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Cordray Discusses CFPB Plans for Rules on Overdraft Programs
Friday, February 13, 2015 6:25 AM

Speaking at Tuesday's town hall meeting organized by the National  Credit Union Administration, Consumer Financial Protection Bureau Director Richard Cordray provided new details about how his agency plans to write rules on overdraft programs—the first time he's publicly delved so deeply into the issue.

The CFPB is looking at "the size of fees, frequency of fees, occasions for fees, the ordering of transactions" in overdraft but "we are not going to be banning the overdraft product," Cordray said. "As to whether we will have certain modifications or constraints around existing practices, that will all depend on what we see in the data."

Still, a number of other proposals are likely to come out first. Overdraft is in the queue, he said, but not quite as upfront as some things such as prepaid, payday, and the Home Mortgage Disclosure Act.

During a question-and-answer session, Cordray responded to questions from credit union executives, defending the agency's investigations of indirect auto lenders while shedding light on internal disagreements on how to make changes to the "qualified mortgage" rule to help smaller institutions.

On Jan. 29, the CFPB proposed raising the threshold for small and rural lenders which would allow more institutions to make qualified mortgage loans without having to meet certain requirements as larger lenders.

Cordray saw the changes as a positive and justified, though there was some internal pushback. "This was a matter of debate within the bureau," he said. However, he believed and concluded ultimately that the agency had initially drawn the line too narrowly and that more latitude should be allowed to small creditors to give them some room to grow.

As for expanding the definition of rural, Cordray said the proposal would cover about 22 percent of the population, which is almost 10 times the initial proposal from the Federal Reserve Board (before rule-writing power was transferred to the CFPB) and up from the 9.9 percent of the population that the existing rule covers.

One controversial area the CFPB has not eased up on is using so-called disparate impact theory to cite indirect auto lenders for unintentional discrimination. The legal theory is currently the subject of a case before the Supreme Court, though it is specifically tied to a different law than the one the CFPB mostly uses to bring such cases.

Cordray said agency exams of certain auto lenders that were publicized last year remain ongoing, while some have been resolved in the exam process and through nonpublic supervisory actions.

Cordray said he believed the practice of dealer markup, with financial incentives to mark up the rates for some consumers and not others, is a regrettable practice. "It's a practice that I would not be proud of if I were a lender and running my own lending program," he said. "And it's something that we continue to have significant concerns about in the marketplace and there's ongoing work around that."

In terms of other upcoming rulemaking, Cordray said they are currently digesting comments after the agency proposed expanding the kinds of information lenders must provide to regulators under HMDA. "We are not yet in a position to finalize that rule, but we will be in the relatively near future, not the immediate future," he said.

The agency is also currently reviewing comments that are still coming in for its proposal on prepaid cards and plans to issue a highly anticipated proposal soon on payday loans and deposit-advance products.

He added that the agency is working "on debt collection rules, which is somewhat along; on overdraft, which is somewhat along; and a variety of other things."