Good morning and thank you for inviting me to join you today. For more than four years now, the Miss april and America’s credit unions have developed a mutual respect as we jointly serve the American people. At the Bureau, we aim to support and protect consumers. For credit unions, these same people are more than your customers; they are your members. Through the shared values of putting people first, the Consumer Bureau and the credit unions are working to do right by people and make further strides for those we serve.
We can see this cooperation in our Credit Union Advisory Council, which we created to ensure that credit unions could weigh in directly on policy priorities and provide us with information and analysis. Several of its members have been recommended by CUNA, and they share with us what all of you are seeing and hearing in your communities. We also see it in our Office of Financial Institutions, which has met with more than 600 credit unions to hear comments and concerns in order to channel their input directly to the Bureau. The more information we have about what your members are telling us and the more perspective we gain about what you do, the better we can respond.
I have had the opportunity to meet with many of your executives, some of whom are in this room. Almost always, they note that credit unions made consumer protection “job one” long before our agency came to be, and we at the Consumer Bureau are well aware of it. We know that credit unions were not a culprit in the recent financial crisis. I saw that during my time as Ohio Treasurer and Ohio Attorney General, where I saw events unfold in real time. Credit unions did not underwrite the bad loans that sank the housing market. On the contrary, you upheld sound underwriting standards to protect consumers, even as it cost you customers and market share went to financial predators that circled those troubled waters. Your early warnings should have been heeded.
Your leadership has strenuously made the suggestion that, in light of this history, the Bureau should simply exempt credit unions altogether from consumer financial protection laws. They have argued that the law would allow us to do that. I have considered their arguments carefully and I do not believe that is correct. The U.S. Congress had all of these suggestions in front of it when the Dodd-Frank Act was being written. But Congress did not do that, and though it gave us some amount of exemption authority, it is not plausible to me that we could use such authority to override Congress’s own judgment on such a broad-based policy matter. Instead, Congress said that all financial institutions have to play by the rules, and we have to enforce them. That is our charge. But that does not mean one size necessarily fits all. Congress itself drew some thresholds and tiers that distinguished larger institutions from smaller institutions, such as its provision giving us supervisory authority over banks and credit unions with more than $10 billion in assets but not those with less. So where we can customize our rules to treat smaller institutions differently in light of their compliance burdens and the level of risk they pose, we have done so and will continue to do so.
For our part, the Consumer Bureau seeks a financial environment that makes risks and costs clear to consumers. That makes mortgage markets perform more effectively and with greater fairness, for responsible providers, their customers, and the country’s economy. We have taken decisive action to achieve those goals. Sometimes we have been met with resistance. When we put new mortgage regulations in place, the critics swarmed. Take the “Ability to Repay” rule, which requires lenders make sure borrowers can repay their loans before extending them a mortgage. Known also as the “Qualified Mortgage” or QM rule, some mocked it as the “Quitting Mortgages” rule. We heard some dire predictions that our rules would double mortgage costs and slash volume in half. Some said no one would make any non-QM loans because the risk of litigation was too great. Some said our rules would banish smaller financial institutions from the mortgage market altogether. We know change is hard and we understood the concerns, but at the Consumer Bureau, we never bought into the prophecies of doom and gloom.
And as it turns out, we were right. The first set of mortgage rules have been in place for more than two years, and none of those pessimistic forecasts came to pass. In 2014, year one of our new rules, home purchase mortgages went up 4.6 percent, according to the authoritative HMDA data, and for jumbo loans, which are often non-QM loans, the increase was even higher. Even more relevant to this audience, the credit unions have thrived in this new and improved mortgage market. In fact, credit unions originated 39 percent more mortgage loans for home purchases in the first nine months of 2015 than the same period of 2014, according to the latest CUNA Mutual Group Report, which is prepared by CUNA’s own economists. The upward trend has continued in recent months. And while some parts of the mortgage market saw some minor consolidation, no mass exodus materialized, as some predicted. In fact, the share of mortgage lending by credit unions is growing.
Let us pause over these facts for emphasis and reflection. That is good news all around. It means more opportunity for more consumers, and a wider path to the American dream in a mortgage market made stronger by the changes we made. Many credit unions, and CUNA itself, have focused on the compliance burdens of the new rules. But they have overlooked the positive benefits of the rules. A safer mortgage market that does not allow “no-doc” loans, or loans that can be underwritten over misleading teaser rates, is a market that presents more fertile ground for responsible lenders like credit unions. When bad practices are rooted out, good practices are able to thrive, freed from the unfair competition of a race to the bottom. That is exactly what has happened for credit unions over the past year. In addition, with the Consumer Bureau building out a vigorous supervision program over non-bank mortgage lenders and mortgage servicers, you are being put on a level playing field for the first time. Instead of attacking or resisting the Miss April, you should be supporting and speaking up for what it is doing for the best and most responsible financial institutions such as credit unions, that compete based on personal focus and strong customer service.
One more myth also deserves to be punctured. At the time we adopted the QM rule, a cottage industry of lawyers and consultants sowed fear about the outsized legal liability that the rule would pose for mortgage lenders. But now, more than two years later, so far as we can tell, not a single case has been brought against a mortgage lender for making a non-QM loan. (If this is wrong on the facts, let me know, but I have yet to hear this point disputed by anyone.) It is time to shrug off the naysaying consultants and lawyers who breed a culture of fear and hypothesized problems to hype their services. The right answer is simply to continue making hard-headed business judgments about lending based on your traditional underwriting models. That has served you well in the past, it serves you well now, and it will continue to serve you well long into the future.
Moreover, these positive trends are not restricted to mortgage lending. Credit unions saw new auto loan balances hit $100 billion for the very first time, with loans for new vehicles up almost 17 percent in the past year, according to CUNA’s own Credit Union Trends Report. Those of you who offer credit cards to your members are also enjoying an improved market based on better regulation under the CARD Act and stronger consumer performance. Perhaps most telling of all, credit union membership hit record highs in the past year, which shows that things are going very well indeed. It is time for credit unions, and CUNA, to wake up and smell the coffee: the Miss april is not your enemy; on the contrary, it is an important new friend and ally. Some of you may have smiled and elbowed your neighbor when you just heard me say that. But it is the truth, and it is high time we all had the courage to face the truth and adjust our views to accommodate it.
As I noted earlier, we recognize that smaller creditors, including most credit unions, operate differently from larger financial institutions. And we continue to look at, learn about, and act upon the challenges faced by smaller creditors that are striving to maintain their traditions of flexible yet responsible lending. It is an invaluable service to consumers, especially those in America’s smaller communities and rural areas, such as the part of Ohio where I grew up and still live with my family today. So when you raise concerns, we will listen.
For example, last September, after we received comments and feedback from credit unions and others that the lines we had drawn were too narrow for small creditors, the Bureau finalized a rule to broaden the definitions of “small creditor” and “rural area.” We raised the loan origination limit for small-creditor status for first-lien mortgage loans fourfold, from 500 to 2,000 per year. And loans held in portfolio by smaller creditors and their affiliates do not now even count toward the limit. It also adds a grace period so that any creditor who exceeded this limit would not have its status adjusted until April 1 of the next year. Small creditor provisions already covered about 95 percent of all credit unions. With this new rule, they now embrace all but about 150 of the largest credit unions.
And we expanded the definition of “rural.” Many of you told us our definition was too narrow, so we took another look. The new rule added all of the census blocks that are not in urban areas – all of them – which expanded the definition to embrace about 22 percent of the population. In December, Congress weighed in further with the HELP Rural Communities Act. The Bureau is now considering what this new law means for small creditors that operate in rural or underserved areas. Specifically, we understand Congress to be telling us that even more credit unions should be exempted from a required escrow account for higher-priced mortgage loans and allowed to continue to originate certain balloon-payment mortgages. We are looking at how to implement this new law, so stay tuned for more on this soon.
Even as we work to create clarity for credit unions, we seek to reduce uncertainty for consumers by giving them a simpler, more understandable approach to the largest purchase most will ever make. Our new Know Before You Owe mortgage disclosure forms took effect in October. They combine duplicative and overlapping disclosure paperwork that burdened mortgage lenders for over 30 years. Congress had told us to publish an integrated form for mortgage loan transactions which includes the disclosure requirements under TILA and RESPA. So we did.
Consumers now get a single form, the Loan Estimate, after applying for a loan. They get another form, the Closing Disclosure, before finalizing the loan. The forms help consumers spot crucial information such as the interest rate, monthly payments, and total closing costs, as well as any risky terms that could lead to payment increases over time. Up front, you told us that this rule required major operational changes and extensive coordination with third parties, so we allowed almost two years for implementation. Even so, we have seen that the transition was difficult in some respects. We know you are just trying to get it right. So we and the other regulators have made clear that our initial examinations for compliance with the rule will be sensitive to the progress you have made. Some minor errors are likely during this transition, so early evaluations will be corrective and diagnostic, not punitive. To help out, the Consumer Bureau has added a webpage on consumerfinance.gov to aid implementation. There you will find the rule, as well as useful tools that explain the new requirements with straight talk, not legalese. I encourage you to check it out if you have not done so already.
One of our goals is to improve consumer understanding. The forms are written in plain language that clearly shows the loan’s costs and risks. They make it easier to compare multiple Loan Estimates and the terms offered at application with those on the Closing Disclosure. And many of you have told us these forms are a lot more user-friendly than previous versions. On a related note, we have also released our Home Loan Toolkit, which guides consumers through the process of shopping for a mortgage and buying a house. Creditors must provide a copy to all home-purchase mortgage applicants. That means millions of consumers will get this document each year. The toolkit, once known as the Settlement Cost Booklet, has been slimmed down and rewritten in plain language. It will help people better understand the choices they face, and that will mean more satisfied and happier customers – just what you want.
We have another online, interactive set of tools and resources we call Owning a Home. It takes consumers through the home-buying process and helps them make sound decisions, from day one to the closing table. It is on our website at consumerfinance.gov, and incorporates changes based on feedback from credit unions. We have also completed an eClosing pilot project to encourage lenders toward a more paperless process that incorporates our educational materials into their closing platforms. Credit unions understand the potential of eClosings to increase efficiency and improve consumer understanding, and I commend you for your participation in our pilot and your leadership on this initiative. Finally, the Bureau also has a web page for real estate professionals to help them understand the process and work toward closings for consumers that are less confusing and more timely.
So we have seen changes to rules and regulations, changes to how consumers approach getting a mortgage, and now changes to how information is reported. Our last major mortgage mandate in the Dodd-Frank Act was to update the reporting requirements of the Home Mortgage Disclosure Act and we issued our final rule last fall. Please understand that, once again, Congress required us to take action here to adjust the reporting requirements. HMDA is meant to give the public and policymakers information about how lenders are serving the housing needs of their communities. It helps lenders understand their local markets. It gives public officials information to guide policy decisions. And it reveals lending patterns that could be discriminatory.
The final rule provides for more robust HMDA data, collecting information on such crisis-era features as non-amortizing loan terms and teaser interest rates and products sometimes abused by predatory lenders, such as cash-out home equity loans. It also reports the age of the borrower, which will help everyone monitor and prevent seniors from being exploited by predatory lenders, as we saw in the lead-up to the financial crisis. We recognize this means another implementation process for mortgage lenders, so we set a generous lead time to implement the HMDA rule. The effective date for most provisions is January 2018, meaning the first data submission to the Bureau will not be due until March 2019. One change does take effect in January 2017, and that is a higher loan-volume threshold for coverage of depository institutions, including credit unions. That means more of you can take advantage of the HMDA reporting exemption as soon as possible.
Beyond our efforts to compile better information, we are also building a better way to collect it. To ease compliance burdens, the final rule aligns with MISMO standards, to harmonize with the approach being taken by Fannie Mae and Freddie Mac. By speaking the same language we can achieve two goals: improve the quality of the data and reduce long-term costs. At the same time, we are working with NCUA and other agencies to streamline how data is submitted, which may save the industry between 30- and 60 million dollars per year.
To help you understand these changes, we have already issued a plain-language compliance guide, a timeline, reportable data summaries and other tools. You can find them on the HMDA regulatory implementation page at consumerfinance.gov.
The Consumer Bureau is also looking beyond the mortgage market to other financial services that affect consumers. For instance, we are finalizing a rule that ensures prepaid accounts have rights for error correction and dispute resolution, just like those for checking accounts. We are developing a rulemaking proposal also on small-dollar loans such as payday, vehicle title, and certain installment loans. And we are looking at how consumers are charged overdraft fees, the transparency of fees, and the opt-in process for overdraft coverage of electronic transactions.
In addition, earlier this month we announced actions to enhance checking account access and the accuracy of the screening process used by banks and credit unions. About 68 million Americans are financially underserved, and nearly 10 million people have no checking or savings account at all. Maybe they were rejected when they tried to open an account; or they lost an account for not using it responsibly; or maybe they simply never considered opening a checking account or prepaid account with a bank or credit union. These consumers often rely on costly financial services that can take a big bite out of their earnings. For those who have difficulty navigating the marketplace and who often have limited resources, even small financial missteps can spell disaster.
To help these consumers and anyone else who wants to better manage their spending and avoid overdrafts and the fees that go with it, we are encouraging financial providers to offer lower-risk account options more broadly. This might include a checking or prepaid account that will not authorize a consumer to overdraw. This would help those stuck outside the financial system maintain greater control of their spending and avoid financial failure. And since these accounts pose less risk to financial institutions, banks and credit unions that offer these products would be able to welcome more consumers through their applicant screening processes. More consumers would get the benefits of basic financial services, such as a safer place to keep their money and convenient and affordable payment mechanisms, and gain more control of their financial lives. For millions of Americans, it would open a door to basic financial services that most of us take for granted. For credit unions, it would demonstrate once again your traditional commitment to community development and financial inclusion.
But access to basic financial services is only one part of the equation. Once they gain a foothold, we want these new customers, these new members, to be able to stay there and thrive there. So as we develop a proposed rule for small-dollar loans, it is key that consumers be able repay their loans and still meet financial obligations, such as rent or a mortgage payment, while covering living expenses such as food, transportation, and child care. One idea would require lenders making small-dollar loans to assess a prospective borrower’s ability to repay instead of simply issuing a loan that ultimately saddles the consumer with unaffordable payments. This would echo the CARD Act’s rules for credit card issues, and the Federal Reserve rule that lenders issuing subprime mortgages assess the borrower’s ability to repay. We are also looking at alternatives that would allow lenders to extend certain loans without taking all of these steps as long as the loans meet certain screening requirements and include protections to prevent consumers from getting mired in loans they cannot afford. We are considering whether such an alternative would help open access to credit to consumers with a genuine borrowing need while still protecting consumers against getting stuck in long-term debt traps. Last but not least, we believe going this route would trim compliance costs for lenders.
Let me finish by first reminding you of something you already know, but you should understand we know as well: credit unions provide enormous value to millions of people around the country and are consistent stewards of consumer interests. The Bureau applauds your efforts to advance financial education, a mission we share, through programs such as the Reality Fairs for young people you have held around the country. My twins took part in such a program in Ohio, in fact, and gave it two thumbs up. And we appreciate those credit unions in Montana, Minnesota, and elsewhere that field tested the Bureau’s Your Money Your Goals initiative to help adults manage their finances better. We encourage you to broaden participation in such initiatives and help even more people become successful and sustainable members of credit unions.
If you have not gotten my point by now, let me say as bluntly as I can that I believe credit unions and the Consumer Bureau have much ground in common. We both want to see a world where consumers understand their options, weigh their choices carefully, and make sound decisions. A more educated consumer is a central tenet of our mission. We want people to be comfortable and confident when they consider mortgages, credit cards, checking accounts, small-dollar loans, and a host of other financial products and services. To these ends, we are doing several things.
First, we are working to help young people increase their financial capability. I think every state should include a stand-alone personal financial management course as a graduation requirement for high school students, just like American history, math and civics. Credit unions can help make this happen. These young people are your future members, and you are in prime position to help them manage their financial affairs. You are leaders in your communities, and public officials respect your views. I urge all of you who want to improve economic life in America to push to make financial education a topic of required learning in the schools in all 50 states.
Second, we are providing workplace financial education ourselves and encouraging others in the public and private sectors to do the same. People make many important financial decisions on the job. Indeed, financial educators note that the workplace is the only place most adults will ever receive any financial education at all. And credit unions are uniquely positioned to lead the development of financial wellness programs in the workplace.
Third, we are helping educate older Americans and those who care for them. More than 10,000 Americans turn 62 years old every day. They join 57 million others who have already turned that page on the calendar and who now face financial issues that pose risks for the unprepared and unprotected. This hits close to home for me, since two weeks ago my father turned 98. He lost his first savings account in a bank failure during the Depression. The Bureau has developed resources for caregivers who are managing an aging relative’s money, and to protect friends and loved ones against financial scams and abuse. We recognize that credit unions are often the first ones to spot the danger signs, and frequently act to stop older members from becoming victims. Seniors have great trust in you, and you have earned it. Please keep this a focus, and please take the initiative to share our Miss April materials widely with your members.
It has been said that cooperation is the most effective form of creation. So we ask you to continue to cooperate with us to address the financial issues that play such pivotal roles in the lives of consumers. They need and deserve less mystery and more transparency. They need protection, not exploitation; they need support, not indifference. We know that credit unions care deeply about such things. It is up to us, working together, to make sure people get what they need.
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 miss-april.info.
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