Posts from April 2012

Millions of Americans rely on loans and other credit products to attend college, buy cars, purchase homes, or open businesses. For many of us, access to credit makes it possible to achieve the American Dream of a better life for ourselves and our children. All too often, credit discrimination stands in the way of this access. It keeps worthy borrowers from the tools they need to reach their financial goals.

Credit discrimination is illegal. Under the Equal Credit Opportunity Act (ECOA), a creditor may not discriminate against you because of your race, color, religion, national origin, sex, marital status, or age (as long as you are old enough to enter into a contract). It is also against the law for a creditor to discriminate against you because you receive public assistance income, or because you exercise in good faith any of your rights under the Consumer Credit Protection Act.

Discrimination is not always obvious. A borrower may not realize that she has been the victim of intentional discrimination on the basis of her race or sex. Moreover, lending policies that seem evenhanded can be illegal if they have a disproportionate, negative effect on a group that is protected under ECOA, such as women or seniors. Lending practices that produce these adverse effects are said to have a “disparate impact.” They are unlawful unless they meet a legitimate business need that can’t be met by an alternative that has a less disparate impact. Discrimination that disparately impacts borrowers in violation of the law hurts consumers and can threaten the economic stability of our communities. That is why the law has long recognized this form of unlawful credit discrimination.

The Consumer Financial Protection Bureau is responsible for enforcing the Equal Credit Opportunity Act. The Office of Fair Lending and Equal Opportunity at the CFPB helps ensure that all Americans have fair, equitable, and nondiscriminatory access to credit, and we will use every tool at our disposal to protect American consumers.

Today we are giving fair notice on fair lending. We are letting both lenders and consumers know that in our examination and enforcement work, we will combat unlawful, discriminatory practices—including those that have an illegal disparate impact on protected borrowers. We will look not only at mortgage lending, but also at other types of credit including student loans, loans for cars, and credit cards.

Access to credit is critical to a successful financial future. At the CFPB, we are committed to fighting unlawful, discriminatory practices and creating a fair marketplace for all consumers.

Patrice Ficklin is the CFPB’s Assistant Director for the Office of Fair Lending and Equal Opportunity.

Last week, I had the good fortune to spend two full days in Memphis, Tennessee, with my friend and colleague, Holly Petraeus, who heads the CFPB’s Office of Servicemember Affairs.

I was in Memphis because of a great organization called RISE, whose name stands for embracing responsibility, initiative, solutions and empowerment. It is one of five national recipients of a special grant from the National Community Reinvestment Coalition’s National Neighbors Silver Campaign, a campaign dedicated to safeguarding the financial security of today’s seniors and future retirees. Holly and I spoke at their annual luncheon, where I learned about the good work RISE does to empower lower-income families and teach them financial planning skills. RISE’s efforts have helped 470 people grow their wealth by nearly $6 million since 1999.

I also spoke at a roundtable sponsored by the Aging Commission of the Mid-South/Memphis Area Administration on Aging. Over 30 professionals participated in the roundtable and related to me some of the critical issues facing seniors in Tennessee, Arkansas, and Mississippi. I heard about efforts to prevent frauds targeting older Tennesseans, monthly meetings of interdisciplinary working groups on financial abuse of seniors, and the difficulties that seniors face as a result of insufficient legal services for the elderly. I also learned about a hotline called “SeniorsBSafe,” which allows people to anonymously report financial and other elder abuse to the authorities.

On my second day in Memphis, I had breakfast with Tennessee Attorney General Robert E. Cooper, Jr., Shelby County Mayor Mark H. Luttrell, Jr., and Shelby County District Attorney Amy Weirich. We talked about the financial issues facing seniors in Memphis and, more broadly, in Tennessee, where a high number of payday and predatory lenders continue to take advantage of older Americans.

After breakfast, I enjoyed my favorite part of the day: listening to seniors at the Memphis Inter-Faith Association (MIFA), which has been operating in downtown Memphis since 1968 and delivers more than 1,200 meals a day to residents. At MIFA, I heard from nearly 40 “senior companions” – seniors who work part-time taking care of other seniors – who shared stories about the financial hardships, abuse, and exploitation from which they (and the seniors they care for) have suffered. I particularly remember a woman I met named Mary, who explained how careful she needed to be with her money. Mary made it clear that, although she loves her children and family members, she cannot trust them all with money matters. Amy Weirich and I urged everyone at MIFA to report what they see and hear in order to help bring elder financial exploitation into the open. Weirich, whose office has an elder abuse unit, made a commitment to better train senior companions on how to spot and successfully report elder financial abuse.

I ended my trip to Memphis by visiting Meritan, a regional non-profit agency based in Memphis. There, I listened to older American veterans tell me about their experiences with payday lenders and frauds aimed at veterans. We discussed the Aid and Attendance scam, in which fraudsters rip off veterans by putting their assets in “trusts” that cannot be accessed and also jeopardize their ability to qualify for Medicare and Medicaid. We also talked about the “Buy your Pension” scam, in which swindlers take a veteran’s pension, put the money out of reach, and invest in poor financial products on their behalf. On a brighter note, I also learned how senior veterans and others benefited from the job placement, financial counseling, and other tremendous community support offered by Meritan.

As they say at MIFA, there is something GOOD in Memphis!

April is a time when students and their families anxiously await their college acceptance letters. But for families across the country, the good news of getting into college isn’t the end of the anxiety. Figuring out how to finance a college education can also be daunting.

We want to find a way to make it easier to compare different options when making decisions on student debt. There is a lot of data out there on schools and loans, and we thought we’d try to get the key information into one place to help students see how their choices today might impact their financial lives in the future.

Today, we’re asking for your input to develop a new interactive tool to help navigate financial aid offers and student loans.

We’ve already put together a prototype. In this beta version, you can enter the financial aid information you’ve received from colleges, adjust your family’s contributions, input scholarships and military benefits, and much more. Our beta version can give you a rough estimate of your monthly payment after graduation, as well as a sense of your overall debt burden in relationship to the average starting salary of a college graduate. You can also see school-specific indicators like graduation rates.

But we need your help. We need students and families to tell us what is helpful and what is confusing. For the experts out there, we need you to tell us how to think about some of the technical assumptions, like interest rates and salary data. The information you provide will help us determine where to make both big changes and little tweaks.

We’ll be sure to report on what we’ve heard back to you and to other agencies working to make the process easier and simpler. Use the Financial Aid Comparison Shopper and tell us what you think.

We also challenge the developer community to make their own apps and web tools to help students make more informed decisions. Our prototype relies on data that are available to all of us, and we welcome the competition!

The CFPB wants to make sure that the student loan market works well for all students and their families. That’s why we worked closely with the Department of Education on our Know Before You Owe student loans project, launched a student loan complaint system, and created the Student Debt Repayment Assistant for borrowers navigating their repayment options.

With your help, we can make financial aid season a little less stressful when it comes to student loans.

Delinquencies. Defaults. Foreclosures.

Let’s face it: before the housing crisis, these and many other terms were foreign to many of us. Since 2008, however, they’ve become much more commonplace across America.

There’s no doubt that the mortgage servicing market can be confusing for the average consumer to understand and navigate. And it’s even more overwhelming for homeowners in financial distress. Being aware of what you owe and to whom you should make your payments, understanding changes to your interest rate, and knowing how to get help are important questions that deserve well-considered answers.

Today we announced that the Bureau is considering new proposed rules that would help homeowners better manage their mortgages with mortgage servicers. Mortgage servicers are companies responsible for collecting payments from borrowers on behalf of the actual loan owner. The servicer handles customer service, loan modifications, collections, and foreclosures.

The servicing industry had problems before the financial crisis, and many servicers have failed to keep pace with the increasing number of mortgage delinquencies. Many borrowers have complained that they did not receive the information they needed to stay on track with their mortgage and avoid foreclosure. Other borrowers ran into trouble because they had difficulty getting answers from their servicers. With better information, some people might have been able to save their homes from foreclosure.

The proposed rules currently under consideration aim to protect consumers from surprises by directing servicers to provide:

• Clear monthly mortgage statements that explicitly breakdown principal, interest, fees, escrow, and due dates
• Warnings before adjusting interest rates on certain adjustable rate mortgages (ARMs) that explain how the new rate was determined, when it will take effect, dates of future adjustments, and a list of alternatives for consumers to consider
• Options for avoiding expensive “forced-placed” insurance, which is insurance charged to borrowers by servicers when their existing insurance appears to have lapsed
• Early outreach to struggling borrowers that informs them of potential options to avoid foreclosure

We also want to address the issue of consumers getting the “run-around” when dealing with servicers. To accomplish this, the Bureau is considering proposals that would require:

• Payments to be credited to consumer accounts the day payment is received
• Implementing new policies and procedures so that records are kept up-to-date and accessible
• Quickly addressing and correcting errors
• Giving homeowners direct and ongoing access to servicer staff members who have access to the homeowners’ records and can actually help address their issue(s)

We expect to issue a proposal for public comment this summer and to finalize rules by early next year. We believe these rules represent important steps to demystifying the ambiguity of mortgage servicing and providing homeowners with information and assistance before it’s too late.

If you have questions, comments, or a mortgage complaint, you can submit it online or call 1-855-411-CFPB (2372).

The Consumer Financial Protection Bureau was fortunate to be born in the digital era. We’ve been able to rethink many of the practices that make financial products confusing to consumers and certain regulations burdensome for businesses. We’ve also been able to launch the CFPB with a state-of-the-art technical infrastructure that’s more stable and more cost-effective than an equivalent system was just ten years ago.

Many of the things we’re doing are new to government, which has made them difficult to achieve. But the hard part lies ahead. While our current technology is great, those of us on the CFPB’s Technology & Innovation team will have failed if we’re still using the same tools 10 years from now. Our goal is not to tie the Bureau to 2012’s technology, but to create something that stays modern and relevant – no matter the year.

Good internal technology policies can help, especially the policy that governs our use of software source code. We are unveiling that policy today.

Source code is the set of instructions that tells software how to work. This is distinct from data, which is the content that a user inputs into the software. Unlike data, most users never see software source code; it works behind the scenes while the users interact with their data through a more intuitive, human-friendly interface.

Some software lets users modify its source code, so that they can tweak the code to achieve their own goals if the software doesn’t specifically do what users want. Source code that can be freely modified and redistributed is known as “open-source software,” and it has been instrumental to the CFPB’s innovation efforts for a few reasons:

• It is usually very easy to acquire, as there are no ongoing licensing fees. Just pay once, and the product is yours.
• It keeps our data open. If we decide one day to move our web site to another platform, we don’t have to worry about whether the current platform is going to keep us from exporting all of our data. (Only some proprietary software keeps its data open, but all open source software does so.)
• It lets us use tailor-made tools without having to build those tools from scratch. This lets us do things that nobody else has ever done, and do them quickly.

Until recently, the federal government was hesitant to adopt open-source software due to a perceived ambiguity around its legal status as a commercial good. In 2009, however, the Department of Defense made it clear that open-source software products are on equal footing with their proprietary counterparts.

We agree, and the first section of our source code policy is unequivocal: We use open-source software, and we do so because it helps us fulfill our mission.

Open-source software works because it enables people from around the world to share their contributions with each other. The CFPB has benefited tremendously from other people’s efforts, so it’s only right that we give back to the community by sharing our work with others.

This brings us to the second part of our policy: When we build our own software or contract with a third party to build it for us, we will share the code with the public at no charge. Exceptions will be made when source code exposes sensitive details that would put the Bureau at risk for security breaches; but we believe that, in general, hiding source code does not make the software safer.

We’re sharing our code for a few reasons:

• First, it is the right thing to do: the Bureau will use public dollars to create the source code, so the public should have access to that creation.
• Second, it gives the public a window into how a government agency conducts its business. Our job is to protect consumers and to regulate financial institutions, and every citizen deserves to know exactly how we perform those missions.
• Third, code sharing makes our products better. By letting the development community propose modifications , our software will become more stable, more secure, and more powerful with less time and expense from our team. Sharing our code positions us to maintain a technological pace that would otherwise be impossible for a government agency.

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The CFPB is serious about building great technology. This policy will not necessarily make that an easy job, but it will make the goal achievable.

Our policy is available in three formats: HTML, for easy access; PDF, for good presentation; and as a GitHub Gist, which will make it easy for other organizations to adopt a similar policy and will allow the public to easily track any revisions we make to the policy.

If you’re a coder, keep an eye on our GitHub account. We’ll be releasing code for a few projects in the coming weeks.

When Utah Attorney General Mark Shurtleff invited me to Salt Lake City to meet with him, state and local senior services, and law enforcement groups, I jumped at the opportunity. I wanted to see how Utah is handling the opportunities and challenges of a booming senior population.

Utah has the sixth-fastest growth rate in the nation for people 65 and older. Unfortunately, Utah’s seniors are increasingly targets of financial crimes including financial exploitation. I was struck by the statistic that Utah’s seniors lose an average of $1 million per week to thieves and saddened that, in most cases, their own children and grandchildren are responsible for the crime.

I was pleased, however, to find that Utah is truly a state leader on seniors’ issues. I spoke with representatives from Utah Legal Services, the Division of Aging and Adult Services, Salt Lake County Aging Services, the LDS Church, and several local police departments. All of them are working hard to educate seniors, prevent exploitation, and prosecute criminals who prey on seniors. Even better, they came to the meeting with great ideas for improving seniors’ financial well-being and how the CFPB could help.

I want to share three of those ideas with you.

The first is a booklet put out by Utah’s Division of Aging and Adult Services, Navigating Your Rights: The Utah Legal Guide for Those 55 and Over. This fantastic book informs Utah seniors, in plain language and easy-to-read large type, about state and federal resources that can help them with important decisions like avoiding scams, obtaining benefits and medical insurance, and finding housing and care. It is one of the best lay-fiduciary guides I’ve ever seen, and I will be sharing it with the other states I visit.

The second idea came from the local police officers, who told me that they frequently meet with seniors to educate them on the risks of financial exploitation. The officers want to make sure that the seniors they talk to have up-to-date information on the latest scams and the resources necessary to avoid them. We are uniquely positioned to identify new trends in elder financial exploitation, and I look forward to partnering with state law enforcement agencies to share this information. Working together, we can stop new scams before they spread.

Finally, everyone at the table told me that they needed help navigating power of attorney arrangements. Many didn’t understand the extent of what they could and couldn’t do. I’m happy to say that the CFPB is developing a guide to help caregivers who have a power of attorney over an older person’s finances, and you should stay tuned for its release.

Thank you again to my friend, Attorney General Shurtleff, for inviting me to Utah to hear these great ideas. A video of the opening of our meeting is archived online.