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CFPB CU Advisory Council meeting set for Oct. 1 in D.C.

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WASHINGTON (9/23/14)--A meeting of the Consumer Financial Protection Bureau's (CFPB) Credit Union Advisory Council will be held Oct. 1 in Washington, D.C.

The agenda features a discussion on overdrafts with Gary Stein, program manager of deposits markets, and Jesse Leary, section chief of consumer and household research and policy. Assistant Director for Consumer Response Scott Pluta will also lead a discussion of consumer complaints.

The council's function is to advise the bureau on regulating consumer financial products or services and specifically to share the unique perspectives of credit unions.

The upcoming meeting will be the first for the council in 2014. It previously met four times in 2013 and once in 2012.

The meeting will be from 3:30 to 5:30 p.m. (ET). Registration is required.

Use the resource link below for more information.

Fannie, Freddie consider VantageScore for alternate credit model

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WASHINGTON (9/23/14)--Fannie Mae and Freddie Mac are studying an alternative credit scoring mode to the current Fair Isaac Corp. (FICO) score, according to a report in National Mortgage News (Sept. 22).

The two government-sponsored enterprises will review VantageScore Solutions, a competitor of FICO.

VantageScore has argued that a switch to a newer model would allow more potential buyers to get a credit score while providing more accuracy as to the likelihood of default for lenders.

According to Credit Card Forum 's blog, FICO breaks down its credit score as: 35%, payment history; 30%, amounts owed; 15%, length of credit card history; 10%, new credit; and 10%, types of credit used.

FICO announced in August it would stop including records of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency, and that it will give less weight to unpaid medical bills that are with a collection agency ( News Now Aug. 11).

VantageScore does not provide an exact breakdown but lists payment history as "an extremely influential factor;" age, credit type and percentage of credit card limit used as "highly influential factors;" total balances and debt as "moderately influential factors;" and recent behavior, inquiries and available credit as "less influential factors."

Credit Card Forum cites a recent court filing claiming VantageScore has approximately a 5.7% market share, compared with FICO's estimated 90%.

The National Mortgage News report states that, since Fannie and Freddie loans currently count as qualified mortgages, which are considered safer loans, the enterprises' underwriting guidelines "serve as industry-wide standards."

The enterprises will study the latest versions of each--VantageScore 3.0 and FICO Score 9.

Use the resource links below for more information.

14M apps, 2.8M purchases highlight 2013 mortgage data

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WASHINGTON (9/23/14)--Data on mortgage lending at 7,190 financial institutions covered by the Home Mortgage Disclosure Act (HMDA) has been released by the Federal Financial Institutions Examination Council.

The data includes information from 2013 mortgage applications, originations, purchases and sales of loans, denial and other actions at credit unions, as well as banks, savings associations and mortgage companies.

Highlights from the data include:
  • A decline in the number of reporting institutions by 3% from 2012. This continues a downward trend since 2006 when HMDA covered about 8,900 lenders, reflecting mergers, acquisitions and the failure of some institutions;

  • Information on nearly 14 million home loan applications, of which 8.7 million resulted in loan originations. It also includes information on roughly 2.8 million loan purchases, for a total of nearly 16.8 million actions;

  • Information on about 516,000 requests for preapprovals related to a home-purchase loan;

  • A decline in the total number of originated loans of all types and purposes by about 1.1 million, or 11%, from 2012. Refinance originations declined by 23% and home-purchase lending increased by about 13%;

  • A slight decline in the share of home purchase loans for one- to four-family properties made to black and Hispanic-white borrowers, while the share made to Asian borrowers increased slightly. In contrast, the share of refinance loans made to black and Hispanic-white borrowers rose in 2013 relative to 2012, whereas the share to Asian borrowers declined;

  • A decline to 26% from 31% in the share of one- to four-family home-purchase loans that were made to low- and moderate-income borrowers, defined as those with income of less than 80% of area median income, while the share of refinance loans to low- and moderate-income borrowers increased slightly to 20% from 19%;

  • A sharp increase, to 22% from 4.6% in 2012, in the share of Federal Housing Administration-insured first-lien home-purchase loans with annual percentage rates (APRs) above the reporting threshold. About 75% of FHA-purchase loans that met the higher-priced definition had APRs less than 0.5 percentage points above the higher-priced threshold; and

  • A higher denial rate for conventional home purchase loans for black and Hispanic-white applicants. The denial rate for Asian applicants is more comparable to the denial rate for non-Hispanic white applicants. According to the data, these relationships are similar to those found in earlier years.
The data uses census tract delineations and population and housing data from the 2010 census.

Use the resource link below to access the complete data.

CUNA cites accuracy concerns with CFPB's consumer narrative proposal

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WASHINGTON (9/23/14)--The Credit Union National Association does not support the disclosure of narrative complaint data, the organization told the Consumer Financial Protection Bureau (CFPB) in a letter filed Monday.

The letter, signed by Luke Martone, CUNA senior assistant general counsel, outlines a number of concerns with the CFPB's proposal that would allow it to post narrative consumer complaint data to its database.

Currently, the database includes basic information about a complaint and its resolution. The proposal would allow the CFPB to post a complaint to the public database after the institution has responded to the complaint, or after the institution has had the complaint for 15 days, whichever comes first.

CUNA cites potential "negative unintended consequences" of publicly releasing narrative complaint data, particularly that complaints could include inaccuracies, exaggerations and even intentionally false information.

"Under the proposal, we believe it is possible that institutions may effectively be unable to respond to a sufficient degree to consumers' narrative description of complaints," the letter reads. "We have concern that such financial institutions will be at risk of suffering severe reputational harm that violates basic principles of fairness."

The proposal states that the CFPB will disclose only narratives in which informed consumer consent has been obtained and personal information has been scrubbed. CUNA urged the bureau to only do so after a "fail-proof" method for scrubbing such information has been developed.

"We have great concern that various privacy laws, including the Gramm-Leach-Bliley Act, and other existing privacy protections could effectively prohibit financial institutions from responding to a narrative complaint, at least with any degree of detail," the letter reads. "Essentially, the institution will be prohibited from effectively addressing the complaint in its response due to consumer privacy protections."

CUNA's letter outlines several recommendations for the bureau to improve its consumer complaint process. This includes:
  • Developing a process for filtering out clearly frivolous consumer complaints;
     
  • Refining its answer choice format for questions in the complaint form, as well as avoiding narratives entirely;
     
  • Collecting information on a consumer's complaint history against financial institutions, similar to the National Credit Union Administration's Ombudsman form; and
     
  • Including language on the form encouraging consumers to first attempt to resolve the issue with the institution directly before filing a formal complaint with the CFPB.
CUNA had previously expressed concerns with similar proposals involving the CFPB's consumer complaint database in May 2011 and January and July 2012.

Use the resource link below to access CUNA's comment letter.

GAO wary of CFPB data collection controls

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WASHINGTON (9/23/14)--The Government Accountability Office (GAO) released a report Monday citing concerns that the Consumer Financial Protection Bureau (CFPB) must take additional efforts to reduce the risk of improper collection, use and release of consumer financial data.

The GAO reviewed 12 large-scale data collections from the bureau, finding that three included individual consumer identification information, though CFPB staff indicated those three were not subject to restrictions on such collection.

The large-scale data collections varied from about 11,000 consumer arbitration case records from a trade association to 173 million mortgage loans from a data aggregator. The GAO found that the bureau has taken steps to protect and secure these data collections as well as implement an information security program consistent with Federal Information Security Management Act requirements.

According to the GAO report, additional efforts needed include:
  • Addressing the lack of written procedures and comprehensive documentation for a number of processes, including data intake and information security risk assessments. The lack of written procedures could result in inconsistent application of the established practices;

  • Implementing of privacy and security steps, which the bureau has not fully done. This could hamper the agency's ability to identify and monitor privacy risks and protect consumer financial data; and

  • Obtaining Office of Management and Budget (OMB) approval for the data sharing agreement between the CFPB and the Office of the Comptroller of the Currency (OCC). The agencies share data related to the ongoing collection of credit card data from different institutions, representing approximately 87% of outstanding credit card balances. The GAO recommends additional consultation with the OMB regarding these collections and to help both agencies ensure they are fully complying with the law.
A total of 11 recommendations were made, meant to enhance the CFPB's privacy and information security. One recommendation was made to the OCC to ensure its data collections comply with appropriate disclosure requirements.

According to the GAO, both agencies agreed with GAO's recommendations and have noted steps they plan to take or have taken to address them.

Use the resource link below to access the full report.

World Council: Basel 'weak bank' guidelines could work against co-ops

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WASHINGTON (9/23/14)--The World Council of Credit Unions has outlined several concerns with draft supervisory guidance from the Basel Committee that could discriminate against cooperative institutions when the committee identifies "weak banks."

In its comment letter, World Council supports most aspects of the proposal but expresses concern that "some elements of the proposal could be used to discriminate against the cooperative depository institution model or impose excessive regulatory burdens on credit unions and other smaller financial institutions" such as risk-based capital.

The proposed guidance aims to provide resources for supervisors by offering "practical guidelines in the areas of problem identification, corrective action, resolution techniques and exit strategies" with respect to identifying, strengthening and, if necessary, resolving weak banks and similar financial institutions.

Comment highlights include:
  • Regarding the proposed corrective action of the supervisor requiring changes in the legal structure of weak banking groups, the World Council argued that, without clarification, some supervisors could use this requirement to discriminate against the cooperative financial institution model by requiring conversion of credit unions and similar mutual institutions to joint-stock companies;

  • World Council also objected to proposed language in the guidance that all financial institutions, regardless of size, should be subject to the same regulatory and supervisory framework including risk-based capital requirements;

  • The council also urged the committee to state expressly in the guidance that supervisory discretion by regulatory agencies and their examiners must be exercised consistently with rule-of-law principles. World Council noted that credit unions often report that their supervisors cite general, ambiguous legal powers, such as the power to prevent unsafe and unsound activities, to override more specific legal provisions addressing the same subject matter; and

  • Urging the committee to clarify that capital injections, including grants made to credit unions for stabilization purposes, should not be subject to corporate income tax.
Use the resource links below to access the Basel Committee's proposed guidance and World Council's letter.

FSOC lacks approach to ID emerging fin. threats: GAO

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WASHINGTON (9/22/14)--The Financial Stability Oversight Council (FSOC) "still lacks a comprehensive, systematic approach to identify emerging threats to financial stability," according to a Government Accountability Office (GAO) report released last week.

The report was done as a follow-up to recommendations given by the GAO to the council in September 2012.

The FSOC was created by the Dodd-Frank Act to identify and address threats to financial stability. The council consists of 10 voting and five nonvoting members. The 10 voting members include nine federal regulators and an independent insurance expert.

In September 2012, the GAO gave the council nine recommendations involving three areas: emerging threats and risks identification; transparency and accountability; and collaboration and coordination.

The recent report states that:
  • The Office of Financial Research (OFR) has made some progress in developing data tools to support FSOC since the 2012 report, but GAO's observations of two of these tools suggest that one tool does not focus on risks to the financial system, while another remains in a prototype phase;

  • FSOC has taken steps to improve its communication with the public but could do more to improve transparency and accountability, such as with a transparency policy approved in May. But FSOC staff said that they did not intend to keep detailed minutes of meetings because of the confidential information discussed;

  • FSOC staff also said that the impact of designating nonbanks for enhanced supervision would be assessed as part of a mandated January 2016 study. However, FSOC has not begun to prepare for this study; and

  • FSOC has taken steps to improve collaboration and coordination among member agencies but does not plan to act on some of GAO's recommendations on coordination. Staff said they did not plan to clarify the roles and responsibilities of the council, the OFR and member agencies because the overlapping responsibilities for monitoring systemic risk had not been problematic.
According to its report, the GAO "maintains that action is needed as its past work has shown that the lack of clear roles and coordination can lead to duplication, confusion and regulatory gaps."

Information for the GAO's study was obtained from June through September from staff and documents relating to the GAO's 2012 recommendations.

Use the resource link to access the complete report.