On March 3, 2015, the House Financial Services Committee held a hearing entitled “The Semi-Annual Report of the Bureau of Consumer Financial Protection.” The witness was the Honorable Richard Cordray, the Director of the Consumer Financial Protection Bureau (CFPB). Questions from committee members bounced from the partisan to the practical and back, touching on several areas relevant to housing. The qualified mortgage (QM) rule was front and center in the discussion, as were issues around payday lending and overdraft protection. The partisan split appeared in the rhetoric, with Democrats highlighting the need for consumer protection and Republicans emphasizing consumer choice in the marketplace. The housing discussion focused on the qualified mortgage (QM) rule:
- Chairman Jeb Hensarling (R-Texas) pressed Director Cordray on several housing issues including whether the QM unduly restricted his constituents’ access mortgage credit, and whether the CFPB plans to revise the exception to the QM rule for Fannie Mae and Freddie Mac in advance of the deadline several years from now.
- Democrats, including Rep. Maxine Waters (D-Calif.) and Rep. Lacy Clay (D-Mo.), praised the CFPB for its response to consumers and its facilitation of direct consumer relief on mortgage debt.
- Rep. Michael Capuano (D-Mass.) highlighted that owner-occupied properties with two or three rental units, such as many triple-deckers in Boston and nearby suburbs, may not meet the current QM rule’s criteria for a single family property. The result is that in New England, many working class residents are at a disadvantage in accessing mortgage credit. On a lighter note, the question provided perhaps the most entertaining moment of the hearing when Director Cordray, in response to a question from Rep. Capuano, speculated that a triple-decker might be a kind of sandwich.
Oversight and accountability:
- Chairman Hensarling and other Republicans stated their desire to see the CFPB run by a board rather than a director to make it more accountable to Congress.
- Various members asked Director Cordray about fulfilled or outstanding requests for information, which he generally acknowledged.
- Committee members disagreed on the issue of overdraft protection for prepaid cards. A proposed CFPB rule states that if prepaid card issuers offer overdraft protection, they must give consumers the same protections that they do with credit cards. Rep. Randy Neugebauer (R-Texas) and a number of other Republicans argued the new structure limits consumer choice and may cause issuers to discontinue overdraft protections on prepaid cards altogether.
- Congresswoman Carolyn Maloney (D-N.Y.) disagreed, saying that overdraft fees are still far too high and argued that CFPB’s proposal to limit overdraft fees, instead of banning them outright, would incentivize companies to find loopholes in the rule and continue to charge high fees.
Payday loans or predatory lending?
- The CFPB is investigating the potential for consumer harm in payday lending. Director Cordray acknowledged the demand for small dollar credit, and that people need to have access to emergency credit. However, many consumers are rolling over debts with high interest rates (sometimes with an effective annual rate of as high as 390 percent), and they are becoming overly debt burdened. Committee members’ discussion highlighted the difficult balance between access to emergency credit and protection for vulnerable consumers from exploitative products.