Compliance Blog

Posted by Anthony Demangone

As you may recall, Holly Petraeus was recently named the head of the CFPB's Office of Servicemember Affairs.   Following some of the recent SCRA violations that made headlines, Ms. Petraeus wasted no time in using her office's resources to remind lenders of the importance of SCRA compliance.  She recently issued a letter to the nation's largest lenders. Here's a link to a blog post that contains the text of the language. (Foreclosureblues.)

Under the SCRA, the servicemember is supposed to notify the lender that he or she is covered by the SCRA.  But Ms. Petraeus urged lenders to be proactive, passing along what I think is an obvious compliance tip. So obvious, it never occurred to me.  Here is a part of her letter:

In view of recent experience, I would urge you to take steps to educate all your employees about the financial protections that the SCRA provides and to review your loan files to ensure compliance.  I would also urge you to take other proactive steps.

Where you have reason to believe that a borrower is on active duty – for example, where the borrower has changed his or her home address from a standard street address to an APO or FPO – I would urge you to contact the account holder to determine whether SCRA protections apply.

That last paragraph is a simple way to tap down compliance risk and reputation risk all at the same time.  Kudos, Ms. Petraeus.

***

I recently wrote that the CFPB started a blog.  Elizabeth Warren wrote a blog post recently on the day that the CFPB hosted a meeting with numerous religious leaders.  Here is a part of the posts:

We also know that religious leaders across the country are wrestling with the moral dimensions of the financial crisis of 2008. The crisis revealed how the financial system permitted lenders to hide the true costs and risks of mortgages and to steer those who trusted them into products they did not understand. While some people profited from this business model, across the country, millions more suffered through foreclosures, crippling debt, or bankruptcy. Personal gain for a few came at the expense of all, as risky and complicated mortgage products brought the entire economy to its knees.

My many conversations with community banks have also reminded me that many lenders offered their products in a fair and transparent manner, only to find themselves in competition with other lenders that were willing to misrepresent the price or hide risks, all in an effort to boost their own profits or market share.

Nor were the problems confined to lenders. The system also permitted some borrowers to take risks that not only hurt themselves, but also hurt their neighbors by driving the value of property higher and then pushing it off a cliff when those borrowers defaulted on their loans. Recklessness hurt us all.

Ultimately, the financial crisis harmed both our pockets and our principles. The moral dimensions of the crisis run deep. No one should forget that, for many centuries, consumer protection laws have been deeply rooted in religious and moral traditions. The laws have changed, but the basic notion that lending should not be used as an instrument of advantage-taking is deeply embedded in our collective consciousness.

Many people of faith and conscience fought diligently for the consumer bureau because they saw that the attitudes and practices that caused the financial crisis did not reflect our common values. Enacting the new CFPB was a David-versus-Goliath fight, but, in the end, American families triumphed.

I'll just say this.  In the David-versus-Goliath fight, where do credit unions fit in?  I appreciate that Ms. Warren envisions the CFPB "leveling" the playing field to help credit unions and community banks that had to compete against predatory lenders. But I fear that even with her goal of leveling the playing field, the regulatory burden will increase for good actors and bad actors alike.  For example, I know the CFPB has mentioned the need to reform credit card disclosures coming out of the gate.  I'd urge them to focus on the formerly unregulated entities first.  That would help American families and help level the playing field.