A Bruised Cordray Opens Up About Internal CFPB Scrap Over Easing QM

WASHINGTON — Sporting a black eye he got while playing basketball, Consumer Financial Protection Bureau Director Richard Cordray opened up to credit union executives about another dust-up — the decision to ease qualified mortgage restrictions for small and rural lenders.

In unusually expansive comments during a town hall meeting organized by the National Credit Union Administration on Tuesday, Cordray detailed internal disagreements on how the agency should make changes to the QM rule to help smaller institutions.

"This was a matter of debate within the bureau," but "I ultimately believed and concluded that we had [initially] drawn the line too narrowly; that we should allow more latitude to the small creditors to give them some breathing room, maybe some room to grow," he said during a question-and-answer session with credit union executives.

On Jan. 29, the CFPB proposed raising the threshold for small and rural lenders which would allow more institutions to make qualified mortgage loans without having to meet certain requirements as larger lenders.

Cordray, who noted that his Ohio home would be considered rural under the plan, said despite the initial internal pushback, he thought the reasoning to expand what qualifies as "rural" was "quite justified."

The proposal would cover about 22% of the population, which is almost 10 times the initial proposal from the Federal Reserve Board (before rule-writing power was transferred to the CFPB) and up from the 9.9% of the population that the existing rule covers, Cordray added.

Cordray's comments at the event were unusually expansive, and he provided new details about proposals due soon from the agency, including plans to write rules on bank overdraft programs. It was the first time he's publicly delved so deeply into the issue after the agency released several reports on overdrafts, but he added other proposals are likely to come out first.

"Overdraft is in the queue but not quite as upfront as some of the things I mentioned such as prepaid, payday and HMDA [Home Mortgage Disclosure Act]," he said. "But we're thinking about it, we're working on it and happy to have input."

Cordray said officials are currently "digesting" comments after the agency proposed expanding the kinds of information lenders must provide to regulators under HMDA.

"We are not yet in a position to finalize that rule but we will be in the relatively near future, not the immediate future," he said.

He added that the agency is working "on debt collection rules, which is somewhat along; on overdraft, which is somewhat along; and a variety of other things."

One controversial area the CFPB has not eased up on is using so-called disparate impact theory to cite indirect auto lenders for unintentional discrimination. The legal theory is currently the subject of a fair housing case before the Supreme Court, though it is specifically tied to a different law than the one the CFPB mostly uses to bring such cases.

Cordray said agency exams of certain auto lenders that were publicized last year remain "ongoing" while some have been resolved in the exam process and through nonpublic supervisory actions.

"I believe the practice of dealer markup — with financial incentives to mark up the rates for some consumers and not others based on eyeballing the consumer in a way that is not transparent to the consumer and they do not know what is happening in terms of their rate — is, I think, a regrettable practice," he said. "It's a practice that I would not be proud of if I were a lender and running my own lending program. And it's something that we continue to have significant concerns about in the marketplace and there's ongoing work around that."

As for the shiner under his left eye, Cordray kicked off the session by explaining that he "obtained" the "temporary" black eye from a basketball game.

NCUA Chairman Debbie Matz was quick to respond, "Maybe it was part of the process of my twisting your arm to get you here," she joked.