Meeting with CFPB Regional Director Edwin Chow Monday, Feb. 4, 2013

Troy Stang, President/CEO of Northwest Credit Union Association, gave an introduction of Edwin Chow to the room. Troy stated that Edwin has played a key role in working with the Association through the rule making process and also stated that Edwin Chow has been with the CFPB from the very beginning, prior to the actual formation of the CFPB.

Edwin Chow provided a brief background on himself and the agency. Mr. Chow has worked in the financial regulatory sector for many years and has a fond Mr. Chow’s region covers Alaska, Arizona, California, Colorado, Hawaii, Idaho, Kansas, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington, and Wyoming. 

Chow discussed the current examination process. The CFPB is charged with examining financial institutions over $10 billion in assets (currently there are 170 depository institutions that meet this threshold, 108 are banks). Chow stated that these institutions account for 75% of banking assets in the country. While the CFPB does have the ability to partner with other federal and state agencies for small institutions, Chow stated that they are currently not expecting to do this. The CFPB trusts that the other federal agencies are examining smaller institutions at an acceptable level and is not anticipating having to partner on any examinations. However, if the CFPB receives a call for help from a sister agency, they will respond to the request, including joining an examination. The CFPB is also charged with examining non-financial institutions including mortgage lenders and servicers, mortgage brokers, student loan entities, pay day lenders, credit reporting agencies, debt collection agencies, and check cashers.

Additionally, Chow did state that CFPB examinations are very similar to examinations conducted by other regulators. The CFPB examinations do include a notification process, open meeting to discuss expectations, progress meetings, and they expect to work through most of the issues while they are on site. The CFPB currently has around 400 examiners, which Chow stated is about 2/3 of the level that they need. The CFPB does publish examination findings in a report that does not identify the specific institutions that were examined. Financial institutions can look to these reports to determine if there are areas of improvement they should focus on. These areas include compliance risk, loss revenues, consumer relations, public relations, vendor management, fair lending, and so on. The report is available on the CFPB’s website.

Chow mentioned a few initiatives of the CFPB in regards to protecting certain groups of consumers, including military personnel and their families, older Americans, young Americans, individuals impacted by private student loans, and increasing financial literacy among all consumers. Additionally, under the scope of their responsibility, the CFPB is responsible for supervision, examination, enforcement, rule making, and rule interpretation all related to consumer finance. The CFPB will also focus on consumer complaints and unfair or deceptive acts.  The CFPB wants to ensure that consumers are provided with timely and understandable documentation- which is a contributing factor to the revision of the RESPA and TILA disclosures.

Chow also stressed the importance of their focus. Financial institutions have been regulated on a federal and state level for a long time, but other financial services have not been (mortgage brokers, payday lenders, etc). The CFPB is focusing on creating and enforcing rules that will make the financial services industry more consumer friendly. 


Q: The CFPB does not intend to accompany other agencies during their examinations of financial institutions that fall outside of the scope of the CFPB. However, if the CFPB were to do so, how would a smaller financial institution know what they needed to do in order to be compliant?
A: The CFPB has published their examination standards/expectations on their website. The examination guide is available online and everyone is encouraged to review it.

Q: What was the thought process on having so many of the mortgage rules effective in January of 2014?
Congress mandated it to be that way. The details required the rules to be finalized by a certain date and that the rules become effective no later than 12 months after the finalization. The CFPB did use its discretion to implement some of the rules earlier (escrow, arbitration). However, the CFPB did recognize that a lot of the rules played into each other and would require IT upgrades/changes, making it difficult to implement one part of the regulation without implementing the other parts at the same time.

Q: It was mentioned that there was an October audit report that discusses some issues found in recent examinations. Does this report break the findings down by industry? Will we be able to tell how credit unions were impacted by this report?
Because examination findings are confidential, the details in the report are not identified by institution name or type. The report includes findings from non-depository institutions.

Q:  Since the examination report is combining information from unrelated fields (non-depository institutions), how useful is this report for the CEO of a credit union? How would the credit union move forward with information from the report and take appropriate action to ensure compliance?
The report provides enough information to highlight/identify concerns. You can use the report to review with staff where the credit union is at in the areas of compliance. However, institutions that are subject to federal regulations should not worry too much. You should be able to tell what sections don’t pertain to you and move forward with just reviewing the sections that do.

Q: This question relates to mid-size financial institutions in light of the new remittance transfer rule. We have never charged much for foreign wires. Now, with the assumption of liability and error resolution, we will stop offering foreign wire transfers. We are stopping because of the assumption of liability- we have no way of knowing if the funds are arriving at their intended destination. We also have no control over the fees that are charged once the funds reach their intended destination. We have fewer than 100 individuals that send these wires, but we don’t qualify for the safe harbor.
A: Your feedback is consistent with what the agency is hearing.  We announced late last year that we will be adjusting certain requirements, such as the fees and liability. The implementation date of the rule has been pushed back. The three areas of changes are estimation of taxes (made decision not to require state/local taxes), national tax rates; and liability for consumer error.

Comment from audience: The instructions could be correct which eliminates the consumer’s liability. The consumer could still get ripped off (information was correct, but intended recipient didn’t receive funds) and we would have to reimburse the consumer even though everything we did was correct.
Chow: The consumer protections are required to be put in place. Our wiggle room is very limited. Many consumers had no idea how much money was going to be handed to the recipient on the other side. You will have to decide if you want to provide this service or refer your members to another provider.

Q: We applaud the changes that are being made. However, sticking with the 100 transfer limit for the safe harbor is not reasonable. The Association did ask for the limit to be increased as we feel it is not reasonable for mid-sized institutions. We hope that going forward there will be reasonableness pertaining to safe harbors.
A: If you do see something like this as being a challenge/issue, you are encouraged to speak up. The regulations are issued, but they can still be reviewed. The CFPB also will review the rules they are responsible for on a periodic basis, but you are definitely encouraged to make your voice heard through your Association.

Q: What plan does the CFPB have in place if Director Cordray cannot get re-appointed? How much of an impact will this have on what is going to happen moving forward?
  The DC Circuit case that this question refers to does not involve the CFPB appointment at this time. The Bureau will continue to exercise its full authority, including issuing regulations. All the regulations issued are valid.  The Bureau has operated without a director before (when it initially started in 2011) and has clear statutory authority to carry out examination and supervision with or without a director.  There is no challenge to this and there will be no change in terms of jurisdiction.

Q: Will there be a delay in issuance of regulations if Cordray is not re-appointed?
No. There is a deputy director in place to ensure the rules are issued, if needed.

Q: The current qualified mortgage rule has a DTI limit of 43% to qualify for the safe harbor. GSEs are currently exempt from this and have 7 years to determine how they will approach this requirement. Do you know how fast they are looking at implementing any changes regarding an acceptable DTI limit?
When the GSEs change their requirements, this could disrupt the marketplace.  The GSEs were consulted prior to the rules being issued and determined that the window of time established will be reasonable for the GSEs to adjust their standards.

Q: Are there concerns with availability in the credit market?
  The full answer is not known at this time. Jumbo loans are a concern in California, but the proportion of jumbo loans that exceed the DTI requirement is less than 1% of the market place. Most jumbo loans out there are well under the DTI cap. So, this should impact a fairly small portion of the market place.

Q: Not accounting for people with high incomes and high credit scores. Some people can do this better than others. This potentially cuts out some great borrowers from obtaining proper loans.
A:  A lot of challenging things have been weighed and balanced. However, these rules included a lot of specific direction from Congress.

Q: There are currently 22 fields required for each HMDA reportable loan. We have heard that you will be adding another 12 required fields.  When will this proposal be available to read?
A lot of the rules issued had statutory deadlines. This one did not. It isn’t on the backburner, but it isn’t on the front either. A proposal will be issued for comment/feedback this year (current expectation).  Congress also required the agency to collect data on women/minority owned businesses. There is a possibility that the rules will be rolled out together. Also, we know there will be a significant time period required for the industry to get up to speed and are aware of the IT complications.  This is one of the reasons we did not move quickly on it. The discretion for this rule is only in terms of timing.

Q: What was the thought process behind adding another 12 categories?
A: We wanted to have more information to determine potential discrimination.

Q: The CFPB issued 7 regs that are effective in January 2014. What is on the CFPB’s plate for the rest of the year that will be rolling out?
CFPB is focusing on other industries that they are in charge of supervising. The agency needs to focus on the industries that are the most problematic, including non-depository institutions, student loans, auto finance, etc.
Q: Are there specific concerns the CFPB has in regard to auto financing?
This was just used as an example. There are other industries out there that need to be looked at and regulated.  We would be looking at practices typically seen at an auto dealership, not necessarily a credit union.

Q:  What is happening with the new combined disclosures/finance charge rule?
  It is mandatory that the disclosures be merged. However, we feel they are still not as streamlined as they could be which is why we are delaying publishing the rule. We are hoping to publish a new proposal during the middle portion of this year.
Q: Will all fees be included in APR?
I am not in a position to talk about what the rule will look like. There have been a lot of different versions and we are still going through a lot of changes.

As the meeting drew to a close, Mr. Chow explained that the policy makers are sincere in what they are trying to do. They worked hard to solicit responses and have a track record of factoring opinions into final decisions. Mr. Chow encouraged credit unions to voice their views and stressed that one of the reasons why he likes to participate in events like this is to obtain feedback from the industry to ensure their voice is being heard.

Mr. Chow went on to say that he understands and supports the purpose of credit unions. He knows that credit unions don’t have the same distractions as banks and thrifts, which allows us to effectively serve our members. The new rules are not directly pointed at credit unions, but are directed towards financial institutions in general so that the entire industry can be can be a trusted provider of financial services. The image and reputation of banks still have a long way to go to regain the trust of the people. It is important that consumers feel confident in engaging in financial services.

As the meeting wrapped up, Gayle Gustafson provided brief overview of the Association’s Regulatory Advisory Committee. Gayle noted that what the Association is doing is important and special because only a handful of other leagues/associations have a position dedicated to regulatory advocacy. The committee works to stay on top of proposals, including working together to help understand the impact that the proposals will have on the credit unions in the Northwest. These meetings help with the many comment letters that the Association writes and the collaboration the group provides is extremely helpful. There have been many successes with the letters the Association has written and it stands to show that we can have an impact and truly make a difference on these proposed rules.

Posted in Around the NW, Community Impact.