Park City, Utah — Banks are not alone in criticizing the newly-empowered Consumer Financial Protection Bureau: even some consumer advocates are piling on, raising concerns that the agency will not go far enough in rolling back preemption.
President Barack Obama's
During a panel on preemption on Sunday, speakers raised various concerns about the CFPB and its impact on whether federal laws will continue superseding state regulations of the banking industry. Bankers have expected the CFPB to be more inclined to protect state laws.
But consumer advocates on a panel Sunday raised a different concern about the future of preemption, saying that so far the CFPB has done little to overrule a national law protecting nonbank mortgage lenders from state regulations of nontraditional mortgages.
That law, the Alternative Mortgage Transaction Parity Act of 1982, allows nonbank subprime lenders to make nontraditional loans, including adjustable rate mortgages, interest-only loans and balloon payment loans, in which a borrower has a large payment remaining when the loan becomes due.
The CFPB issued an interim rule last year addressing AMTPA, which left most of the law unchanged. (The agency has been reviewing and reissuing all the rules it inherited from banking regulators in relatively unchanged form, while seeking comments on how they should be altered.) The rule allows adjustable rate mortgages that included some non-traditional terms to continue to receive preemption.
Because AMTPA preempts state regulations of alternative mortgage transactions, consumer advocates say they are concerned that the CFPB will allow lenders to continue to create these risk-prone loans, leaving AMPTA unchanged.
Kathleen Keest, a senior policy counsel at the Center for Responsible Lending who spoke during the panel on Sunday, faulted the CFPB for maintaining the "status quo" with its interim rule last year.
"AMTPA turns out to have been one of the most problematic of the laws out there, so what [the Dodd-Frank Act] did was say we are going to roll back AMTPA," Keest. "The AMTPA rule and
Keest said she found the CFPB's interim rule "troubling," because it did not remove balloon payments from the definition of an "alternative mortgage transaction," which would have been consistent with amendments made by Dodd-Frank. In addition, adjustable rate mortgages that have non-traditional features are preempted in the interim rule, she said.
"I'm sorry but that's kind of where we've been already — that was the problem," Keest said, adding that the former "Countrywide and other non-bank lenders didn't have to worry about any state laws because of AMTPA." (Countrywide is now a unit of Bank of America Corp.)
"We've learned that risk-layering is what creates a lot more risk. So if you say you have an adjustable rate feature and then any non-traditional feature added in qualifies for an alternative mortgage preemption, I don't see how they've done anything differently," she said.
The nonprofit Center for Responsible Lending has proposed that the CFPB clarify that only state laws that prohibit adjustable interest rates or finance charges will be preempted. The consumer advocacy group also wants the CFPB to restore the specific language from Dodd-Frank that says that state laws regulating mortgages generally will not be subject to preemption.
If various state laws had not been preempted, Keest said, states would have been "able to do something earlier" to curb adjustable rate loans and "the virus would not have grown to the degree where it affected the world economy."
