the unintended consequence of small businesses being pushed out of the market because they are not able to keep up with their larger competitors.”
To help ALTA member companies meet market demands and demonstrate that they have the appropriate skills and knowledge to manage the risk of a real estate transaction and protect consumers, ALTA created a Best Practices framework for title and settlement companies.
“These are reasonable, prudent business practices that consumers should expect from their settlement services provider,” Chapman said during the hearing. “We are pleased that they have been strongly supported in the market.”
In fact, Wells Fargo endorsed the Best Practices earlier this year.
“Wells Fargo supports ALTA’s Best Practices, and considers them to be guidelines for sound business practices that should ideally already be in place for businesses providing title and closing services for our customers,” the lender said in a newsletter to its settlement agent network.
Unfortunately, because the CFPB is unclear of what is expected, mortgage originators have varied practices, policies and procedures in their vendor risk management. Also, there is additional uncertainty about the application of the CFPB’s bulletin to the title and settlement industry because consumers primarily choose the provider of real estate settlement services, unlike a traditional bank vendor.
“The result is that businesses are shooting in the dark as they attempt to invest in systems and processes to protect consumers,” according to Chapman. “Many of our members see different requirements, vetting procedures and are concerned that they will no longer be allowed to compete for business when a mortgage is financed by certain lenders.”
In his written testimony, Chapman said that a better outcome for providers and for consumers could have been achieved if the CFPB consulted with the relevant parties to provide more guidance on the types of practices and procedures that the Bureau expects from real estate settlement providers. He added that ALTA is eager to work with the Bureau to make this policy work.
“Had the Bureau consulted with mortgage originators and the real estate settlement industry, we would all have a better understanding of what is expected from the person conducting the settlement of real estate transactions, and the response to the CFPB bulletin would be less disruptive, more consistent and efficient,” Chapman said.
To improve outcomes for consumers and industry, Chapman encourage Congress to pass a bill that would create a small business advisory panel at the CFPB. H.R. 4383, bipartisan legislation sponsored by Rep. Robert Pittenger (R-NC) and Rep. Denny Heck (D-WA), would establish a small business advisory board at the CFPB, similar to those already established for outreach to community banks and credit unions. Advisory boards provide clear, formal and open channels of communication between Bureau staff and industry.
The CFPB created an advisory board for community banks and credit unions because it does not have regular contact with these institutions since the Bureau only supervises depository institutions with more than $10 billion in assets. Creating a similar advisory organization for non-banks will allow these smaller institutions to report, advise or consult with the Bureau on a regular basis.
When asked by Pittenger if ALTA had a good relationship with the CFPB, Chapman said yes, but that it could be “better with the creation of a small business panel.” During one part of the hearing, Rep. Carolyn Maloney (D-NY) showed her support for the bill saying “everyone should have an advisory committee.”
Chapman also encouraged the subcommittee to direct the CFPB to issue advisory opinions.
“The Bureau takes its enforcement role seriously and should take its ability to promote good practices just as seriously,” he said. “An advisory opinion provides certainty to those of us who comply with federal consumer financial law in real-life situations. Consumers will see better outcomes if the Bureau spends more time advising people in the industry how to best follow the law.” Finally, Chapman suggested that the CFPB encourage public feedback on policy statements, bulletins and other guidance documents. He said public comments ensure documents are useful and understandable to industry and provide a safety valve to reduce unintended consequences.