Mortgage Data Rule Changes to Lighten Banks' Burden: CFPB's Cordray

WASHINGTON Banks can expect changes to federal reporting requirements for mortgage data, according to the head of the Consumer Financial Protection Bureau.

CFPB Director Richard Cordray offered little detail on how institutions will report Home Mortgage Disclosure Act data differently than they do now, but he said one of the motivations for the changes will be to simplify the process for banks. Policymakers use the annual HMDA data to assess how well banks serve their communities' housing needs and to identify possible patterns of discrimination.

"We … will be revising the process by which the financial institutions provide information about the mortgage market under HMDA … both to improve the categories of information that are gathered and to ease the operational and technological burdens on industry to comply with this law," Cordray said Tuesday at American Banker's Regulatory Symposium.

HMDA is on the long list of consumer protection laws that the CFPB now enforces as a result of the 2010 Dodd-Frank law, which created the agency.

Cordray laid out the agency's priorities in broad terms, and he said that discrimination is one of the "four D's" threatening consumers that the bureau wants to combat. The others are "deception," "debt traps" and the "dead ends" consumers face in trying to counter bad industry actors.

He reiterated the CFPB's adherence to the "disparate impact" theory, meaning that banks can be at fault for fair lending violations even if an institution did not mean to discriminate.

"From the perspective of a consumer disadvantaged by policies that have a discriminatory effect, it makes no practical difference whether a lender consciously intended to discriminate," Cordray said. "We also have made it clear that lenders are responsible for the operation of their lending programs, even if they are structured to work with some sort of middleman who stands between them and the borrower."

Cordray also signaled that the bureau plans to release details on how banks' fair-lending requirements are included in the definition of so-called "Qualified Mortgages." The QM rule, which is due to take effect in January, will create a special class of safe loans that will be deemed in compliance with CFPB criteria for evaluating a borrower's ability to repay. He acknowledged that institutions want more information about the relationship between fair lending and QM requirements. The subject came up before Cordray's speech, during a fair lending panel at the symposium.

"It is a fair question. We understand there is tremendous interest in more clarity around that," Cordray, said, adding that he sees the bureau "addressing that in the very near future."

He said the "dead ends" encountered by consumers can include, for example, "indefensible" tactics by debt collectors that badger consumers with "constant phone calls; relatives tracked down; [and] false claims of facing arrest if the debt is not paid."

"People deserve to be treated with dignity, even if they do owe a debt," Cordray said.

Meanwhile, "deception" can be the result of customers having "confusion about crucial product information," he explained. This was the thinking behind the bureau's project to make loan disclosures "more accessible and more understandable." And when institutions are clearly deceiving customers, the bureau has aggressively used its enforcement authority, he said.

"Cleaning up deception in the marketplace requires more than better disclosure, so we have also taken action, as we have been doing against credit card companies that misled consumers with deceptive sales pitches," Cordray said. "As a result, we have put more than $700 million back in the pockets of over 8 million consumers so far."

The "debt traps" consumers find themselves in stem in part from the risks of their relying on short-term credit products such as payday loans.

"People in a tough situation with nowhere else to turn may think their only option is to use such products. At first glance, the fees can seem small compared to the pressing need for quick cash," Cordray said.

"But when the payment comes due, or when repayment is automatically taken from their accounts, consumers may not have enough money to repay the debt and the accumulated fees and still meet their living expenses. So they need to borrow again to avoid defaulting and to keep making ends meet. For a considerable number of consumers, the fees will pile up and leave them worse off. It can be a vicious cycle."

He said the bureau is analyzing such products, and has begun supervising payday lenders amid "an obvious demand for small-dollar credit products."

"We want to make sure that consumers can get the credit they need without jeopardizing or undermining their finances," Cordray said.