#Chopra

28 06, 2022

FedFin on: DIF Premium Assessments

Arezou Rafikian2023-01-25T13:58:14-05:00June 28th, 2022|The Vault|

The FDIC is proposing to raise base Deposit Insurance Fund (DIF) assessments by two basis points (BPS) to replenish the DIF by the statutory deadline to reflect deposit inflows that the FDIC no longer expects to be temporary. Even after the DIF reaches its minimum ratio, the added assessments would continue to restore the fund to a more ample reserve. This will increase costs at insured depository institutions (IDIs), in some cases likely by sizeable amounts likely to alter business strategy in ways that might dampen economic growth….

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27 06, 2022

Karen Petrou: Consumer-Finance Regulation Under the New Paradigm

Arezou Rafikian2023-01-25T15:16:00-05:00June 27th, 2022|The Vault|

My interview late last week with NPR’s Marketplace on the CFPB’s assault on credit-card fees sparked considerable comment mostly about how much people hate their credit-card fees. What’s at stake here, though, is not one fee – it’s the impact of a paradigm shift in the construct of U.S. consumer-finance regulation. If Rohit Chopra has his way – and he may well – consumer financial-protection standards will be transformed from reliance almost exclusively on disclosures into a federal construct of price-setting and product prohibitions. Political ideology may dictate a preference between these paradigms, but a choice that enhances effective consumer protection isn’t that simple – disclosures have largely failed consumers, but nationalized consumer finance could crush consumer banks.

Historically, U.S. consumer-financial protection law depends on disclosure. Indeed, transformational law were called the “truth-in” acts because Congress believed that making financial providers tell the truth would set consumers free from predatory practice. Congress also understood that some practices were ill-governed by pages of ex ante paperwork or seemingly-comparable terms and thus set standards – when payments must be in hand – or provided express protections – $50 maximum charges for transactions that go astray. However, with few exceptions mostly instituted in 2010 after the crash, Congress did not allow regulators to set prices or prohibit even egregiously predatory products. Look for example at the Home Ownership Equity Protection Act, which principally required disclosures and did nothing to staunch high-risk mortgage finance and the crisis it fostered.

It’s thus understandable that Rohit …

16 06, 2022

FedFin On: Big-Bank Consumer Service

Arezou Rafikian2023-01-26T13:35:54-05:00June 16th, 2022|The Vault|

Combining some of its outstanding initiatives and adding new ones, the CFPB is seeking information on how well larger banks and credit unions serve consumers and what steps may be needed to make them do better. The focus of the inquiry is response time, content, and methodology following consumer inquiries based on provisions in the agency’s mandate allowing it to require that banks with assets over $10 billion and their affiliates provide timely responses to consumer requests for information about their accounts. This was included in the Dodd-Frank Act because of ….

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

13 06, 2022

Karen Petrou: Why Chopra is Right about Consumer-Data Prohibitions

Arezou Rafikian2023-01-27T15:31:54-05:00June 13th, 2022|The Vault|

As we noted in our assessment last week, CFPB Director Chopra has taken another bold step rewriting consumer finance with a strong stand in favor of stiff new consumer-data protections. These would abandon the notice-and-consent approach which, as Mr. Chopra rightly says, leaves most of us with little privacy and less protection. Instead, certain uses to which firms put our data would simply be prohibited. If the CFPB can get this right, then it will strike a blow not only for personal privacy, but also for sound finance with far fewer high-risk conflicts of interest.

The notice-and-consent approach to privacy protection is the epitome of information asymmetry and thus of ineffective consumer protection. We all know what it is by virtue of the regular process by which our smart phones apprise us of updates often designed more to capture our data than to improve reliability or functionality. Under pressure, phone providers have recently added a bit more information on what each update does if one can find and then understand it, but failure to agree to an update endangers continued cell-phone service. This is the equivalent of solitary confinement and so each of us dutifully agrees to each update no matter how much of our privacy we give away.

Financial-privacy disclosures are still largely an analog game by virtue of the privacy notices required under the 1999 Gramm-Leach-Bliley Act. Back then, finance was bereft of digital paraphernalia and banks dominated it. Thus, these privacy notices were and are essentially …

1 06, 2022

FedFin: AI Adverse-Action Requirements

Arezou Rafikian2023-02-21T12:52:57-05:00June 1st, 2022|The Vault|

Continuing its use of novel rulings that preclude public notice and comment, the CFPB has issued a landmark ruling on artificial intelligence (AI) and other forms of algorithmic underwriting stipulating lender responsibility for sending out the adverse action notices required under the Equal Credit Opportunity Act (ECOA). The CFPB recently added a broader range of credit decisions on outstanding loans (e.g., granting or reducing lines), to these notice requirements, making the reach of this new policy still broader. Lenders are responsible for adherence to these requirements even if their underwriting models are provided by third parties or credit decisions are made by third parties such as fintechs or auto dealers. However, when these nonbanks are the lender, they are then subject to CFPB enforcement even if the Bureau does not have formal supervisory power over them under another recent CFPB ruling…

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17 05, 2022

FedFin on: CRA Regulatory Rewrite

Arezou Rafikian2023-02-21T14:50:17-05:00May 17th, 2022|The Vault|

Following much talk about the need to update Community Reinvestment Act (CRA) rules since this was last done in 1995, federal banking agencies have finally agreed on a proposed redesign of standards essential to banks that wish to expand or acquire as well as those seeking strong community ties and the policy and political benefit these afford. Much of the complexity in the NPR results from the agencies’ decision to allow only partial credit for activities (e.g., mortgages) largely assumed in the past…

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

16 05, 2022

Karen Petrou: When the Fed Goes from Whatever-It-Takes to Anything-We-Can-Think-Of

Arezou Rafikian2023-02-21T15:11:51-05:00May 16th, 2022|The Vault|

On Thursday, the Washington Post included an article on all the ways in which inflation hurts middle-income families, the acute shortage of baby formula, and the cooking-oil shortage’s cost impact in places ranging from a D.C. shop selling doughnuts to sub-Saharan Africa. Other articles chronicled stablecoins’ instability even as stock markets wobbled precariously above going so deeply into correction that investors are not just chastened, but also cudgeled. The same day, Chairman Powell won his second term by a wide margin even as he told Marketplace that he couldn’t promise a soft landing, didn’t mean to commit the FOMC to only fifty basis-point hikes, and knows how hard inflation hits for most households while being unsure that the Fed can do much about it. What markets make of this muddle remains to be seen by those not too faint of heart to look. What I know it means is that a White House under acute political pressure will ultimately do its best to transfer blame from 1600 Pennsylvania Avenue to 20^th and Constitution at considerable cost to coherent policy.

One might discount my prediction of a political reckoning for the Fed by pointing to President Biden’s stout defense of his central bank last week when he tried to show the nation how much he was doing to quell inflation. But a careful read of Mr. Biden’s statements shows a focus more on the Fed’s independence than on its skill. So far, Secretary Yellen has persuaded White House …

9 05, 2022

Karen Petrou: Why the Agencies Demand a CRA Speed-Read

Arezou Rafikian2023-03-01T13:24:27-05:00May 9th, 2022|The Vault|

Was the new CRA proposal worth waiting for? Advocates on all sides of this question are burrowing into the 678 pages delivered unto them by the FDIC last Thursday. We’re doing the same for an in-depth analysis we’ll make as objective as possible as quickly as possible. At first glance, there’s a lot in the proposal for all sides to like a lot. However, the haste with which the agencies are gathering comment suggests that they hear Republican hoofbeats that may well pick up speed and strength as the industry’s deep read concludes.

The fact sheet released on the proposal laid out the both-sides benefits. Banks would bet certainty combined with points for investing in much of what they now do or want to do in areas such as social welfare, environmental resilience, and deposit-taking. Consumer and community advocates were cheered by the proposal’s tougher metrics focus on demographic data designed to demand racial equity, and higher barriers to exemplary CRA ratings.

However, each side carefully hedged its bet. Bank trade associations applauded the proposal’s provisions in broad terms, celebrating an inter-agency action along with provisions bringing CRA into the 21^st century. However, none blessed the proposal in substance, doubtless because the new demographic-reporting requirements and tougher grading system already give the industry heartburn.

Conversely, community groups warned that the proposal had better not go soft on banks, especially big ones. Anticipating these concerns, CFPB Director Chopra made it clear that, while he likes a lot in …

5 05, 2022

FedFin on: Agencies Advance Sweeping, Tough CRA Rewrite

Arezou Rafikian2023-03-01T14:34:50-05:00May 5th, 2022|The Vault|

The FDIC today led the way with release of a long-awaited inter-agency proposal updating decades-old CRA regulation. We will shortly provide clients with an in-depth assessment of the new approach, which includes an update to assessment-area calculations to address electronic-delivery modalities, tackles new concerns such as environmental and racial justice, and adds new community priorities such as childcare and financial literacy. This report provides details on these provisions as well as on key points raised at the meeting by CFPB Director Chopra…

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.

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27 04, 2022

FedFin on: Nonbank Consumer-Finance Supervision

Arezou Rafikian2023-03-01T15:07:08-05:00April 27th, 2022|The Vault|

Using what it describes as “dormant” authority, the CFPB is seeking comment on a rule setting the procedures under which it expands its authority to nonbank financial companies it believes pose consumer-protection risk. The procedural rule is just what this term implies – one that establishes procedural standards that may change upon finalization – rather than a request for views on the extent to which the CFPB has the authority it claims. Indeed, the Bureau clearly intends to use the authority stipulated in this rule for supervisory interventions even as comment on the procedures has yet to be completed…

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…