CFPB Reopens Comment Period on “Qualified Mortgage” Proposal

With approximately 1,800 comments already filed in response to a proposed rulemaking, the Consumer Financial Protection Bureau (CFPB) has reopened the comment period on the controversial “Qualified Mortgage” and “Ability to Repay” regulation for 30 days.  Citing extensive public interest in the proposed rulemaking, the Bureau has requested comments on a limited set of questions about mortgage performance data and litigation exposure and risk resulting from the proposed rule.

Specifically, the Bureau is seeking comments on the use of debt to income ratios in determining ability to repay, the use of residual income measures, the likely scale and frequency of litigation that could arise from the proposed rule, and estimates of such litigation’s cost to lenders.  It also seeks data from other sources than the FHFA database that is referenced in the request.  The Bureau also noted that it has received numerous comments and submissions since the close of the comment period last summer and invited the public to review these “ex parte” communications, which are made public as a matter of course.  The comment deadline is July 9.

The proposed regulation implements Title XIV of the Dodd Frank Act, which established new rules for underwriting residential home mortgages.  The statute requires lenders to make a reasonable determination at the time a loan is underwritten that the borrower has the ability to repay the loan on its stated terms.  “During the mortgage boom, lenders would sometimes qualify borrowers based only on their ability to afford the initial payments on an adjustable rate mortgage, or with the expectation that such a loan could be refinanced at a later date and the higher rate avoided, or based the loan on the underlying value of the home, rather than on the consumer’s ability to meet the loan’s terms,” said CFA Director of Housing Policy Barry Zigas.  “But when house prices collapsed, millions of borrowers with such loans were unable to make the suddenly higher payments and could not refinance into a new loan of any kind because their current loan exceeded their home’s value.”

Auto Insurers Often Over-Charge Moderate Income Drivers

Most good drivers – those with no accidents or moving violations – who live in moderate-income areas in 15 cities are being quoted high auto insurance rates by major insurers for the minimum liability coverage required by those states, according to new research released last week by CFA.  Over half (56%) of the rate quotes to two typical moderate-income drivers were over $1000, and nearly one-third of the quotes (32%) exceeded $1500.

The research, which uses the websites of the four largest auto insurers nationwide – State Farm, Allstate, Progressive, and GEICO – also reveals that rate quotes are often highly variable:  Quotes to the same consumer differ considerably.  For example, in one city price quotes from these companies to the same woman ranged from $762 to $3390.

“It is difficult to understand how insurers can justify charging more than $1000 a year for minimum insurance coverage to drivers who have perfect driving records for many years,” said CFA Executive Director Stephen Brobeck.  “It is also difficult to understand why the same driver is being quoted rates from different insurers that vary so considerably.  Insurers say rates reflect risk and cost, but if this in fact is the case, why do their assessments of these factors differ so radically?”

CFA Director of Insurance J. Robert Hunter called on state insurance commissioners to thoroughly investigate these issues:  “Given the fact that all states except New Hampshire require drivers to carry auto insurance, insurance commissioners have the responsibility to ensure that these drivers are charged fair, affordable rates.  Our research suggests that most rates charged moderate-income drivers are neither fair nor affordable.”

Proposed Universal-EMI Merger Violates Anti-Trust Laws

The proposed merger between Universal Music Group and EMI creates “an unfair method of competition” that constitutes “an unreasonable restraint of trade” because it will “substantially lessen competition” and is “likely to enhance market power,” according to a report released this month by CFA and Public Knowledge.  The report evaluates the impact the proposed merger would have on the U.S. music industry and corresponding digital distribution-dependent economy.  The groups filed the report with the Federal Trade Commission.  “In simple terms, the post-merger firm would have a strong incentive and increased ability to exercise market power to undermine, delay, and distort new digital distribution business models, in a market that has been a tight oligopoly for over a decade,” said CFA Research Director and report co-author Mark Cooper. He called on the FTC to “take steps to prevent this severe harm to competition and consumers.”

America Saves Reaches 300,000 Savers

America Saves, a national social marketing campaign that encourages individuals and families to save money and build personal wealth, announced earlier this month that 300,000 people have made a personal commitment to save by joining America Saves. America Saves helps individuals and families take charge of their financial future by setting a savings goal and making a plan to save towards that goal.  Over the past 12 years America Saves members have committed to save $34,880,019.08.  “Twelve years ago we set out to help people save more successfully. I am pleased that in that time we have been able to help over a quarter of a million people make a plan to reach their savings goals,” said CFA Associate Director and America Saves National Director Nancy Register. “From paying down debt to saving for emergencies, we know that people, regardless of income level, have the ability to save,” Register added. “While we are encouraged by the number of people who have made a commitment to save to date, we know that there is more to be done to make sure that every person has sufficient emergency savings and a plan to build wealth.”

CFA Launches Consumer Protection Institute

CFA has launched a new Consumer Protection Institute, a think-tank that focuses on current and emerging consumer protection issues and how to address them. The Institute will:

• conduct research on consumer issues, including CFA’s annual survey of complaint trends at state and local consumer agencies;
• seek to advance the consumer interest and promote better understanding of diverse perspectives on consumer issues through stakeholder dialogues and other means of information sharing; and
• initiate projects to enhance consumer education and encourage best practices for businesses.

At the institute’s first event, “A Transatlantic Privacy Dialogue,” which was held on June 6th in Washington, consumer advocates from the United States and Europe joined with representatives from businesses, trade associations, academia, and the U.S. and EU governments for an off-the-record discussion about behavioral tracking, the privacy implications of the Internet of Things, and protecting consumers’ privacy and Internet freedom from intrusive monitoring by third parties, including the government.

“People’s willingness to speak frankly and listen to others, even when comments were critical, was really impressive,” said Susan Grant, CFA’s Director of Consumer Protection and the leader of the Institute. “It’s through dialogues such as this that we gain greater understanding, which ultimately helps us move forward as we seek to address these complex issues.”