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Dismissal Arguments Heard In CFPB Constitutionality Challenge

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WASHINGTON (6/12/13)--Oral arguments were heard yesterday on a motion that could end a case that challenges the constitutionality of the Consumer Financial Protection Bureau.  The U.S. District Court for the District of Columbia heard arguments on a motion by the U.S. Department of Justice (DOJ) to dismiss the case. 

The suit, which was filed by State National Bank of Big Spring (Texas), the 60 Plus Association, and Competitive Enterprise Institute last year in federal court in Washington, D.C., also seeks to overturn the appointment of CFPB Director Richard Corday and the challenges the constitutionality of the Financial Stability Oversight Council (FSOC).

National Credit Union Administration Chair Debbie Matz and Cordray are among the nine federal officials named as suit co-defendants because the officials are members of FSOC.  The case does not seek to challenge NCUA separately.

Michigan, Oklahoma and South Carolina last year joined the suit, challenging the orderly liquidation authority that was granted to the federal government as part of the Dodd-Frank Act. Eight states in February filed a motion asking a federal district court to allow them to also join the suit.

As the court heard argument on the motion to dismiss the case, questions turned to whether State National Bank has been injured by the Dodd-Frank Act or the CFPB in such a way as to have constitutional standing to challenge the law, and whether those injuries are "ripe" or developed enough to be currently ready for a federal court to address them. 

State National argued that it was injured because it has incurred compliance costs in connection with the CFPB's mortgage servicing rule, because it has exited the market for issuing new mortgages due to the qualified mortgage rule and general uncertainty around the mortgage marketplace, and because it has exited the market for remittance transfers due to the CFPB's remittance rule.  The bank noted that its compliance costs included staff time and spending approximately $10,000 to join a bank "Compliance Alliance" to keep up with CFPB actions and developments in the regulatory landscape. 

The DOJ argued that none of these injuries are sufficient for standing to sue. The department noted that the bank falls within the CFPB's small servicer exemption from the mortgage servicing rules, precluding any injury from compliance efforts for that rule.  DOJ also argued that the bank's decision to exit the markets for remittance transfers and new mortgages cannot be fairly "traced" to the CFPB's actions, as opposed to some other business decision.

The constitutionality of Cordray's appointment as CFPB director was also discussed.

Earlier this year, the U.S. Court of Appeals for the D.C. Circuit ruled that President Barack Obama's recess appointments to the Equal Employment Opportunity Commission (EEOC) were unconstitutional.  This ruling could be precedent for the case heard Tuesday because the EEOC appointments occurred on the same date that the president appointed Cordray to his role, although that ruling is limited to the EEOC, not to the CFPB. 

The court again focused on whether State National has been injured by Cordray's appointment, as this is the only way in which State National can properly pose a challenge.  The DOJ has asked the U.S. Supreme Court to review the EEOC determination, while the court has not yet decided the motion to dismiss in the CFPB case heard yesterday, meaning that the status of Cordray's appointment is likely to remain in limbo for some time.

CUNA's Assistant General Counsel for Special Projects Robin Cook attended for CUNA to monitor the case for credit unions. He observed that the case makes a wide-ranging challenge to the Dodd-Frank Act and that the original complaint states that "Title X of the Dodd-Frank Act delegates effectively unbounded power to the CFPB, and couples that power with provisions insulating the CFPB against meaningful checks by the Legislative, Executive and Judicial Branches."

CUNA Will Monitor CFPB's Continued Overdraft Study

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WASHINGTON (6/12/13)--The Credit Union National Association will closely watch progress as the Consumer Financial Protection Bureau (CFPB) continues its study of financial institution overdraft protection plans. CUNA believes credit unions must have continued flexibility to meet their members' needs by offering "bounce protection plans" at reasonable fees.

"From our point of view," CUNA President/CEO Bill Cheney said Tuesday after reviewing the just-released CFPB report on overdraft programs, " overdraft protection and 'courtesy pay' are designed by credit unions to be a service to their consumer members, who have asked that they have continued access to such programs.

"Given that credit unions are member-owned financial services providers, credit unions strive to develop these programs in such a way the costs can be covered for the programs, but at reasonable fees for the members requesting the service. We believe credit unions should continue to have that flexibility to meet their members' needs."

CFPB Director Richard Cordray stated clearly in a CFPB report on overdraft protection plans released yesterday that the bureau does not intend to impede the offering of this service. CUNA was among stakeholders included in an early briefing on Monday and CUNA President/CEO Bill Cheney was directly contacted by Cordray.

Although no policy recommendations were forthcoming in the report, the bureau  noted it will  continue to dig and sift for more information about the variety of programs offered and how they affect consumers' ability to anticipate and control their costs for financial services.

CUNA clarified with the agency early Tuesday that the report focuses on large bank practices and that no credit unions were directly studied by the CFPB. However, the report does include information voluntarily submitted by credit unions or their vendors in response to the bureau's request for information preceding the report.

Although no policy recommendations were forthcoming, the bureau will, however, continue to dig and sift for more information about the variety of programs offered and how they affect consumers' ability to anticipate and control their costs for financial services.

"Our report today examined overdraft practices at some of the country's larger (banks) and found wide variations across them when it comes to overdraft opt-in rates and costs," Cordray explained in a statement accompanying the report's release. 

"The gap may reflect differences in the substance of overdraft programs, or differences in customer base, or differences in marketing approaches. On this point, we are interested to dig in and learn more about the reasons why."

"Our review is intended to provide the factual basis to inform efforts to develop more uniform treatment of these issues across financial institutions," the report's executive summary declares.

The CFPB has supervisory and enforcement authority over financial institutions with more than $10 billion in assets, but its policies affect the overall financial market.

For small institutions, the report notes that an industry vendor that services 1,800 predominantly small institutions reported to the CFPB that NSF and overdraft revenues accounted for 78% of its community bank and thrift clients' deposit service charges and 51% of its credit union clients' fee income in 2012.

In a conversation with CFPB staff this morning, CUNA Deputy General Counsel Mary Dunn reminded that the difference is even more notable because of the capital pressures that face credit unions.  Unlike banks, credit unions can build capital only from retained earnings, from such things as fees for services. "Still affected credit unions work to provide the overdraft protection services their members want but with more reasonable fees."

Data in the report from a research firm strongly suggests fees are lower at many smaller institutions. The median NSF and median overdraft fee across nearly 800 smaller banks and credit unions (outside of the nation's 50 largest depositories) were both $30 in 2012. Per-item fees ranged across this sample from a low of $10 to a high of $45.

In his accompanying remarks, Cordray said the report has three "major takeaways":

  • First, the CFPB claims that data show that opting into overdraft coverage of ATM and debit card transactions makes consumers more vulnerable to increased costs and involuntary account closures;
  • Second, financial institutions have very different policies, procedures, and practices that can be highly complex and difficult for consumers to understand, yet greatly affect whether and how often they will incur overdraft fees; and,  
  • Third,the outcomes for consumers vary widely across financial institutions. The average amount of annual overdraft charges in the study of the largest banks was $225. But consumers at some other banks paid an average of $147, while consumers at others paid $298, more than twice as much.
CUNA is continuing conversations with the bureau to clarify key points and will be included in future meetings with the CFPB on this issue. CUNA is also reviewing its best practices recommendations regarding overdraft protection plans.

Use the resource link to access the CFPB report and Cordray's accompanying statement.

Electronic Signature Q&A Featured In CompBlog Wrap-Up

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WASHINGTON (6/12/13)--Key credit union questions regarding the Electronic Signatures in Global and National Commerce (ESIGN) Act are answered in the May/June edition of the Credit Union National Association's CompBlog Wrap-Up.

ESIGN imposes special requirements on businesses that use electronic records or signatures in consumer transactions, and requires certain disclosures to be provided to consumers before an electronic document can be "signed" online or an electronic transaction can be completed.

Topics addressed in the ESIGN Q&A section include:

  • Digital signature and home banking platforms;
  • How credit union members can consent and/or confirm their consent electronically;
  • The ESIGN disclosures credit unions must provide before obtaining a member's consent to receive electronic records;
  • E-statement opt-ins and other disclosure issues;
  • Whether credit unions are required to redeliver returned e-mail messages; and
  • How long credit union websites must maintain copies of e-statements online.
  • Other Q&A entries address issues affecting mobile home loans and construction loans.
In the Wrap-Up, CUNA Federal Compliance Counsel Colleen Kelly and Federal Compliance Information & Research Manager Nancy DeGrandi also present the newest developments in the Consumer Financial Protection Bureau's ongoing mortgage revision work. The Wrap-Up also features details on new CFPB compliance resources and the Financial Crimes Enforcement Network's latest information for financial institutions.

And, as it does every month, the CompBlog Wrap-Up lists the upcoming effective dates of new regulations, important compliance articles and reports to read, as well as CUNA training programs.

For more of the CUNA CompBlog Wrap-Up, and other compliance gems, use the resource links.

Numbers Talk And 'Inside Exchange' Turns Up Volume

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WASHINGTON (6/12/13)--There were strong positives revealed in credit unions' first quarter financial performances and Credit Union National Association Chief Economist Bill Hampel gives the inside scoop on what it all means in CUNA's newest, five-minute "Inside Exchange" video.

In a bright back-and-forth with CUNA Executive Vice President of Strategic Communications and Engagement Paul Gentile, Hampel gives perspective to member growth, steady expansion of lending--and the implications for credit unions of rising interest rates in the future.



CUNA created the "Inside Exchange" video series as a new way to directly communicate to member credit unions, and to provide detailed insights into what's happening in Washington, D.C., in the legislative, regulatory and political arenas.

For more on this new video, and previous videos featuring CUNA comments on credit union advocacy efforts, use the resource link.

The Inside Exchange videos can also be found by clicking on the "stay informed" section of the gray menu bar at the top of the cuna.org homepage and scrolling down to the "Inside Exchange" pane.