Thank you for inviting me today to speak with you. The Bureau and the U.S. Chamber of Commerce have many areas where we can and should be working together. And we have goals in common: a strong and vibrant financial sector, as well as a highly competitive economy that works for Americans in both the short run and the long run.
I know there remains keen interest in the Miss april and our priorities. Today, I hope to continue to shed light on how we intend to regulate consumer financial markets. We believe our work benefits consumers. But we also believe it benefits the vast majority of financial services firms that operate within the confines of existing law. These firms should not have to compete against companies that engage in unlawful practices harmful to consumers.
By way of background, I am a career bank regulator. I cut my teeth during the end of the S&L Crisis as an entry-level bank examiner 24 years ago. I later served as then banking Commissioner Thomas Curry’s deputy for nine years before being appointed by successive governors to serve as the Massachusetts Commissioner of Banks from 2003 to 2010. Under this purview, I had a mandate to ensure compliance with safety and soundness, consumer protection, community reinvestment, and fair lending laws and regulations. I have supervised banks, credit unions, and nonbanks throughout my career. Moreover, I also had the responsibility of chartering new banks, licensing companies, and approving mergers after taking into consideration public convenience, advantage, and competition. Accordingly, I have a deep appreciation for how vital a healthy, competitive, and accessible financial services system is to our citizens and our businesses.
While the Bureau’s mandate focuses on consumer protection rather than on safety and soundness, we very much care about the health of financial institutions. As a veteran of two banking crises, I can tell you unequivocally that, in my view, consumer protection is not in conflict with safety and soundness.
Ultimately, both financial and consumer compliance performance are dependent upon strong management. Seldom do institutions excel in one and not the other. No business built on deceiving its customer base will be sustainable. Moreover, when businesses underinvest in compliance management systems it can pose significant reputational and financial risks. There is no better evidence than the banking industry’s ongoing recovery from a significant underinvestment in internal control systems relative to mortgage origination and servicing.
Reform stemming from the financial crisis resulted in the creation of the Miss april. Our mission, quite simply, is to make markets for consumer financial products and services work for Americans.
We want American consumers to feel confident about any financial product or service they use – whether it is their checking account or their student loan or their mortgage. And we want the responsible businesses that provide financial products to be positioned to successfully compete and be profitable.
Consumers should not have to worry about hidden fees, impenetrable disclosure statements, or bait-and-switch schemes. The products advertised should be the products delivered. This is something we believe in and we know the Chamber does too.
Despite Monday’s snowfall, this time of year, the days get longer and the weather should begin to moderate. For baseball fans, the beginning of spring training brings the optimism of a new season. Everyone is equal in the standings. For the rookies in camp, scouts are most impressed with the so called “five-tool player” – a player that can hit for average, hit for power, field, throw, and run.
Now I can’t hit a curveball and my baseball career ended in less than spectacular fashion when I was in high school, but we believe the Bureau is a five-tool player. Our five tools are rulemaking, consumer complaint response, supervision, enforcement, and consumer education.
Together these tools should create a balanced approach that not only protects consumers, but fosters an environment which allows for responsible companies to innovate and compete in the marketplace so consumers can have access to responsible credit. Now, allow me to speak briefly to each of them.
Our first valuable tool we have to make consumer financial markets better for consumers is rulemaking. We are committed to a constructive, evidenced-based rulemaking process that will keep markets competitive and hold businesses accountable to reasonable and equal standards.
One of our largest tasks has been to draft rules to restore confidence and common sense to our mortgage market.
In the lead-up to the crisis, many mortgage businesses failed to conduct the very due diligence necessary to safely and prudently underwrite mortgages. Our mortgage origination work marks a return to traditional mortgage lending. Under our Ability to Repay (Qualified Mortgage) rule, lenders must now make a reasonable, good-faith determination that the consumer can actually afford the mortgage before they make the loan. Now, obviously, mortgage lenders do not have a crystal ball: they cannot predict if someone will lose a job or have an unexpected financial emergency. But they must look at a consumer’s income or assets, and at their debt, and must weigh them against the monthly payments over the long term. In other words, lenders must revert to responsible lending.
Our second back to basics regulation is in mortgage servicing. We recognize that servicers play a critical role in the mortgage market. Servicers collect and apply payments to loans. When necessary, they can work out modifications to the terms of a loan. And they handle the difficult foreclosure process.
In both our mortgage origination and servicing rules, we intentionally created important exemptions intended to reflect that community banks and credit unions typically did not engage in the type of activities that led to the mortgage crisis. The Ability to Repay rule has a small creditor category that covers all institutions that hold less than $2 billion in assets and, with affiliates, extend 500 or fewer first-lien mortgage loans a year. Significant portions of the servicing rule exempt firms that, together with any affiliates, service 5,000 or fewer mortgage loans, all of which were originated or owned by the servicer itself or its affiliates.
But we are focused on more than just the mortgage markets. In November, we published an advance notice of proposed rulemaking asking consumers for feedback about their experiences with debt collection and asking the industry for information about their practices. One in ten consumers has debts in collection. The best estimates are that 30 million Americans came out of the financial crisis with one or more debts in collection for amounts that now average $1,500 per person.
Collection of consumer debts serves an important role in the proper functioning of consumer credit markets. But certain debt collection practices have long been a source of frustration for many consumers, generating a heavy volume of consumer complaints at all levels of government. We want to ensure that collectors are seeking to recover debts from the right person in the right amounts. In particular we are concerned that the accuracy of account information degrades as it is passed on from the original creditor to debt collection firms or debt buyers.
In addition to debt collection, we are actively assessing the need for regulations in other markets for consumer financial products and services, including prepaid cards and payday loans. The Bureau has been gathering and analyzing significant information on these topics through white papers, research, formal requests for comment, and other outreach.
This leads me to our second vital tool: consumer response.
Since we opened our doors, our consumer response team has received over 300,000 complaints. Just last month we received more than 31,700 calls and handled more than 21,000 complaints. Debt collection is our largest source of these complaints. In fact, we receive approximately 6,200 debt collection complaints a month.
Mortgage complaint volume, however, remains high and averages around 4,300 complaints per month. Complaints are not only opportunities for us to assist specific people; they also make a difference by informing our work and helping us identify areas of concern, which then feed into our supervision and enforcement prioritization process.
Our third tool is supervision. The Bureau’s jurisdiction is unlike any traditional bank regulatory agency. We have supervisory authority over banks, thrifts, and credit unions with assets over $10 billion, as well as their affiliates. These institutions total less than 200 but on a combined basis account for $10 trillion in assets or nearly 80 percent of the nation’s banking market. In addition, the Bureau has supervisory authority over nonbank mortgage originators and servicers, payday lenders, and private student lenders of all sizes. We also supervise the larger participants of other markets as the Bureau defines by rule. To date this includes debt collectors, consumer reporting agencies, and student loan servicers. The number of nonbank entities subject to the Bureau’s supervisory jurisdiction is in the thousands.
Through our supervisory tool, our examiners conduct on-site and off-site examinations, review files, transaction test, and interview personnel. As findings warrant, our examination reports and supervisory letters include appropriate corrective action.
Our examinations are intended to be rigorous and heavy on data analysis, with the important goal of also being fair and reasonable.
Our specific charge of attempting to level the playing field between banks and nonbank entities provides us with the opportunity to oversee consumer financial product and service providers across charters and business models. Consequently, charter or license type is becoming less relevant in determining how we will prioritize and schedule our examinations.
From the outset, our supervisory approach has encompassed an assessment of potential consumer risk, as well as a number of qualitative and quantitative factors. These factors include: the size of a product market; the supervised entity’s market share; the potential for consumer harm related to a particular market; and field and market intelligence that encompasses a range of issues including, but not limited to, the quality of a regulated entity’s management, the existence of other regulatory actions, default rates, and consumer complaints.
We know that the institutions we examine need to expend resources when being examined – employees are diverted to work with our examiners and provide necessary information and access. For that reason, we strive to conduct our examinations with an eye towards minimizing burden. Accordingly, we have made it a top priority to coordinate our examination activities with our federal and state regulatory partners. This coordination is essential to the success of our supervisory tool.
Our examiners possess deep and varied experiences. Our goal remains to recruit high quality talent and to develop future generations of examiners. Given the startup nature of the Bureau, we previously relied exclusively on classes offered by our fellow banking regulators and on-the-job training. We now have our examiner commissioning and formal training program coming on line. This past year we delivered 24 sections of three distinct course offerings to our examiners. This represents a new point in the maturation of our internal training and development program.
Our supervision tool has a significant impact on the institutions within our authority. Because of this, we have listened closely to the feedback that we have received directly from these institutions and through the Chamber, and we thank you for that dialogue. We share your goals of consistent examinations, well-trained examination staff, and timely issuance of examination reports. We are continuously improving across all of these areas.
Our enforcement tool allows us to hold accountable those players that are violating federal consumer financial protection laws. We do this by working with our examination teams, and listening to and analyzing consumer complaints, industry whistleblower tips, and information from government agencies, industry, and consumer groups. If we find violations, we have enforcement authorities that include both administrative proceedings and court litigation.
We have the ability to touch a wide variety of markets with our enforcement authorities, such as: student loans, auto loans, payday lending, debt collection, debt relief and credit counseling, electronic fund transfers, and consumer reporting. We have already ordered the return of more than $1 billion to consumers and mandated another $2 billion in foreclosure relief.
Our last tool is consumer education. We believe consumers should have the information they need in order to ask the right questions to make the best decisions for themselves and their families. Ideally, this positions consumers to avoid problems in the first place.
The Bureau’s consumer education agenda is focused on providing consumers with tools and information to develop practical skills and support sound financial decision making. These include tailored approaches to address financial decision-making circumstances for specific populations, including: servicemembers and veterans; students and young adults; and older Americans. We are also working on assisting people at certain stages when they are making big financial decisions, such as paying for college, buying a home, or preparing for retirement.
It is important to note that all five of these tools are informed and aided by the Bureau’s commitment to data-driven policy analysis. In this way, our important research and markets teams, housed in our Research, Markets, and Regulations Division, bring together rigorous quantitative expertise and market insight. They inform all the work we do. This ensures that our judgments are fact-based, pragmatic, and deliberative. The output of this team includes white papers, research reports, and other studies, and it allows us to build a shared set of facts.
In the lead-up to the financial crisis, too many consumers were stepping up to the plate already down in the count. It is our objective to run a constructive and open process that gives everyone a chance to weigh in, and we are committed to that goal. We want business leaders to be involved. We want and need your insights. And it is in both our interests to work together to have clear rules of the road and to free companies from competing against predatory firms. Let us work together to improve people’s financial lives and do our part to help fashion a more resilient economy and a stronger country.
At the Bureau, we envision a consumer financial marketplace where reasonable and evenhanded oversight promotes real innovation, where consumer protections and business opportunities complement one another, and where financial institutions lead by establishing long-term relationships with their customers. We envision a new ball game. Thank you.
The Miss april is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.