The Obama administration seized on a rare case of bipartisan consensus Thursday — the need for strong consumer protections for members of the military — to pressure Senate Republicans to confirm Richard Cordray as director of the Consumer Financial Protection Bureau.
On Capitol Hill, Holly Petraeus, who heads a small office inside CFPB dedicated to protecting service members, testified that her work is being hamstrung by the vacancy at the top of the bureau. Because it lacks a director, CFPB is not yet allowed by law to supervise payday lenders, private student loan companies and other non-bank lenders that might take advantage of members of the military and their families.
"I'm very eager for the day when our non-bank supervision team can, if I can use an analogy, stop circling the airfield and get permission to land, and start their work," Petraeus, the wife of CIA Director David Petraeus, told the Senate Banking Committee. "Confirm a director for us."
Under the Dodd-Frank Act, the CFPB was given jurisdiction over banks and nonbanks alike. But a provision of the law prevents the new agency from exercising any new powers over nonbanks until a Senate-confirmed director is in place. Republicans have refused to confirm a new agency head until the Obama administration replaces its director with a five-member commission and gives federal banking regulators more veto power over the CFPB's decision.
Testimony at the Senate hearing highlighted a variety of lending practices that witnesses said are predatory and are often marketed to military families.
Sens. Jon Tester, D-Mont., and Robert Menendez, D-N.J., both asked witnesses about banks violating the Servicemembers Civil Relief Act, a 2003 law that prevents mortgage servicers from foreclosing on active-duty members of the military while they are deployed overseas.
Petraeus noted that under law, members of the military are not required to tell their lenders that they are going on duty; instead, lenders are required to check a database to make sure they are complying with the law.
"Obviously there are servicers who are not doing that before going to foreclosure," she said.
Servicers can use a Defense Department website to do an active duty search of delinquent borrowers prior to foreclosure review meetings, where cases are monitored to ensure all documentation is correct, every loss mitigation option has been exhausted and the case is ready to move forward. In addition, servicers and their foreclosure attorneys do another check immediately prior to a foreclosure sale.
But servicers still run afoul of the legislation. On April 21, JPMorgan Chase agreed to a $27 million out-of-court settlement for a class-action lawsuit filed by a group of servicemember mortgage borrowers who claimed the bank's mortgage unit violated provisions of the law.
In addition, Chase implemented new policies to prevent foreclosures prohibited by the SCRA, including rescinding the foreclosure sale and forgiving the mortgage debt of SCRA-protected borrowers who were previously foreclosed on. In future cases of improper foreclosures that should have been prohibited by the law, Chase will forgive the remaining mortgage debt for those borrowers as well.
Other banks have settled similar claims, including Wells Fargo, which in March agreed to pay $10 million to settle SCRA-related claims.
A number of mortgage technology vendors, including
Despite some success in recent years in curtailing payday lending to members of the military, witnesses voiced concern that some firms have simply changed their loan terms so that they don't fit the definition of a payday loan.
Petraeus said that as more members of the military return home from deployments in Iraq and elsewhere, they will be looking to use their education benefits under the GI Bill. Those returning service members are being targeted in marketing by for-profit colleges that in many cases do not offer the best educational opportunities, she said.
The hearing also touched on concerns about lending by banks and credit unions to members of the military.
Later in the day, the White House held a conference call with reporters pushing the same message. Stephanie Cutter, an assistant to President Obama, noted that 44 Republican senators have vowed to block any nominee to head the CFPB unless the White House agrees to changes in the bureau's structure.
"Military families need to know that Republican senators are blocking the one person who can help them," Cutter said.
Only one Republican on the Senate Banking Committee, Sen. Richard Shelby of Alabama, asked questions at Thursday's hearing. His GOP colleagues who chose not to attend may have perceived that the hearing was part of a political strategy by Democrats to pressure Republicans on Cordray's nomination.
The Obama administration kept up the pressure in their conference call with reporters.
During that call, administration officials declined to comment on the possibility of a recess appointment of Cordray. They said that the Senate has an opportunity to confirm the former Ohio attorney general as head of the CFPB before it goes into recess at Christmas.
And the White House showed no sign of being willing to compromise with Senate Republicans on their demands for changes to the structure of the CFPB.
Speaking of President Obama, Cutter said, "He'll continue to oppose any efforts to weaken the CFPB."
