Consumer watchdog boosts scrutiny of reverse mortgages

The U.S. consumer watchdog will boost oversight of the reverse mortgage market as borrowers with limited information take out complex loans earlier in life, according to a report released on Thursday from the Consumer Financial Protection Bureau.

The market for reverse mortgages, in which people age 62 and older borrow against the value of their homes without having to make payments while they live in the home, remains small. Only 2 to 3 percent of eligible homeowners have a reverse mortgage.

But the consumer agency said the loans could grow in popularity as more baby-boomers retire, and changing trends in borrowers’ use of the loans are making them riskier.

Since the 1990s, the proportion of borrowers in their sixties has more than doubled to 47 percent.

“Because reverse mortgages can help older homeowners ease the strain of retirement, this product can be beneficial if seniors choose it based on a solid understanding of how it works,” said Richard Cordray, the consumer agency’s director.

“But in some situations, the product can be misused in ways that harm borrowers,” he said.

Congress directed the Consumer Financial Protection Bureau to study the reverse mortgage market as part of the 2010 Dodd-Frank financial oversight law that also established the still-controversial watchdog agency.

The study could eventually lead to new federal regulations for the reverse mortgage market.

The loans can provide a source of income to help older people remain in their homes, Cordray said. Borrowers are responsible for property taxes and homeowners insurance but can defer loan payments while they still live in the house.

But the report found that almost half of reverse mortgage borrowers in fiscal year 2011 were younger than 70 and that more than 70 percent of people withdrew all the available funds at once rather than receive regular payments or use the funds as a line of credit.

These trends boost the likelihood that borrowers will run out of money or face foreclosure later in life, the agency said. Almost 10 percent of reverse mortgage borrowers as of February 2012 were at risk of losing their homes to foreclosure.

Misleading advertising about the products and inadequate counseling for potential borrowers also could lead people to unknowingly enter into risky loans, the agency said.

“In order to protect people against the misuse of reverse mortgages, we need to educate and inform not only older Americans but also the caretaker generation,” Cordray said.

The agency has established an interactive tool on its website to answer questions about financial products including reverse mortgages, and it will look into further regulations and enforcement actions to prevent false advertising and other problems, the report said.

The Federal Reserve in 2010 proposed rules that would have regulated advertising and improved disclosures consumers receive for reverse mortgages. The Dodd-Frank law shifted responsibility for regulating reverse mortgages to the CFPB as of July 2011.

Emily Stephenson

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New Complaint Database Will Empower Credit Card Users, May Expand to Other Financial Products

On June 19, the Consumer Financial Protection Bureau (CFPB) issued a policy that establishes a public online database of credit card complaints from customers. The database allows consumers shopping for a credit card to view data about other customers’ experiences in order to avoid abusive practices and poor customer service.

The database will allow consumers to make more informed choices about credit cards. In addition, transparency should create an incentive for companies to improve their business practices. While the initial database only includes information about credit cards, the CFPB has proposed to expand the database to include the other financial products it regulates, such as mortgages and student loans.


The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010, created the CFPB and gave it authority to address consumers’ complaints about financial services providers. The law established the CFPB to ensure “that markets for consumer financial products and services are fair, transparent, and competitive,” as part of a response to the financial crisis of 2008.

According to Federal Reserve data, 72 percent of consumers have at least one credit card, as do 83 percent of small businesses. Thus, if credit card companies load on unnecessary fees, raise interest rates, or fail to resolve incorrect charges, they could have a significant effect on the economy and on families and small businesses.

In July 2011, the CFPB began accepting consumer complaints, beginning with credit cards. The agency subsequently expanded the system to include mortgages, bank products such as checking accounts, private student loans, and consumer loans, with plans to eventually accept complaints about all financial products under its jurisdiction. In December of that year, the agency proposed to create a public online database containing the complaints it received about credit card companies and asked for public comment.

The Database

In the Consumer Complaint Database, the public can view key information, including the type of complaint (such as “late fee,” “APR or interest rate,” or “collection practices”). In addition, the database shows the name of the company that issued the credit card, the type of response the company offered to the complainant, and whether the consumer disputed the company’s response. The data does not contain any personal information, such as the consumer’s name.

The database allows users to search and sort the data and to export it in spreadsheet or database formats. The data tool, called Socrata, also allows users to create custom visualizations of the data, such as charts and graphs. Users can also subscribe to updates to the database. In addition, an application programming interface (API) helps external developers use the data, facilitating the development of innovative new tools.

Journalists and analysts have already begun using the data. Just hours after the database launched, the Charlotte Observer had created a chart showing each company’s share of the complaints.  The database will also allow the public to evaluate the effectiveness of CFPB’s complaint system and ensure that the agency is responsive and accountable to the public interest.

The Future

At the same time that the CFPB issued the policy to disclose credit card complaints, the agency proposed expanding the database to the other financial products that the CFPB regulates. The public can comment on the policy until July 19. Expanding the database would make it useful to consumers of other financial products, such as mortgages and student loans. Given the many abuses practiced by the mortgage industry, that dataset would be particularly important for American consumers.

CFPB staff also identified several potential ways that it might improve the database going forward. Most significantly, the agency will examine the feasibility of publishing the actual text of consumers’ complaints and companies’ responses while protecting privacy. Such narratives are important because they allow the public to better evaluate complaints and responses.

The CFPB may also consider making its database available to other regulators, which would provide those agencies a tool to disclose their own complaint data. The CFPB’s authority includes banks or credit unions with more than $10 billion in assets; credit cards issued by smaller banks or credit unions are supervised by other regulators, including the National Credit Union Administration (NCUA) and the Treasury Department’s Office of the Comptroller of the Currency (OCC). Including complaint data from those regulators would make the database more complete and useful to the public.

Transparency that Empowers Consumers

With the launch of the database, the CFPB joins a handful of other federal agencies that make their complaint data accessible to the public, including the Consumer Product Safety Commission (CPSC) and the Transportation Department’s National Highway Traffic Safety Administration (NHTSA). The Food and Drug Administration, within the Department of Health and Human Services, also discloses data on reported problems with drug safety, but not in such consumer-friendly formats.

Nonetheless, the transparency models pioneered by the first two agencies should provide valuable lessons for other federal agencies that handle consumer complaints or incident reports, like the National Credit Union Administration and the Office of the Comptroller of the Currency, as well as the Federal Trade Commission, the Federal Communications Commission, the Coast Guard, the Agriculture Department, and the U.S. Environmental Protection Agency. With very few exceptions (national security and privacy concerns among them), information that is collected by government agencies should be readily available to the American people.

OMB Watch

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The Truth About How Medical Debt Really Impacts Your Credit Score

It’s high time to explore the impact of medical debt on consumer credit reports  and consumer credit scores. On the surface, medical debt is not that different  than any other type of unsecured consumer debt. It’s statutorily dischargeable  in bankruptcy, can end up on your credit reports, and can have a negative impact  on your credit scores.

What Makes Medical Debt Different

That being said, that’s where the similarities end. Medical debt, unlike most  other consumer debts, is not usually reported to the credit reporting agencies  like, say, a credit card account or a mortgage is reported. Also, most medical  service providers don’t want to set up payment plans with their patients. You’ve  probably seen the ubiquitous sign at most doctor’s offices that reads, “Payment  in Full is Due When Services Are Rendered.”  That doesn’t mean, “We Extend  Credit!!”

Although, just because medical debt isn’t typically reported to the credit  bureaus, doesn’t mean it won’t show up on your credit reports, either. If you  won’t or can’t pay your medical bills, the service providers will spend a few  months trying to convince you to pay by sending statements and past due notices.  It’s important to keep in mind that their core competency is being a doctor, not  a bill collector.

After a few months of unsuccessful collection efforts, the service provider  is simply going to outsource the debt to a 3rd party debt collector.  And, yes, the debt collector will likely report the debt to the three credit  reporting agencies. The negative information will remain on your credit reports  for seven years from the date the original debt went into default.

The impact of a medical collection on your credit reports is no different  than any other type of collection. And this negative information is just as  damaging to your credit scores as a credit card collection and other types of  traditional consumer debt collections. When medical collections are paid or  settled, they are not removed from your credit reports, as some would have you  believe.

In FICO’s latest generation of credit risk scoring models, informally known  as “FICO 08”, there is a tiny bit of help, but only for consumers who have  original collection balances of less than $100. In these small-dollar cases, the  FICO score ignores the collection account. This would likely only apply if the  consumer’s medical coverage paid an overwhelming majority of the expense or if  the consumer wrote a bad check for the deductible.

The Impact, Quantified

While it’s impossible to know the exact impact of a medical collection to  your FICO scores, I ran a similar scenario on my personal credit report at to test the outcome. My 805 credit score turned into a  less-than-impressive 650-695. This would be the same impact regardless of the  type of collection, but there’s something important to consider when you’re  thinking about my personal scenario.

Most consumers who have collections from defaulted credit cards, broken  apartment leases, or other types of delinquencies, have other negative credit  information weighing down their scores. Consumers who have medical collections  might otherwise have perfect credit reports.

Many medical collections are the result of billing errors or insurance  processing snafus and not because of a consumer’s inability or unwillingness to  pay. These medical collections are a surprise and not something the consumer is  expecting.

Finally, the damage to their good credit scores is going to be significant,  when compared to the damage suffered by someone else who already has unrelated  derogatory credit information. Credit scores tend to take the path of least  resistance, which means it’s easier to turn an 800 into a 650, than it is to  turn a 650 into a 450.

Getting Them Removed is Next to Impossible

It would be insulting to simply suggest that you “avoid” medical collections,  given that most of us do so already. However, there are scenarios where we know  a collection is imminent, and then do nothing to avoid it.

In my 20+ years in the credit industry, I’ve spoken to countless consumers  who have medical collections and it’s shocking how many of them knew of an  insurance processing or billing error and simply conceded and said they’ll take  care of it, only to learn that they (sic) didn’t and now there’s this isolated  collection on their credit reports.

Collections are very difficult to get off of your credit reports. In fact,  the only way to get them removed is if the original merchant withdraws them or  they’ve been filed erroneously. While there are rumors of “pay for delete” deals  cut by collection agencies, the credit bureaus make it very clear in their  agreements with collection agencies that they are not to remove collections  simply because they’re paid. And, doing so could cost them their service  agreement with the credit bureaus.

John  Ulzheimer


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Lawsuit challenges consumer protection bureau

A Texas bank and two advocacy groups say the Consumer Financial Protection Bureau has too much power and lacks oversight.

As the Supreme Court prepares to rule on healthcare reform, a new lawsuit is taking aim at another of President Obama’s signature accomplishments — creation of the Consumer Financial Protection Bureau.
A Texas bank and two free market advocacy groups are challenging the constitutionality of the agency, which was the centerpiece of the 2010 Dodd-Frank financial reform law. The suit alleges that the agency was given too much power and that President Obama’s recess appointment of Richard Cordray as its director was unconstitutional.
The suit also challenges the law’s creation of a panel of regulators, the Financial Stability Oversight Council.
The main focus of the suit is the consumer bureau, which has been strongly opposed by many financial and business groups, as well as most Republicans in Congress. They have argued there is little congressional oversight of the bureau because it gets its funding directly from the Federal Reserve and not through the appropriations process, and its independent director is largely unconstrained by the White House or the courts.
“There is no example that any of us can find of any aggregation of such power in the hands of an un-elected bureaucracy free of any kind of constraints by any of the branches of government,” said C. Boyden Gray, the lead attorney in the suit.
“If you’re a poor beleaguered financial institution …and you are set upon by this bureau, you have no access to the democratic system — to the White House, the Congress or the courts — to appeal what’s happened,” said Gray, who was White House counsel to former President George H.W. Bush.
The suit was filed Thursday in U.S. District Court in Washington, D.C., by the State National Bank of Big Spring, Texas; the 60 Plus Assn., a senior citizen advocacy group in Alexandria, Va.; and the Competitive Enterprise Institute, a Washington, D.C., public policy group. The bank said it already has been harmed by new bureau regulations requiring the disclosure of fees for remittances sent to foreign countries. The regulations are so burdensome the bank has stopped offering the service to its customers, the suit said.
The White House said it would oppose any efforts to hinder the bureau’s operations.
“The president fought to put into law the strongest consumer protections in history, and he will continue to fight any effort from our opponents to weaken the CFPB or water down its ability to protect middle-class families,” said White House spokeswoman Amy Brundage.
The suit says Congress violated the Constitution in granting the consumer bureau broad powers over any financial products or services it deems “unfair, deceptive or abusive,” a term not defined in the law.
In addition, the suit alleges that Obama’s January recess appointment of Cordray as director was unconstitutional because the Senate was not in a recess. Backed by a Justice Department opinion, Obama said that the Senate’s short pro-forma sessions were masking a de facto recess and were designed to prevent him from filling key government jobs.
The suit seeks to overturn the creation of the consumer bureau and the financial oversight panel, as well as to prevent Cordray from using any of the powers of the director’s job.
Cordray’s controversial appointment was expected to spark a lawsuit. The agency needed to have a Senate-confirmed director to exercise many of its most important powers, such as oversight of mortgage brokers and payday lenders.
Nearly all Senate Republicans vowed to block confirmation of any Obama nominee unless the president agreed to water down the bureau’s authority. Obama would not agree to any changes and Cordray’s nomination was stalled for nearly six months. The recess appointment allowed the agency to function fully.
Jen Howard, a spokeswoman for the consumer bureau, said the lawsuit “appears to dredge up old arguments that have already been discredited.”
“We’re going to keep our focus on the important work Congress created us to do — making markets work for consumers and responsible providers,” she said.
Jonathan Turley, a constitutional law expert at George Washington University, said the suit had a good chance of overturning Cordray’s appointment.
“Presidents have gradually expanded their claimed ability to appoint officials during recesses to the point that it’s become perfectly absurd,” he said. Turley believes Cordray’s appointment was unconstitutional and the suit could work its way to the Supreme Court.
The challenge to the consumer bureau more broadly is another question, he said. It’s rare for courts to strike down an office or agency created by Congress.
“The courts tend to leave these questions to the political process to work out,” Turley said. “I think they have plausible arguments, but the advantage on that question still rests with the administration.”
The suit also says that the Financial Stability Oversight Council violates the Constitution’s separation of powers principle by giving the panel “sweeping and unprecedented discretion” to decide which financial firms are systemically important.

Jim Puzzanghera

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Obama’s consumer watchdog gets sued

A small Texas bank, together with two conservative advocacy groups, have filed suit against the Consumer Financial Protection Bureau, claiming that its powers and Obama’s recess appointment of its director are unconstitutional.

The State National Bank of Big Spring, Tex., the Competitive Enterprise Institute and the 60 Plus Association, a conservative advocacy group for seniors, claim that Dodd-Frank effectively gives “unbounded power to the CFPB,” resulting in “unprecedented violations of ‘the basic concept of separation of powers’ ” laid out in the Constitution.

richard cordray, cfpbRichard Cordray (Bloomberg)

The lawsuit also alleges that President Obama’s recess appointment of CFPB Director Richard Cordray was unconstitutional because it did not happen during an official Senate recess. Finally, it claims that the new Financial Stability Oversight Council is also unconstitutional for having “sweeping power and effectively unbridled discretion” to determine which banks are “too big to fail” and thus subject to greater oversight.

Republicans brought up many of these concerns about the CFPB from the start and have since proposed legislation to subject the CFPB to the congressional appropriations process and replace its single, presidentially appointed director with a five-person commission. The White House, however, has dismissed the complaints about Cordray’s appointment, and Democrats have defended the CFPB’s authority. In January, Senate Banking Committee Chair Tim Johnson listed the accountability measures for the new bureau, from audits by the comptroller general to the judicial review under the Administrative Procedures Act.

“This lawsuit appears to dredge up old arguments that have already been discredited,” says Jen Howard, CFPB spokesperson. “We’re going to keep our focus on the important work Congress created us to do—making markets work for consumers and responsible providers.”

But this is likely to be the first of only many challenges to the agency’s authority: Shortly after Cordray’s appointment, the U.S. Chamber of Commerce also suggested that it would consider legal action to curtail the CFPB.

Suzy Khimm

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Charge off rates driven down by more hiring

Charge off rates driven down by more hiringDelinquent and defaulted credit card debt has been on the decline for some time now, and new data suggests that instances of both are tied very closely to unemployment rates.
As the effects of the recession slip away and employers continue to expand their hiring practices, it’s expected that consumers will make more on-time payments into their various credit card debts, according to new data from the Mercator Advisory Group. When the recession began, instances of both charge offs and early-stage delinquency spiked at the same times unemployment did, and since it ended, both have moved slowly downward.
Now, both of these financial concerns are standing at or near all-time lows for all of the nation’s largest lenders, the report said. However, some experts note that even if unemployment continues to fall from its somewhat elevated state, there must be a logical bottoming-out in charge offs and delinquencies.
This is particularly true because improving credit conditions have allowed lenders to expand issuing to subprime borrowers. In many cases, these consumers are those who ran into financial trouble in the past and ended up having to seek some form of debt relief.


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Credit card debt rises as borrowers increase spending

Credit card debt rises as borrowers increase spendingOne of the nation’s largest lenders and payment processors found that consumers took on more  credit card debt but fell behind on payments less often between March and May.
In that three-month period, Discover Financial Services saw both the dollar value of purchases on its branded credit cards and the number of transactions it processed rise 5 percent, according to a report from the Associated Press. Consumers put some $26.1 billion on their cards during that time, and balances consequently grew 4 percent to a total of $46.6 billion overall.

However, the company also saw instances of both delinquency and default slip to all-time lows during this time, the report said. Accounts 30 days behind on payments fell to just 1.91 percent of all balances from 2.79 percent, and those so far behind they were written off as uncollectable fell to 2.79 percent from 5.01 percent.
Consumers who have more credit card than they can handle and end up falling behind on their bills may want to consider the benefits that seeking debt relief services can provide them.


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U.S. Watchdog Puts Credit Card Complaints Online

The new U.S. consumer watchdog agency is launching a website on Tuesday where  the public will be able to view complaints made by credit card customers against  specific banks and other lenders.

The Consumer Financial Protection Bureau said it is releasing the data to  make the market for credit cards more transparent and so the public, researchers  and the lending industry will have access to much of the data it receives from  consumers.

“Each and every time we hear from American consumers about their troublesome  transactions with financial products, it gives us important insight,” CFPB  Director Richard Cordray said in a statement. “The information helps us and it  should be available to help others too.”

The banking industry, however, has fought the idea of naming specific  institutions in the public database, arguing that anyone with a gripe,  legitimate or not, can tar the reputation of a card issuer by simply submitting  a complaint to the agency.

Under the 2010 Dodd-Frank financial oversight law the CFPB is allowed to  create public consumer complaints databases. The industry has argued that  nothing in the law, however, requires it to publicly name the institution  receiving the complaint.

“Why publish the amount of complaints against a specific company when there  are many complaints that at the end of the day are not justified,” Richard Hunt,  president of the Consumer Bankers Association, said in an interview. “There is a  significant chance of a reputational hit.”

Hunt also said there is a concern that the agency will only release  complaints related to the banks it oversees, which are those with more than $10  billion in assets. This could make large banks look like the bad actors in the  industry, he said, even if only a small percentage of their customers are filing  complaints.

When receiving a complaint the agency determines if the consumer actually has  a card with the bank in question and also seeks to determine if the same  customer is filing duplicate grievances, a senior CFPB official told reporters  on Monday.

No information about the consumer will be included in the public database,  the agency said.

The database will provide some information on how the lender responded to the  complaint, such as whether the customer received any compensation from the card  issuer.

The website will allow users to search the database in a variety of ways,  including by card issuer name, type of complaint and zip code, the agency  said.

When launched on Tuesday the database will at first only contain complaints  received since June 1, about 100 records. The senior official said the plan is  to add data received by the agency before that date later this year, after the  website has been live for a few months.

The agency is considering creating similar public databases for other types  of consumer complaints about financial products and on Tuesday it put out a  request for input on what type of products should be considered.

Also on Tuesday, the agency released a “snapshot” of some of the consumer  complaints it has received since opening its door on July 21, 2011.

For instance, the agency said it has received approximately 45,630 complaints  overall and of these 16,840 concern credit cards. The agency receives the  complaints in a variety of ways including through its website and by phone.

The agency said the most common type of complaints on credit cards are  billing disputes.

Dave Clarke Tim Dobbyn


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Debt Settlement Rises as Operations Become Automated

The debt settlement and credit counseling industry was soaring just a few short years ago. Consumers were paying close attention to the outstanding debts on their credit reports in the height of the housing boom/bubble. As a result, operations popped up overnight promising quick fixes to large debts.

That all came to a screeching halt in 2008 when federal regulators started taking a hard look at the debt settlement industry’s business practices. At particular issue were the up-front fees charged to consumers by the companies to enroll in their programs and the often complete ruination of credit reports necessary to complete the process.

The Federal Trade Commission (FTC) announced a number of high-profile settlements with debt relief operations and issued new rules for the industry in 2010. But the public relations damage was done.

Steve Rhode, a blogger focused on exposing debt relief scams, noted in a post last year that over the 12 months from April 1, 2010 to March 31, 2011, online searches for the term “debt settlement” declined 66 percent.  The term “credit counseling,” caught in the crossfire, also declined by about a third.

The debt settlement industry reorganized to combat the disaster. The Association of Settlement Companies (TASC), the industry’s main trade group, rebranded and relaunched in Aril 2011 as the American Fair Credit Council with a renewed focus on consumers and compliance with new regulations.

Even during the “glory days” of the debt settlement industry, ARM firms were reluctant (at best) to work with debt relief organizations. Some resented the debt settlement wall that was erected between the collector and the debtor; some collection agencies felt that debt relief firms were disreputable scam artists. But it was mostly about money.

While the debt settlement industry bubble was growing, so was the housing bubble. These were Halcyon Days for debt collectors. With so many people suddenly caring about old debts, and so much money available to consumers in home equity, payments in full were through the roof. So why should a debt collector bother with navigating the debt settlement channel when the result would be a fraction of the amount owed?

That, of course, all changed at the end of the last decade.

Along with the rapid and fairly thorough scouring of the debt settlement industry and a monumental shift in the economic landscape, new technology solutions have lead to a renaissance for debt settlement.

There is a robust and very competitive market for solutions that automate the communication between debt settlement companies and creditors, collection agencies, and debt buyers. And there are also solutions that allow consumers to negotiate settlement terms themselves based on preset criteria, cutting out third party debt relief firms altogether.

The traditional method of dealing with debt settlement accounts – endless calls to and from a consumer’s representative, and then to and from the client creditor – is being slowly phased out. This has led to increased acceptance of the debt settlement channel in the ARM industry.

In a recent survey conducted by insideARM, 53 percent of ARM company respondents indicated that they are using debt settlement to drive collections. More interestingly, 29 percent of the participants that reported not using debt settlement indicated their objections were related to third party disclosure and security concerns, compared to just 16 percent that objected to settlement rates that were too low.

By one measure, there is about $2.4 billion in outstanding credit balances entering the debt settlement system each month. The ARM industry is now recognizing that in order to get a percentage of that money, it has to come to peace with the debt settlement channel.

Patrick Lunsford

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