Federal Financial Reform Implications for Texas and Consumers Bankers CRA Roundtable Breakfast

Federal Reserve Bank of DallasSan Antonio, TX

September 30, 2010

Don Baylor, Jr.OpportunityTexas™

What CPPP Does

Improving public policies to better the economic and social conditions of low- and moderate-

income Texans. Creating economic opportunity to strengthen

families and grow the middle class; Increasing access to quality, affordable health

insurance; Helping families meet basic needs; Enhancing child well-being and child

protection; Ensuring effective public administration; and Securing fair and adequate taxation to pay for

critical public investments in Texas.

RAISE Texas• Statewide network working to support and

expand asset-building activities in Texas, with a focus on low- and moderate-income areas.

• Committed to building financial success of Texans through financial education, IDAs, children's savings accounts, community tax centers, and other programs that lead to increased economic security and prevent asset stripping.

What is OpportunityTexas?

RAISE Texas

Opportunity Texas

CPPP

CPPP Roles &Strengths:• Advocate• Policy development• Research & Data

Analysis / SFAI• Communications

RAISE TexasRoles &

Strengths:• Technical Assistance• Advisor• Grassroots Network• Convener-

CollaboratorOpportunityTexas• Creates a new platform for engagement on savings, college access and success• Catalyzes action & innovation • Advances and links public and private asset building efforts• Targets new audience (higher education, business and state agencies) • Expands to cover important opportunity policies not areas of focus for CPPP, RAISE Texas, or other statewide efforts• Ex.: IDA-matched savings accounts for targeted HHS populations

Dodd-Frank Wall Street Reform & Consumer Protection Act

“To promote the financial stability of the United States by improving accountability and transparency in the financial system.”

“To ensure American consumers get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products, and protect them from hidden fees, abusive terms, and deceptive practices.”

Consumer Financial Protection Bureau: The New Consumer

Federal ArchitectureDirector, CFPB

Office of Fair Lending and Equal

Opportunity [OFLEO]Community Affairs

Office of Service Member Affairs Research

Office of Financial Education [OFE] Complaints

Office of Financial Protection for

Older Americans [OFPOA] Private Student Loan Ombudsman

Consumer Protection Functions Centralized

NCUA FRB

FTC FDIC

OCC

OTSFederal Reserve Bank

CFPB

HUD

Consolidation of Major Federal Consolidation of Major Federal Consumer Protection LawsConsumer Protection Laws

CFPB to implement Federal consumer financial laws, including:• Alternative Mortgage Transaction Parity Act of 1982• Consumer Leasing Act of 1976• Electronic Fund Transfer Act (except sec. 920)• Equal Credit Opportunity Act • Fair Credit Reporting Act (except sec. 615(e) and 628)• Home Owners Protection Act of 1998• Fair Debt Collection Practices Act • Federal Deposit Insurance Act (sec. 43,subsections b-f)• Gramm-Leach-Bliley Act (sec. 502-509, except sec 505 as it applies to sec.

501(b)• Home Mortgage Disclosure Act of 1975• Home Ownership and Equity Protection Act of 1994• Real Estate Settlement Procedures Act of 1974• S.A.F.E. Mortgage Licensing Act of 2008• Truth in Lending Act• Truth in Savings Act• Omnibus Appropriations Act, sec. 626• Interstate Land Sales Full Disclosure Act

9

Others as Defined by

Rule

Other Financial

Institutions

(Rulemaking Only)

Very Large Financial

Institutions

Mortgage Originators,

Brokers, and

Servicers

Offer Payday Loans

Offer Private Student

Loans

Covered Persons

CFPB: Who Is Covered?

Others as Defined

Stored Value (limited)

Remittances

Real Estate

Settlement

Debt Collection

Credit Reporting

Check Cashing,

Check Collection, or

Check Guaranty

Certain Financial

Advising (credit

counseling and debt

management or

settlement)

Covered

Financial

Products or

Services

CFPB: What Is Covered?

What CFPB Does Not Include

• Auto Dealers (General)• Attorneys• Accountants• Real Estate Brokers• Tax Preparers• Insurance Companies/Agents, & • Authority to Impose Usury Limits

Prohibiting Unfair, Deceptive, Abusive Prohibiting Unfair, Deceptive, Abusive Acts/Practices Acts/Practices (sec. 1031)(sec. 1031)

• CFPB: – authorized to take action to prevent unfair, deceptive or abusive act or practice;– may write rules identifying as unlawful, unfair, deceptive, or abusive

acts/practices.• Unfairness –

– Act or practice causes/likely to cause substantial injury which is not reasonably avoidable;

– Substantial injury not outweighed by countervailing benefits to consumers or competition;

• Abusive –– Materially interferes with ability of a consumer to understand a term/condition of

product/service;– Takes unreasonable advantage of -

• lack of understanding of risks, costs, conditions of product/service;• Inability of consumer to protect the interests of the consumer in

selecting/using product/service;• Reasonable reliance to act in the interests of the consumer.

• CFPB will consult with banking and other agencies on consistency of proposed rule with the prudential, market or systemic objectives of such agencies.

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Mortgage Reform & Anti-Predatory Lending Act

• Establishes the “Qualified Mortgage”• Requires Documentation for Ability to

Repay• Resets HOEPA (high cost loan) threshold• Prohibits prepayment penalties for

“nonqualified” mortgages• Bans “Steering” Incentives• Prohibits Current Yield Spread Premiums• Gives CFPB authority to prohibit

mandatory arbitration, pending study

Enhancing Financial Capability

(Office of Financial Education)• Financial Counseling

• Better access to:– Financial coaching– Savings and credit services at FIs– Services to prepare consumers for

educational expenses, debt reduction, – Long-term savings strategies– Wealth-building and financial services

to claim EITC and federal benefits

Credit Reports and Scores• Scores are required to be collected under

HMDA, along with age and origination channel.

• Consumers are now allowed free access to scores if their scores negatively affected them in a financial transaction or hiring decision (credit score disclosure).

• CFPB authorized to conduct regular examinations of large credit bureaus to evaluate their compliance with the law, including the Fair Credit Reporting Act.

Enhanced Consumer Data Collection & Reporting

►CFPB Research Unit►Consumer Economic Behavior►Access by Underserved Communities

►HUD/CFPB Default and Foreclosure Database►Making Home Affordable Program Report ►M/W/SBE Credit Application Tracking►Federal Report/Study on Credit Scores Variation►Federal Report on Private Education Loans►Expanded Mortgage Loan Data Requirements►Annual Report on General-Use Prepaid Cards in

Federal, State, or Local Government-Administered Payment Programs

FFR & Asset BuildingTitle XII: Increasing Access to Mainstream

Financial Institutions• Affordable Access to Small-Dollar Loan

Products– Small Dollar Loan Grant Program (<$2,500)– Community Development Financial

Institutions (CDFIs) Loan-Loss Reserve Fund– CDFI Technical Assistance

• “Bank On USA” Grant Program– Enrollment in Checking, Savings &

Investment Accounts– “Wealth building” Activities

Implications for State Policy

• Texas Attorney General– Broader authority to enforce state law and CFPB

regulations vs. federal banks– Bring action vs. state-chartered banks for federal violations

• Texas Department of Housing & Community Affairs– Drive the “qualified mortgage” market– Granted larger role in homeowner counseling

• Texas Appraiser Licensing and Certification Board– New Registration Requirements – Eligible for Federal Compliance Grants

• Office of Consumer Credit Commissioner– identify and refer bad actors to CFPB– Receive and Act upon federal referrals

• State Resolutions Can Drive Federal Rulemaking (25+1)• States can be grantees/partners for “Bank On” activities

New Opportunities for Financial Institutions

• Enhancing Financial Capability = (Education + Product + Consumer Protection )

• Rebirth of New Savings Initiatives• New Partnerships with K-12 System• Enhanced Connections with Community

Tax Centers and Opportunity Centers• Expansion of Banking Outreach• Small Dollar Loans• “Race to Clarity” (Disclosures)

The Year Ahead

• CFED Assets Learning Conference, September 22-24, Washington, D.C. (www.cfed.org)

• William P. Hobby Policy Conference, September 23-24, Austin, TX (www.cppp.org)

• RAISE Texas Policy Conference, December 2010, Austin, TX (www.raisetexas.org)

• OpportunityTexas Launch, December 2010

• 82nd Legislature, January 2011 (www.cppp.org)

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