Tags: CFPB | Cordray | auto | mortgage

Fiscal Times: Consumer Financial Protection Bureau Is Overzealous

By John Morgan   |   Friday, 07 Feb 2014 09:31 AM

The Consumer Financial Protection Bureau (CFPB) may be slowing down the U.S. economy by squeezing housing lenders and auto lenders, The Fiscal Times reported.

The agency, whose mandate is to ensure the consumer is not harmed in financial matters, recently demanded auto lender Ally Financial pay $98 million to settle charges that it discriminated against minority customers.

The puzzling part is that Ally collects no information about the race of its loan applicants. The CFPB claimed that "computer models" could prove that minority buyers paid higher loan rates, but it submitted no data to prove its point, The Times said.

Editor’s Note: 38 Trades That Could Turn $1,000 Into $49,000

Ally, one of the nation's largest indirect auto lenders, agreed to the payment. The Times explained the company had an incentive to pay because it wants to be able to borrow from the Federal Reserve and also wants the government to sell a large bloc of Ally stock that it obtained as a consequence of the 2008 financial meltdown.

CFPB Director Richard Cordray called the settlement the largest auto loan discrimination case ever and asserted that Ally had not been making "sufficient efforts to ensure that it was complying with fair lending laws."

The agency settled the Ally case in December, and auto sales plunged in January. The Times suggested auto lenders are taking time to examine how to avoid fresh CFPB charges.

As for mortgages, the Times reported the agency issued approximately 800 pages of new rules in January that define who should be considered a "qualified" borrower for a home loan.

The new rules were put into effect despite a letter from 54 banking trade associations nationwide last fall asking the regulations be delayed. The banking groups said software vendors and compliance specialists needed time to prepare lending products that would adhere to the new rules.

The letter predicted "many banks will not move forward with lending until they are certain they are in full compliance and within the bounds of acceptable risk," and claimed that "it is a virtual certainty that mortgage lending in our states will be curtailed."

The CFPB is funded by the Fed and does not answer to Congress, according to The Times, but it was established because "unsound and unscrupulous" lending practices helped cause the 2008 financial crisis.

At a January congressional hearing, Cordray testified that since February 2011, about 270,000 consumers used the CFPB hotline to report mistreatment in mortgages, credit cards or other personal finance matters and that the agency has secured a total $3 billion in restitutions during that time, USA Today reported.

Editor’s Note: 38 Trades That Could Turn $1,000 Into $49,000

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