Written by Steve Van Beek
Hopefully that headline got your attention! Unfortunately, this seems to be a real requirement for certain credit unions and it shows how out of touch the Consumer Financial Protection Bureau (CFPB) is with how credit unions operate. It also shows how the CFPB says one thing - we understand the regulatory burden on credit unions - but then does another.
The Surprise from the CFPB. On Wednesday evening (January 30th), the CFPB sent an email to 160 credit card issuers requesting information for their credit card survey under Section 136 of the Truth in Lending Act (which was added by the Fair Credit and Charge Card Disclosure Act of 1988). The email indicated that responses needed to be returned 10 business days after January 31, 2013 (no firm date was included - institutions will have to count for themselves).
Where do Credit Unions Fit In? The CFPB took over responsibilities for Section 136 of TILA after the transfer of authority in July 21, 2011. Historically, this credit card survey was performed by the Federal Reserve and credit unions were not part of the survey. This all changed on Wednesday evening, when the CFPB sent the email to the 160 credit card issuers - including approximately 20 credit unions (the CFPB has not provided the list of the 160 institutions).
The CFPB's Confusing Language. The CFPB's email did not make clear that responding to the survey - for those lucky card issuers - was a legal requirement. The CFPB stated: "Your institution was selected to participate a [sic] semiannual survey on the terms of credit card plans as mandated by the Fair Credit and Charge Card Disclosure Act of 1988." Ok, we have the terms "selected" and "mandated." That naturally causes confusion. Credit unions aren't used to having regulatory requirements apply on a "selective" basis. So, it would make sense to go to the link included in the email, right?
The credit card survey information is on the right hand side of the page - including this language:
"Survey of credit card plans
The CFPB began to survey semi-annually the terms of credit card plans (FR 2572) offered by financial institutions on January 31, 2012, and publishes a report of the findings. The report includes information from the largest credit card issuers in the country, as well as other financial institutions that wish to participate in the survey."
Read that line again - "other financial institutions that wish to participate in the survey." Seems like a voluntary issue, right? That clears up the "selected" versus "mandated" issue, doesn't it?
Well, a good compliance officer is sure to check additional sources - such as the Form 2572 - which the CFPB hyperlinks. That page includes this information:
"Background: The Fair Credit and Charge Card Disclosure Act of 1988 required the Federal Reserve Board to develop a credit card survey. The Board published the first report in March 1990, outlining credit card plans available on January 31, 1990.
Respondent Panel: The panel consists of the 25 largest issuers of bank credit cards and 125 additional institutions, based upon the outstanding amount of revolving credit reported on the Call Report. Respondents include commercial banks, savings and loans, savings banks, and finance companies that issue credit cards through a bank or thrift. Participation is required of the 25 largest issuers; other financial institutions participate voluntarily." (emphasis added).
Case closed - right? There can't possibly be more. This is so clear - on its face - that this is an optional, voluntary, selective survey, right?
Wrong. Wrong. Wrong. The language of Section 136 of TILA includes:
"§ 136. Dissemination of annual percentage rates; implementation, etc.
(a) ANNUAL PERCENTAGE RATES.--The Bureau shall collect, publish, and disseminate to the public, on a demonstration basis in a number of standard metropolitan statistical areas to be determined by the Bureau, the annual percentage rates charged for representative types of nonsale credit by creditors in such areas. For the purpose of this section, the Bureau is authorized to require creditors in such areas to furnish information necessary for the Bureau to collect, publish, and disseminate such information.
(b) CREDIT CARD PRICE AND AVAILABILITY INFORMATION.--
(1) COLLECTION REQUIRED.--The Bureau shall collect, on a semiannual basis, credit card price and availability information, including the information required to be disclosed under section 127(c) of this chapter, from a broad sample of financial institutions which offer credit card services.
(2) SAMPLE REQUIREMENTS.--The broad sample of financial institutions required under paragraph (1) shall include--
(A) the 25 largest issuers of credit cards; and
(B) not less than 125 additional financial institutions selected by the Bureau in a manner that ensures--
(i) an equitable geographical distribution within the sample; and
(ii) the representation of a wide spectrum of institutions within the sample.
(3) REPORT OF INFORMATION FROM SAMPLE.--Each financial institution in the broad sample established pursuant to paragraph (2) shall report the information to the Bureau in accordance with such regulations or orders as the Bureau may prescribe.
...."
Notice the highlighted text in Section 136 of TILA. I'm not an English major but I'm pretty sure "shall" and "required" are not synonyms for "wish to participate" and "voluntary." Shame on the CFPB.
Voluntary or Required? The statutory language and NAFCU's discussion with CFPB staff point toward a requirement, but the clear language on both the CFPB and the Federal Reserve websites indicate this is voluntary for all but the largest 25 credit card issuers. Chalk another one up to regulatory uncertainty.
The End Result. Those 20+ credit unions who received the CFPB's credit card survey have 10 business days after January 31, 2013 to respond to the survey. Ultimately, the uncertainty regarding the required/voluntary nature of the way the CFPB communicated this issue means that credit unions receiving the survey will need to make a business decision regarding how to proceed (including, perhaps, calling the CFPB for additional clarification).
Those lucky credit unions who did not receive the survey (by the way, what if the point person the CFPB sent the survey to was on a 2-week vacation, or mandatory leave, or just left the CU?) would not be required to submit the survey. But, this should be a wake-up call to all credit unions that the CFPB may be talking the talk when it comes to regulatory burden - but it is more important that they walk the walk.
What Should the CFPB have Done? The rationale behind including credit unions in the survey is not the issue. It probably makes sense to include credit union card issuers in the survey to get a better sense of the overall credit card market. But, 10 business days to comply - come on! A much more appropriate roll-out of this survey requirement would have been to send the survey to the 20+ credit unions and inform them that their participation in this first survey (due 10 business days after January 31st) was truly voluntary to help them get familiar with the process. After that, the CFPB could include those credit unions in the required portion of the survey in the future. But, right off the bat - out of the blue - a new regulatory requirement with 10 business days to comply. That is simply shocking in this regulatory environment and it speaks to a lack of coordination and communication inside the CFPB.
As an alternative - the CFPB could have (but didn't) provide a "30-day notice" to these selected credit unions letting them know they would be included in the upcoming survey and to contact the CFPB if they had any questions on the process.
But, the CFPB didn't take that approach. Instead, the CFPB seems to have imposed a new regulatory requirement on 20+ credit unions with only 10 business days to comply. I'm at a loss of words (not really, as I wrote about 1300 words on the issue) - but you get my point.
***
Note: The above is a separate requirement from the Credit Card Agreement Submission required by 12 CFR 1026.58 of Regulation Z - which we blogged on January 22nd.
We've also heard from many credit unions that the CFPB has been unresponsive to their efforts to submit their credit card agreements by yesterday's deadline. At this point, the CFPB still hasn't provided clear instructions for the process and the best course of action is to document, document, document your efforts to comply. If the CFPB isn't responsive and you can show a good faith effort to comply, you'd have a pretty good argument against an auditor or examiner.
***
Also, I included this blog post under the blog's UDAP category as the CFPB's action here is pretty unfair.
Steve,
Did I miss something here? The respondent panel is the 25 largest issuers plus 125 additional. That's 150. So why did they send the survey to 160 institutions? Is that in case some do not reply? But if the response is mandatory, they should not need replacements. The CFPB is giving me a headache, I can't imagine what they are doing to you.
Posted by: Michael Holmes | February 01, 2013 at 09:42 AM
Michael - good points. Section 136 of TILA indicates the survey should be "at least 125" additional financial institutions. It looks like in their survey sample they went above and beyond. Unfortunately, they didn't consider the amount of notice and time credit unions would need. On that issue, they did the absolute bare minimum and that is very frustrating for an agency that sold itself on being a "21st Century Regulator" and committed to transparency.
Posted by: Steve Van Beek | February 01, 2013 at 09:49 AM
The Survey form is posted on the CFPB website and is actually quite benign. The credit card terms requested in the Survey form are just the basic card terms that could be readily pulled from any card issuer's credit card agreement, which are posted on the CFPB site anyway. CFPB's survey seems to be a quicker way for CFPB to assemble the data from a very small subset of card issuers, than actually assembling the data itself.
Posted by: Brian Witt | February 01, 2013 at 11:24 AM
Brian - those points bring up a natural question: Why is Section 136 of TILA still in place after the Credit CARD Act? A good question for lawmakers to consider. If the information is already being provided to the CFPB in the quarterly submissions, why require these 160 institutions to do additional legwork?
The more disconcerting part is the CFPB's continued failures when it comes to communicating issues to regulated entities (and those who try to help them comply).
Posted by: Steve Van Beek | February 01, 2013 at 11:28 AM