Last week, Donald Trump announced that his administration was taking a close look at the Dodd-Frank Act and might replace those rules with “something else.”
The Consumer Financial Protection Bureau (CFPB) was created by Dodd-Frank to enforce regulations and receive consumer complaints, among other purposes; the Financial CHOICE Act, legislation currently winding its way through the House, would make the following changes to the CFPB:
- The director can be removed at will (currently, the director can only be removed “for cause,” though there’s an active court case that could change that).
- A deputy director can be appointed and removed by the President.
- The Office of Economics will report to the CFPB director and will review rulemaking and enforcement.
- Dodd-Frank-mandated offices will be optional.
- Mandatory advisory boards will be eliminated and advisory boards will be at the director’s discretion.
- The CFPB will no longer be a supervisory agency, but strictly an enforcement agency, with “power to enforce enumerated consumer protection laws only; no UDAP [unfair, deceptive or abusive acts and practices] authority of any kind.”
- The consumer complaint database will no longer be published.
- CFPB market monitoring will be eliminated.
It seems like change is coming to the bureau — like it or not. How would those potential changes affect home loan borrowers?
Who uses the CFPB today?
Research by David Weidner of Trulia pulled information from the CFPB consumer complaint database — which could be eliminated if the CHOICE Act passes as written — and used Trulia’s mapping capabilities to draw some conclusions about who might be affected by the changes.
Here were Trulia’s key findings:
- The CFPB has handled 224,796 home loan complaints (about 42,000 every year) since it started tracking complaints at the end of 2011.
- This represents 0.46 percent of all outstanding mortgages (per the U.S. Census Bureau’s numbers).
- Disputes about FHA, VA and reverse mortgages “have more than doubled since 2012,” according to Trulia.
- Americans ages 62 and older and military service members make up 15 percent of all complaints. Service members comprise 5 percent of complaints and Americans 62 and older comprise 10 percent of all complaints. “That’s a high rate given just 35 percent of seniors who own a home have a mortgage,” noted Trulia.
- Miami; Asheville, North Carolina; and Atlanta ZIP codes have the highest rates of CFPB mortgage complaints, and the New York metro area has three ZIP codes that land in the top 10 in terms of complaint rates.
“I was surprised by the sheer volume almost right off the bat,” Weidner told Inman. “It’s been a pretty widely accessed regulatory service for home borrowers.
“This is where the rubber meets the road in terms of visible changes that affect people’s lives,” he added.
Weidner looked for some of the CFPB’s more “obvious” tags first — “what kinds of mortgages people were having issues with and where they were having issues,” he said. (There’s an interactive heat map of problem reports on Trulia’s website, too.)
One finding that didn’t surprise Weidner was the issues with specialty mortgages.
“A reverse mortgage is a tough one for people to understand,” he noted. “There’s a ripe opportunity there for conflict, and it’s no surprise that those numbers have more than doubled.”
A breakdown of the dispute numbers:
- VA mortgage disputes rose 187 percent to 1,421 from 495.
- FHA mortgage disputes rose 102 percent to 5,478 from 2,707.
- Reverse mortgage disputes rose 172 percent to 562 from 206.
“Knowing how service members can get deployed and uprooted, it’s no surprise that VA loans are problematic,” he added. “And FHA loans are usually mostly low-income people, so we see disputes arising in at-risk loans.”
What happens if it stops moderating complaints?
Under the proposed CHOICE Act changes, the CFPB would still have the power to enforce consumer protection laws, but it would no longer have any UDAP (unfair, deceptive or abusive acts and practices) authority “of any kind,” and the bureau wouldn’t publish its consumer complaint database moving forward, either.
“Before the CFPB, the reality for most Americans was that they may not know who could help them,” Weidner explained.
The FHA, state banking regulators and state attorneys general all had the ability to help consumers, he noted, “but when you don’t have an agency that specializes in these particular kinds of financial products, you don’t have the expertise and you don’t have the experience factor.”
This meant that “a hodgepodge of government agencies” were in the business of enforcing consumer complaints, “which I think made dispute resolution uneven and unpredictable,” Weidner said.
Today, the CFPB is a “one-stop shop for consumers,” and if its scope is reduced or it’s eliminated entirely, consumers are likely to be once again confused about who should hear their complaints.
Weidner added that of the 224,796 complaints, all but 1,600 have been resolved. “It doesn’t mean the mortgage borrower always wins,” he noted, “but for better or worse, cases get handled, they get attention, lenders have to respond — and they get resolved.”