Washington, DC – CAB, CUAC and CBAC Meeting on 6/6/19 — consumerfinance.gov


Welcome to the Consumer Financial
Protection Bureau’s Advisory Committee Roundtable. My name is Zixta Martinez. I serve as the
Associate Director for the External Affairs Division at the CFPB. Today’s meeting is being
held at the Bureau’s headquarters in Washington, D.C., and is being livestreamed at ConsumerFinance
dot gov. A recording will be made available on the Bureau’s website. You can also follow
the Bureau on social media via Facebook and Twitter. In a few moments, I’ll turn to Andrew
Duke, who will kick off the meeting and introduce Director Kraninger, but first, I’d like to
welcome our advisory committee members and introduce the individuals who are serving
on the Bureau’s Consumer Advisory Board (or CAB), the Community Bank Advisory Council
(or CBAC), and the Credit Union Advisory Council (or CUAC) during the Fiscal Year 2019 cycle.
Members, when I call your name, please raise your hand. On our Consumer Advisory Board,
the CAB Chair is Dr. Ronald Johnson. Dr. Johnson is the former President of Clark Atlanta — Clark
Atlanta University in Atlanta, Georgia. Liz Coyle is the Executive Director of Georgia
Watch in Atlanta, Georgia. Sameh Elamawy is the Chief Executive Officer of Scratch Services
in San Francisco, California. Manning Field is the Chief Operating Officer of Acorns in
Irvine, California. Jason Gross is the Chief Executive Officer of Petal in New York, New
York. Clinton Gwinn is the President and CEO of Pathway Lending in Nashville, Tennessee.
Brent Neiser is the Senior Director of Strategic Programs and Alliances at the National Endowment
for Financial Education in Denver, Colorado. Luz Urrutia is the Chief Executive Officer
of Opportunity Fund in San Jose, California. On our Community Bank Advisory Council, the
CBAC Chair is Maureen Busch. She is the Vice President of Compliance and CRA Officer at
the Bank of Tampa in Tampa, Florida. Erik Beguin is the Founder, CEO, and President
of Austin Capital Bank in Austin, Texas. Bryan Bruns is the President and CEO of Lake Central
Bank in Annandale, Minnesota. Aubery Hulings is the Vice President and Operations Manager
for The Farmers National Bank of Emlenton in Emlenton, Pennsylvania. Heidi Sexton is
the Executive Vice President and Chief Compliance and Risk Officer of Sound Community Bank in
Seattle, Washington. Jeanni Stahl is the Senior Vice President and Chief Risk Compliance Officer
of MetaBank in Sioux Falls, South Dakota. On our Credit Union Advisory Council, the
CUAC Chair is Rick Schmidt. He is President and CEO of WestStar Credit Union in Las Vegas,
Nevada. Christopher Court is Vice President of Accounting and Operations for Service at
Service First Credit Union in Danville, Pennsylvania. Teresa Campbell is President and CEO of San
Diego County Credit Union in San Diego, California. James Hunsanger is Chief Risk Officer of Michigan
State University Federal Credit Union in East Lansing, Michigan. Bryan Price is the President
and CEO of Indiana University Credit Union in Bloomington, Indiana. We also have with
us Brian Johnson, Deputy Director for the Bureau, and Matt Cameron, Staff Director for
the Office of Advisory Board and Councils. I’m now pleased to introduce Andrew Duke.
He serves as the Policy Associate Director for External Affairs and brings 27 years of
experience in public policy, including 20 years on Capitol Hill serving 3 different
members of Congress. He received his B.A. in Economics from Hampden-Sydney College in
Virginia. Andrew? Thank you, Zixta. Uh, it’s nice to be with all of you here today, and
I’m looking forward to a productive session. Uh, my name, again, is Andrew Duke, and I
serve as the Policy Associate Director for External Affairs Division here at the Consumer
Financial Protection Bureau. I’d like to thank all of our advisory committee members for
agreeing to serve in this capacity to help advise the leadership of the CFPB and its
Director on a broad range of consumer financial issues and emerging market trends. For those
livestreaming, let me share a brief overview of our schedule today. Following the Director’s
remarks, CAB Chair Dr. Ronald Johnson will conduct the meeting. Chair Johnson will introduce
the Bureau’s subject matter experts for discussion on the Bureau’s Debt Collection Notice of
Proposed Rulemaking, or NPRM. After that discussion, Chair Johnson will then introduce Bureau subject
matter experts for a discussion about the Bureau’s work to educate and engage consumers.
At approximately 12:15, the advisory committees will break for lunch. At 2:30 p.m., the advisory
committees will reconvene. Chair Johnson will introduce the Bureau’s subject matter experts
for a discussion about trends in the mortgage market. Then, at 3:30 p.m., the Advisory Committee
Roundtable will adjourn. As background, the CFPB established its advisory committees to
provide substantive information, analysis, operational expertise, knowledge of their
communities, and feedback to inform the Bureau’s work. As a reminder, the views of the advisory
committee members are their views. They are generally appreciated and welcome. Yet, they
do not necessarily represent the views of the Bureau. I am now pleased to introduce
Director Kathy Kraninger. Director Kraninger became the second confirmed Director of the
Consumer Financial Protection Bureau in December of 2018. From her early days as a Peace Corps
Volunteer, to her role establishing the Department of Homeland Security, to her policy work at
the Office of Management and Budget, to the CFPB, Director Kraninger has dedicated her
career to public service. It is my privilege to welcome her to today’s roundtable meeting.
Director Kraninger, the floor is yours. Thank you very much, Andrew and Zixta. Thank you
to all of you for joining us today, uh, both, certainly, the — the CAB, CUAC, and CBAC
members who are with me and those of you who are actually watching us livestreaming. Uh,
I’m impressed. Uh, it’s an important, uh, opportunity, frankly, to have this austere
group of people, who are experts in their own, uh, right, in their own field, have the
opportunity for a really engaged exchange of ideas and conversation and something that
I truly value, uh, in terms of hearing your perspectives and knowing that you are bringing
that from, uh, many different vantage points of your networks and your organizations and,
frankly, that this conversation goes back, uh, to those networks and — and those contacts
that you all have. So, we’ve talked quite a bit about the role of the committees and
the boards and councils here, and it is, uh, an exciting opportunity to, again, uh, welcome
you to the Bureau. Certainly, want to specifically thank, uh, Dr. Johnson and, um, Maureen Busch
and Rick Schmidt for serving as the Chairs of these respective bodies. Uh, that’s an
added responsibility and — and one that we truly appreciate in terms of their leadership.
Um, in terms of the agenda today, Andrew walked through the things that we’re going to be
talking about. I want to talk a little bit about the debt collection proposed rule, uh,
a little bit about some of our education efforts, uh, and then close because, first and foremost,
this is a conversation, uh, that we want to have amongst all of you. Uh, but worth noting
that before the Dodd-Frank Act, no agency had the power to issue substantive rules to
implement the Federal Debt Collection Practices Act, commonly referred to as the FDCPA. Uh,
under Dodd-Frank, that authority was provided to the Bureau, and, last month, we issued
a Notice of Proposed Rulemaking on debt collection. Uh, the FDCPA was passed in 1977. Uh, that
is the first — that is the year the first Star Wars movie, uh, rocketed into theaters.
Uh, I think we’re, uh, coming up on number nine now, or, maybe, actually, depending on
how many of the, uh, other offshoots you count — there are — there are many. Um, Elvis
left the building in 1977, and a small company called Apple dreamed of putting a personal
computer in every home. Um, back then, people sent telegrams and not emails, called landlines
and not cellphones, and mailed postcards, uh, instead of sending a text. Let me run
through a few of the specific things in our proposal, and let me certainly emphasize that
it is a proposal. Uh, we are very open to, uh, and expect and know that we are going
to get a lot of different comments. Uh, my hope is that we get a lot of data and evidence
from those who comment and that we can truly take, uh, that feedback and input into account
as we look at how to finalize this rulemaking, uh, to really make, uh, the debt collection
market work, uh, for consumers. Uh, first, in a world in which most consumers are accessible
24 hours a day, wherever they may be, uh, they need protection to when it — to — they
need protection when it comes to when, where, and how collectors communicate with them.
Current law already prohibited — prohibits debt collectors from engaging in acts that
have the natural consequence to harass, uh, oppress, or abuse consumers and bars collectors
from contacting consumers at certain times of the day or when a consumer has said that
a time or place is inconvenient. In our proposal, a debt collector would be limited to no more
than seven attempts by telephone per week to reach a consumer about a particular debt.
Once a debt collector has a telephone conversation with the consumer, the collector would need
to wait at least a week before calling the consumer again. Second, our proposal would
allow consumers to stop collectors from using specific ways to contact them or at specific
times. For example, they could tell a collector not to call on a phone line or during work
hours or not to send email to a particular account, and when using electronic media,
such as email or text messages, debt collectors would have to give consumers an “unsubscribe”
option. Consumers are familiar with this option and can use it to stop the communication.
The FDCPA prohibits collectors from harassing or abusing consumers, as I mentioned, or in
engaging in unfair practices. These standards apply today and would also apply under the
proposed rule. We propose, also, to make the debt collection process more transparent.
Debt collectors must already provide certain information about the debt and consumer rights
either in their initial communication or within five days of that initial communication. But
our research indicates that that’s not always sufficient or clear to consumers. So, our
proposal would enhance the information consumers receive from collectors. For instance, we
would require an itemization of the debt to make it more recognizable for consumers and
plain-language information about how a consumer may respond. We also propose that collectors
explain, again in plain language, how consumers could dispute the debt if they want to. Our
proposal would also require the disclosure to include a tear-off or a reply email address
where consumers could send back to the debt collector, uh, to dispute or discuss the debt.
Additionally, we’d make clear that debt collectors cannot sue or threaten a consumer over debt
of which the period under a statute of limitation has expired, commonly referred to as time-barred
debt. Uh, this is certainly an area where we expect and — and hope for, uh, quite a
bit of comment to understand better how debt collectors are actually, uh, addressing this
area, what consumer advocates think in this area. Uh, so I know there will be robust,
uh, comments on time-barred debt. And, lastly, we would prohibit debt collectors from furnishing
information about a debt to a consumer reporting agency unless the debt collector has communicated
about the debt to the consumer, such as by sending the consumer a letter. Our proposed
rules are designed to let consumers know their rights and collectors know their limits. As
the Bureau moves to modernize the rules of the road for debt collection, we are keenly
interested in the views of stakeholders and look forward to continued engagement, including
our discussion today. Another important topic on the agenda today is a recent study by the
Office of Financial Protection for Older Americans, focused on elder financial exploitation. The
report draws on a non-public dataset derived from suspicious-activity reports with — filed
with Treasury’s Financial Crimes Enforcement Network from 2013 to 2017. Among other things,
the study found that financial institutions reported over 180,000 suspicious activities
targeting older Americans since 2013, totaling over $6 billion. More than half of the reports
involved a money transfer and 44% involved either a checking or savings account. Checking
or savings accounts had the highest average monetary losses: 48,000 per report. Less than
one-third of the reports indicated that the filer, uh, or the financial institution reported
that suspicious activity to a local, state, or federal authority. Uh, you know your communities,
and you know your customers. So, I ask you, uh, financial institutions in particular,
to take an active role in preventing losses to older adults. And I know it’s a priority
for you; we’ve had conversations about it. Uh, for instance, money services businesses,
too, known as MSBs, could provide conspicuous warnings about scams on forms that consumers
fill out, while depository institutions can improve fraud detection technology. The study
notes that some states allow financial institutions to put a hold on transactions when staff observe
financial exploitation, and such laws provide immunity for institutions and staff that take
protective steps. Likewise, the study describes the relatively low rate at which suspected
elder financial abuse was reported to adult protective services, law enforcement, and
other authorities. Uh, they classify it in the report as a missed opportunity. So, financial
institutions should consider reporting suspected elder financial exploitation directly to relevant
authorities in order to strengthen prevention and response and keeping — keeping in mind
that state reporting laws do vary quite a bit. Uh, with that, I look forward to the
conversation. I want to thank you, again, for your service. Uh, I also want to thank,
uh, the, uh, employees of the Bureau for their service and — and, frankly, all of those,
um, who are in the, uh, line of fire, certainly, and serving in our military forces — uh,
worth recognizing, uh, today with the 75th anniversary of D-Day. Um, so thank you, again,
for all the things that you do. Uh, it truly contributes to our thinking and supporting
America’s consumers. Well, thank you, uh, Director, and, um, I’d like to open the meeting.
Uh, good morning to everyone. Uh, my name is Dr. Ronald Johnson, and I am the, uh — I
serve as the Chair of the Consumer Advisory Board (or the CAB). I’m really pleased to
be joined today, um, by my colleagues from the CAB, as well as the, um, Community Bank
Advisory Council and the, uh, Credit Union Advisory Council. As Chair, I’ve been asked
by the Bureau to, uh, moderate today’s discussion, uh, and, um, first, on behalf of the advisory
committees, uh, I’d like to thank, um, the, uh, Director, Director Kraninger, um, uh,
because she’s here at this meeting, um, and she demonstrates, each time we gather, uh,
that — that she’s really committed to hearing, uh, from the various committees and, uh — and
that she actually shares back, uh, what her thoughts are. And, uh, we really appreciate
that. Um, I also want to thank, of course, the, uh, staff of the Bureau. Uh, they have
been really, uh, excellent, supportive, and, uh — and always, uh, ready to help. Um, I’m
really, uh — you know, uh, as the, um, Chair of the — of the — of the CAB, um, I’ve really,
uh, enjoyed the camaraderie of the members of the CAB, as well, and, um — And so with
that, I’d like to begin by talking about today’s meeting. Uh, it was outlined earlier that
we have three topics. Uh, the first topic involves the Bureau’s Debt Collection Notice,
um, of Proposed Rulemaking, uh, the second topic involves the Bureau’s work to educate
and engage consumers, and the third involves trends in the mortgage market. Uh, so we’ll
begin with the first session, uh, related to the NPRM or the, uh, Notice of Proposed
Rulemaking, and we are joined by, uh, John McNamara, who’s the Assistant Director, uh,
for the Office of Consumer Lending, Reporting, and Collection Markets, and Kristine — uh,
Kristin McPartland, uh, who’s the Senior Counsel in the Office of Regulation. Thank you both
for joining us, and I’ll now turn the meeting over to you. Thank you, Dr. Johnson. Um, what
we’ll do now is, we’ll endeavor to set the table for what, I’m sure, will be a lively
discussion regarding the Bureau’s NPRM. Uh, I’ll go into a little bit of background that
led up to the notice of proposed rulemaking, and then I’m going to turn it over to my colleague,
Kristin McPartland, who will go into a deeper dive of some of the elements of the NPRM,
but that will still be a summary. So, by way of background, uh, the Dodd-Frank Act, or
DFA in this context, amended the Fair Debt Collection Practices Act, FDCPA, to provide
the Bureau authority to prescribe rules with respect to the collection of debts by debt
collectors. Furthermore, the DFA empowers the Bureau to issue regulations prohibiting
covered persons from engaging in unfair, deceptive, or abusive acts or practices and to require
disclosures to permit consumers to understand the costs, benefits, and risks associated
with consumer financial products and services, including debt collections. The proposal applies
to the debt collection activities of debt collectors as, uh — as that term, uh, is
defined by the FDCPA. Again, this NPRM applies to debt collectors as defined by FDCPA. The
proposal focused on debt collection activities, uh, related to communications and disclosures,
and also addresses related practices by debt collectors. The Bureau’s been working on,
uh, debt collection rulemaking for a number of years. We’ve conducted a wide range of
outreach, uh, on the scope and substance of this proposed rule since 2013, including some
of the following: field hearings, joint roundtables with the Federal Trade Commission, Advance
— an Advance Notice of Proposed Rulemaking, which we issued in November of 2013. We did
a small-business review practice in August of 2016. Uh, we’ve met with many stakeholders,
uh, in the debt collection space, and we also, uh, read with great interest the comments
that we received in the, um, requests for information that were issued in 2018. General
outreach has included speaking at consumer advocacy groups, industry groups, visiting
consumer organizations, as well as visiting industry and other industry stakeholders to
understand how the business operates, as well as the concerns of advocates. Um, a couple
of high-level points before I turn this over to Kristin: The proposed rule’s coverage would
be limited to debt collectors who are covered by the FDCPA. The proposal focuses primarily
on debt collection communications and disclosures but also includes a few other provisions that
Kristin will go into. The proposal is primarily an FDCPA-based proposal, but a few interventions
also are proposed pursuant to the Dodd-Frank Act, and the Bureau is proposing to restate
the language and interpret certain sections of the FDCPA. And with that, I’m going to
turn it over to my colleague, Kristin. Great. Thanks, John. There is quite a lot of information
in the following slides, but I’ll go through them at a fairly quick pace, uh, to — so
we can preserve most of our time for the discussion. Starting with the topic of communications
— If finalized, the NPRM would provide a bright-line rule that would prohibit, with
certain exceptions, a collector from placing more than seven unanswered telephone calls
to a person within a seven-day period about a particular debt and from calling a person
within seven days after the collector has engaged the person in a telephone conversation.
This was already mentioned by the Director, and a few of the other points we’re going
to go through today will also be, uh, recognized. The NPRM would also provide that a voicemail
or a text message that contains only specified, required, or optional content is not a communication
under the FDCPA and, therefore, it would not be required to include what’s commonly referred
to as the mini Miranda warning. The NPRM would also clarify that consumers may designate
a time or place as inconvenient for communication and would clarify that consumers may request
a collector not to use a specific medium, such as a particular email address or telephone
number, uh, and that once that’s been so designated, any further communication using that medium
would be prohibited. Staying with communications, the NPRM would also clarify that calls to
mobile telephones and electronic communications, such as texts or emails, are subject to the
FDCPA’s prohibition on communicating at unusual and inconvenient times and places. It would
require collectors to include in all electronic communications instructions for opting out
of further such communications to a particular email address or telephone number. That’s
the “unsubscribe” option that was mentioned earlier. It would also prohibit collectors
from — again, with some exceptions — uh, using an email address that the collector
knows or should know is provided by the consumer’s employer and from contacting consumers using
public-facing social media platforms. It would propose to identify procedures that, when
followed, would provide a safe harbor from liability for collectors who, when communicating
with a consumer by email or text message, unintentionally communicate with third parties
about a debt. A collector would be entitled to the safe harbor if, among other things,
it communicated with the consumer electronically using an email address or telephone number
that the consumer recently used to contact the collector for purposes other than opting
out of such communications, a non-work email address or non-work telephone number if the
consumer first received notice and an opportunity to opt out of electronic communications to
that address or number and did not do so, or a non-work email address or telephone number
obtained by the creditor or prior collector from the consumer and recently used by that
prior creditor or collector to communicate about the debt, again, as long as the consumer
did not ask the creditor or prior collector to stop using the email address or text — or
telephone number. Turning to the consumer disclosures portion — The NPRM, if finalized,
would provide for certain required and optional content for validation notices. These are
the disclosures that are already required to be sent to consumers. Collectors would
be required to include certain information about the debt — for example, an account
number or itemization of the debt. They’d be required to include certain information
about consumer protections, such as information about their right to dispute a debt or to
request original creditor information, and required to include a consumer response form
that consumers could use to take certain actions, such as submitting a dispute or requesting
original creditor information. Collectors would also be permitted to include other information,
such as a payment request, a statement about disclosures required by applicable law, information
about electronic communication options, such as a collector website or email address, and
disclosures about the consumer’s ability to request a Spanish-language translation of
the validation notice. The NPRM includes a model validation notice that would provide
a safe harbor to collectors who use it when providing validation notices. Collectors could
also send validation notices accurately translated into any language if they send an English-language
validation notice in the same communication or have already sent an English-language notice.
The NPRM also addressed electronic delivery of required notices. It would specify that
collectors who provide certain required disclosures in writing or electronically do so in a manner
that is reasonably expected to provide actual notice and in a form that the consumer may
keep and access later. To meet this general standard, collectors who provide required
disclosures electronically would need to meet several general deliverability requirements
that are described in the NPRM and comply with either the E-Sign Act, um, by obtaining
affirmative consent from the consumer, or alternative procedures described in the NPRM.
The alternative procedures would require collectors to send the disclosure to an email address
or a telephone number that the creditor or prior collector could have used to send electronic
notices under the E-Sign Act and place the disclosure in the body of an email or on a
secure website that’s accessible by clicking on a hyperlink included within the email or
text message. However, a collector could choose the hyperlink option only if the consumer
first received notice and an opportunity to opt out of hyperlink delivery and did not
do so. The proposed rule would also provide a safe harbor for debt — debt collectors
who follow certain steps when providing a validation notice in the body of an email
that is the initial communication with the consumer. Turning to some of the other topics
covered by the NPRM — Uh, the NPRM addresses deceit in debt and provides certain clarifications.
For example, the proposal would clarify that personal representatives of a deceased consumer’s
estate are consumers with whom collectors may discuss the debt. It would also clarify
that collectors may locate this person without violating the prohibition on disclosing to
a third party that a consumer owes a debt by asking for a person who is authorized to
act on behalf of a deceased consumer’s estate. It would also require collectors collecting
debt from a deceased consumer’s estate to send validation notices to and respond to
disputes by the executor, administrator, or personal representative of a deceased consumer’s
estate. As mentioned before, there’s also a number of additional proposals, and I’ll
move through those quite quickly, as well. The proposal would require a collector to
communicate with a consumer about a debt which would generally entail sending the consumer
a validation notice letter before reporting a collection item to a credit reporting agency.
It would prohibit collectors from selling, transferring, or placing for collection a
debt if the collector knows or should know that the debt was paid or settled, discharged
through bankruptcy, or subject to an identity theft report, subject to certain exceptions.
It would bar debt collectors from suing or threatening to sue on a debt if the debt collector
knows or should know that the applicable statute of limitations has expired, as referred to,
time-barred debt. And it would provide rules for the treatment of duplicative disputes,
which would be defined as a written dispute submitted within the 30-day validation period
to which the debt collector has already responded unless the consumer provides new and material
information. The proposal would also provide a safe harbor against claims that an attorney
falsely represented that the attorney was meaningfully involved in the preparation of
a litigation submission if certain conditions were met. And, finally, the proposal would
require retention of evidence of compliance with the statute and regulation from the time
the collector begins collection activity on a debt until three years after the collector’s
last communication or attempted communication in connection with the collection of a debt
or the debt is settled, discharged, or transferred to the debt owner or to another debt collector.
So, obviously, a very high-level summary, but we hope it provides some context for the
coming discussion. Well, thank you, John and — and Kristin. And so, we are now open to,
uh, comments, discussion, uh, and, um — And so, um, what, um, uh, Matt explained is that
we have the, um, opportunity to have four, um, uh — four of you on a queue, uh, and
so that, um, if I see that there’s a logjam, I’ll — I’ll intervene. If not, you know,
we’ll just let you naturally, uh, flow. Uh, can I just start first by touching a little
bit about the institutional incentives around debt collection and servicing since I think
that ties a lot to the behaviors we see in the market? The problem today is — You know,
again, I can — I’m a nice guy, and I can — but that scale, everything’s about institutional
incentives. So, when you look at servicers or debt collectors today, well, first, because
everything is so manually driven, they start looking like an insurance company. They do
the minimal amount of effort in order to create a minimal amount of cost to make the most
kind of margin. Two, you become reliant on all these kind of auxiliary fees, where all
of a sudden, something like a late fee is a — is a passive cost, which might be more
than you made on the borrower the whole year. So, you’re incentivized to not only prevent
them from going late but even after they are, then (inaudible, 99:04/1). Third is the white
label nature of what happens. There is zero delineation or accountability. Uh, any one
of these servicers or debt collectors might pick up in the name of the, uh — the debt
provider and, as a result, not feel that, hey, they’re NPS or they’re CSAT. They’ll
be accountable, kind of, for — Uh, and then, lastly, and probably most importantly is,
you know, this is the one industry where the borrower has no choice in who their servicer
provider is. And so, the servicer or debt collector has no incentive to operate or compete
on cost or quality or customer care for that borrower. Uh, so just taking a — a — a look
at that as we kind of think of some of the practices that then end up evolving as a result
— Thank you. Um, and, uh, Director Kraninger
and team, um, I want to, uh, acknowledge, um, how difficult this task is. This is one
of those challenging areas where you all are tasked with, um, figuring out the best way
to balance competing interests. So, I want to, uh, acknowledge up front that I appreciate
that you’re working very hard to strike that balance. I know that you will be getting very
robust formal comments not only from Georgia Watch but many consumer advocates, um, and,
um — and others who, um, are — are, um — are — are the — we — we want — The scale side
that we’re on is, obviously, on the consumer side. So, with that in mind, I have a few,
um, suggestions, and I — I — I will say that your summary is very helpful. It is such
a complex rule to understand. Um, I think your Fast Facts — I’m not sure how well you’ve
— how much you’ve done to distribute that broadly, but I do think it’s a very helpful
summary of the key issues that people can better understand what you’re proposing to
clarify, uh, and what new rules, um, you’re putting into place. Um, one of the first,
um, um, uh, areas that you all have, um, uplifted is, uh, that consumers can opt out from certain
forms of communications. And, certainly, Director Kraninger did a great job of, you know, uh,
taking us back. I was around in 1977. It was a great year, um — Um, but, uh, you know,
there are new forms of communication. So, it is, I believe, important for the Bureau
to set some ground rules in this space. I would simply suggest that rather than use
an opt-out approach, that consumers, at the beginning of the process, when they, um, uh,
first, uh, find that they are, um, in debt collection land, um, are able to tell collectors
how they prefer to be contacted, um, rather than allow debt collectors to start texting
and using other forms of, um, messaging. Um, you know — and I think it was Director Kraninger
who said that, um, consumers are familiar with unsubscribing. That’s very true, but
most consumers first subscribe before they decide they want to unsubscribe. So, I really
would encourage you to — to look at, um, changing the order there. Uh, uh, second,
um, uh — and, again, I’m — uh, some of this is how I’m understanding the — the language
that’s proposed, so I may not have this right, but it seems to me that there is some gray
area about, uh, whether or not collectors would be required to obtain documentation
to prove that they know whether a debt is time barred, whether or not it’s, um, too
old to be pursued in court. Uh, so I do think that there should be more, um, attempt by,
um — I — I believe the Bureau should require, uh, with very specific language, that any
collector, before pursuing action against or threatening to pursue action against a
consumer, have the documentation to prove that they would have a case to make in — in
court. Um, and, um, I — I know that the — the number of calls per week is something that
— that you all will continue to look at and hear — hear about, um, and while seven calls
per week may seem like, oh, well, one a day, um, that’s if you have one debt collector
calling on one type of debt. And so, it really can be overwhelming. You know, most people
who are in a situation who are in debt collection might have, um, a student loan and a — two
or three credit cards and other forms of debt. So, please keep in mind, when you’re thinking
about seven per week, that — if that seems reasonable to you, that it — it very well
be many, many times more than that based on the number of — of outstanding, um, in collections.
Um, and, finally, um, I just want to, um — and I — I know that it’s — gets even more complicated
because I’m going to bring up the topic of medical debt, and, obviously, that’s somewhat
treated differently in the Bureau, and regulators have done some constructive things around,
um, making sure that credit reporting agencies are, uh, recognizing the additional time consumers
have. You know, medical debt is something that can take, uh, years, uh, in terms of
even getting the bills sorted out. I’m going to, um, share, uh, something that actually
happens in Georgia, and — and it even shocked our Attorney General, uh, when I explained
to him that this is, in fact, happening in Georgia. Um, but we have, um, hospitals who,
um, in cases of a — a car accident, when, uh, someone is very badly injured in a car
accident, and goes to, you know, obviously, the hospital emergency room, and hospitals
will want to be able to, um, take out a lien on the anticipated lawsuit from that occurrence.
Um, and unfortunately — and, uh — and — and this is happening far too often — um, some
hospitals would prefer not to get the negotiated reimbursement from an — a health insurance
company of the injured party or, um, you know, Medicaid. And so, they might not find out
if the injured party even has health insurance. And we’ve had some really heartbreaking examples
— and I won’t go into — into some of the really most — really heartbreaking, but — uh,
of consumers who — who assumed that things were being taken care of, and they knew that
there was — that, you know, they — they were not at fault, and there’s going to be
some kind of later court settlement, but, somehow, that debt is getting reported, and
they’re finding, uh, that their credit scores are ruined. Uh, a teacher from Middle Georgia
called us. Um, she had had a — a terrible car accident. Fortunately, she survived and
— and after, uh, quite a bit of treatment, recovered, um, but in — because of this process,
um, she was unable to buy a car. She was looking forward to buying a house. Her — it took
her years to rebuild her credit. So, I — I just — I use that as, uh, an — an extreme
example. Obviously, we’re looking on — on making — making sure there are ways that
hospitals can perfect the lien, still have access to some of the — the settlement dollars,
but wanting to make sure that — that — that there’s not, um, such egregious reporting
of medical debt that even the hospital knows, ultimately, is not going to be borne by the
person who was injured in that case. Uh, thanks, Liz, and these are — these are both for-profit
and non-profit hospitals? Uh, uh, they are, uh, but most of the examples we’re hearing
from are — are actually nonprofit hospitals. Okay, thank you. Thank you. I’d like to see
if there are questions, um, from the, uh, CUAC or — or — or the, um, uh, Small Bank.
So, no questions, just a couple of comments about, uh, various items within the proposed
rulemaking, I guess the first one, uh, just being information, uh, that’s included in
the validation notice and the requirement for debt collectors to include the validation
notice in the body of an email and just concerns with, the — the information it looks like
is proposed on the validation notice might be, uh, items that can be easily used by,
uh, fraudsters to socially engineer institutions that, uh, uh, either members or consumers
had debts in. Uh, it looks like account number might be one of the fields that would be included
in that. And, again, as — I would have concerns that that’s in the body of an email, uh, and
not in an encrypted fashion. So, having, uh, the, uh — that sensitive information behind,
uh, an encrypted, uh, credentialed log-in would be, um, something we would be, um, uh,
wanting the Bureau to consider. Um, impacts on — uh, obviously, we’re a first-party debt
collector as a credit union, but we do assign out our loans, uh, that are charged off to
third-party debt collectors, and with the information, again, that needs to be in the
validation notice, uh, likely, the impact to us is going to be coordination, uh, in
a — in a near-real-time sense with those debt collectors as they’re collecting payments.
Uh, there’s a delay, obviously, when they receive the payment, to when that’s remitted
to us, to when everything is reconciled. So, as the Bureau, uh, considers, uh, uh, this
rulemaking and when the implementation date of the rulemaking will be effective, just
be cognizant of, there will be significant third-party systems that will need to be upgraded
or put in place that aren’t currently there today. Uh, that will help with that flow of
information, uh, back and forth. Uh, when it gets to, uh, disputing a debt, that, I
believe, also will have an impact on us, as we’ll need to validate or provide information
— uh, extra information to the third-party debt collector the debt has been assigned
out to. And, um, what we just ask in that process is that once a debt has been disputed
and then investigated, if there can be some resolution, so that consumers are not able
to do multiple frivolous disputes, like we see right now in the credit reporting space,
where something has already been investigated thoroughly, supported. Uh, having a resolution
is important to us, uh, related to that. Um, the callback provisions, as well, for our,
uh — the debt collectors that are collecting on the debt — Uh, once they’ve had a telephone
conversation with the member, in the proposal, not to be able to call back within seven days
— Uh, I think it would be important to consider, uh, providing clarity and a carveout if the
consumer, during that conversation, offers an alternative to having the debt collector
call back. Just because they made contact, it might not be a adequate time for that collector
to talk to that consumer at that time, but they could say, Maybe call me back tomorrow,
call me back later today, and just making sure, in any final rulemaking, that that is
clear, that, uh, an alternative proposed by the consumer is — is a safe harbor for that
collector to call back. Um, and then, the provision, uh — the protections around work
phone numbers — Also, I think, uh, having some clarity, uh, for, uh, consumers who may
have a — a blended, um, mobile phone experience with their workplace and with their personal
experience, and how that type of a instrument is classified as either a work number or a
personal number would also be important to provide safe harbors to the debt collectors.
Either they don’t know the difference, because that wasn’t communicated, uh, by the consumer
at the time that they established the — uh, that number with the, uh, financial institution
or the debt, uh, agency — Uh, just making sure that’s clear. So, those are my comments.
Thank you. Um, John and Kristin, thank you for the great work. I know this is, um, really
challenging. Um, just two very, kind of, minor comments. Uh, first, on the opt-out, particularly
for digital channels, I think that opt-out should — I would encourage you to make that
opt-out be immediate and not have some time window, um, particularly, uh, the intensity
of that communication from when the opt-out is registered versus when it actually is honored.
I think there’s great technological solutions out there that are — that are well established
in the industry that should be able to be applied by any person in the debt — debt
collection business. The second comment is really just, uh, um, something to consider
as rulemaking turns into actual, um, policy and actually becomes, uh, the reg. Um, there
likely will be technological tools that are available to the consumer to help protect
around harassment. A — a few analogies: Um, ad blocking is one of them, um, but, also,
on Monday, uh, uh, Apple announced, with iOS 13, that they’re actually going to have capabilities
to route spam calls and other types of calls directly to voicemail. Um, so, likely, before
this becomes a reg, there will be technological solutions out there that can prevent the consumer
from being harassed, um, in the meantime. So, please keep that in mind. So, I want to
comment a little bit on, sort of, the landscape of the lending market, which we see, um, um,
slowing down. And a lot of the loans — and we talked about this yesterday — a lot of
the loans that have been originated in the last five years have been done under credit
underwriting and risk algorithms that have not been fully tested under an economic recession,
and the loan performance hasn’t really, uh, been — been, um — been tested. So, we know
that lenders are starting to tighten their credit box. And so, as borrowers are having
to restructure whether there’s open-ended or closed-end loans, they’re having a much
more difficult time, uh, making that happen. And so, more of these loans are now flowing
through pipelines into collections departments, uh, and I think we saw this back, uh, during
the home crisis. Now you have collectors that are overburdened with, uh, accounts. Uh, in
many cases, they can’t — uh, they don’t have accurate information, uh, to have right-party
contacts. Um, they have difficulty identifying, you know, are the debts current, uh, you know,
have they been settled. And so, I think that the ruling puts a lot of burden on the consumers,
uh, to — to know what their — what their rights are. Um, and I think it would be, uh,
good to, uh, have the Bureau understand, how do you intend to educate these consumers and
— uh, on their rights, and how do you expect to enforce, um, violations of — of, uh, the
consumer rights, because we are seeing an increased volume of loans starting to get
into, uh, first-payment defaults and — and — and, ultimately, charging off. Building
on what Luz was saying and maybe offering a — a framework that’s based on consumer
empowerment, uh, there’s really four different pillars we think about. The first is visibility,
being able to give that borrower relevant, timely information in a forum that they can
actually understand. And the internal metric that we use — I think everyone should use
— is, can the borrower now make a more well-informed decision. Because if you do that well, you
can move over to the second pillar, which is control, just really allowing the borrower
to take back control over their debt and be able to tactically take actions that they
might not have been able to do before and effectively taking so much that might have
been locked behind a phone call and bringing it to the forefront for them to be able to
control. The third is flexibility. You know, we talk about these loans, but a borrower
might have a loan — a student loan or a mortgage for 20- or 30 years. The only thing you know
to be true is, their life is going to change for the better and the worse, many times over.
And the fact that this gets thought of as exception handling is — is just not the case.
It really needs to be built into both the product and the service to allow flexibility
and that option to be given for them. Lastly is guidance. Uh, them being able to get the
support they need in the form they want it, again, whether it’s from a — a medium like
text, uh, chat, email, phone, or the most common thing is, I — you know, I tried to
reach a human, and even though I got a human, I still got a robot, right? Being about to
actually — Okay, I’m not trying to self-serve anymore. I’m trying to have a conversation
for problem solving, but the person on the other end is just running me through a script.
Uh, so those are, really, the four, kind of, like, pillars that I think, in any rulemaking,
uh, could be thought of in how to kind of really empower the borrower, or the consumer
in this case. Then, on two specific points in terms of the rulemaking, one on the number
of calls being made, uh, a week — I think there’s an opportunity to use data here to
say, Hey, is there actually even an increase in efficacy when you call a borrower more
often or not, or do you even get a decrease in engagement or a lack of, then, right-party
contact as a result of that. Because, obviously, the industry is always pushing — uh, and
even from a lender perspective, a lender will push a service. They’ll be like, Well, my
portfolio, you really need to call them 20 times. I know my folks. Right? So, there’s
an opportunity to make a case around, what is even effective, let alone protective, uh,
and I — from what we see internally — because we end up running this experiment each and
every time. It’s like, okay, for your portfolio, okay, we’re going to do an ABD test. We’re
going to show you what happens when you increase the number of calling them. But I think there’s
room to have more industry-wide research that then, uh, really helped to educate both industry
but also, kind of, rulemaking. And then, second, around — I think there’s a really good point
around using cellphone and text, potentially, as a unique identifier. Uh, you know, it’s
very convenient for the borrower, in most cases, during working hours, to want to be
able to text back and forth, uh, with any provider, uh, not necessarily even just a
servicer, uh, and being able to consider that a place where, okay — Because, again, at
the end of the day, they are using that text — or that phone to actually, maybe, sign
into a lot of the products where you are showing an MPII (phonetic). So, if they were using
that that for two-factor verification, you should be able to use a text message right
away to communicate with them. Thank you. And I just wanted to, um — While I recognize
that this is rulemaking for the debt collectors that, um, one would believe were trying to
collect a legitimate debt and follow the rules and do it the right way, I know we’re going
to be talking a little bit about, uh, how our seniors are so taken advantage of. And
so, I — I hope there’s special attention to the, um, many aggressive, um — I’ll use
air quotes around “debt collectors,” who — and that’s why I’d mentioned that, you know, having
to have proof of time-barred debt. Um, uh, my, um — my mother is in assisted living,
um, and has dementia, and I found in her mail that she was getting numerous letters, um,
about debt that had nothing to do with her or didn’t exist, and — and she was already
in a stressful place. Um, so we know that there are, um, for every legitimate debt collector,
I don’t know how many illegitimate, but wanting to make sure, if there’s anything you can
do with your rulemaking, to particularly make it harder for, um, aggressive debt collectors
to, um, repeatedly attempt to collect from, uh, our most vulnerable seniors. Go ahead.
I’d like to comment, uh — Okay. — right on that topic. Um — um, we were asked to,
uh, consider new technologies, and for the growing population, or — or a — a certain
amount of population that will have dementia or diminished capacity, as well as those who
are single or will become single, uh, over time, uh, there may be new technologies or
services that people can opt — families can opt into and sign up for, uh, care of financial
affairs, uh, during that process, and this predates death. You — you talk about, uh,
uh, deceased consumers in — in the proposed rule, but think about that other transition
period, where people do lose the capacity. There could be services developed that people
opt into, pre-sign up, and set parameters on, uh, almost like a trust-type arrangement,
and even there are — there are attorneys specializing in overseeing trust arrangements,
called “trust protectors.” They deal a lot with, uh, you know, firing investment managers,
uh, reviewing that, even in charitable areas, looking at donor intent. But think about the
intent of those who lose capacity to manage their financial affairs, they’re still alive.
Just have that as a consideration in your rule for new types of automation, uh, especially
for people of modest means or even great means, but they have to have a fiduciary-like third
party, uh, in between them and what’s going to happen to them. But what I’m suggesting
is, there may be services that will automate that because there’s no family to do it or,
perhaps, the family is not trusted. Uh, thanks, Brent. I — I think that’s a really interesting
point that connectivity, basically, starts earlier in life now and basically remains
with you much, much later than — than, say, the days of 1977, with just a landline. Thank
you. Uh, we had, um, a — a — a list of comments, uh, from James, and so I’d like to, uh, ask,
again, if there are further comments from either the CUAC or the CBAC, um, on this issue.
Um, following up in — in response to what, uh, some of the comments were, going back
to the seven days and one call: I would suggest it needs to be clarified further. For example,
um, if you get somebody — I think that was mentioned — going out the door, and they
say, Call me back, is that a contact, or is that not a contact? Or if they say, I want
to come in and talk to you, do we have to say we have a wait a week to see them? I mean,
it doesn’t make a lot of sense to us. The other thing is, what about artificial intelligence?
It mentions voicemail and text not counting, but what about chat box and that kind of thing?
Is that included? So, we think very clear guidelines, because there’s always attorneys
out there looking for some kind of compliance violation, and to the extent we can make it
clear, not only for the consumer but for the industry, it’d be very helpful. Uh, on that,
I’d say, uh, thinking about it less likely about who’s sending it and then the medium
they’re sending it. So, there is much more, uh, you know, real-time or intrusive, uh,
communications versus more (inaudible, 122:07/1) — So, for example, phone, clearly, kind of,
falls into that, whereas in-app notifications or email, I think, don’t fall in that, even
though I saw it in the rulemaking, and where text, for example, is a little bit more of
a gray area on how to think about that, especially as, kind of, Manning said. You know, you do
now have things where these — you can block these notifications or have them on do not
disturb during times. Uh, so it’s really thinking about the intrusiveness or the — you know,
the expectation of a real-time response on those communications rather than, a human
sent it, maybe, or an automated message kind of sent it. There was just a question, I guess,
raised by our group. I know, at one point, um, the Bureau had thought about making some
of these provisions applicable to first-party debt collectors, uh, like — like banks. In
fact, a lot of banks do follow the regulations, just, in spirit, uh, out of choice, because
they provide a good framework for collecting on debts. One of the questions we had was
just the tie-in to Dodd-Frank, uh, and the — potentially, the UDAAP provisions. And
there was an — an — just an item raised as to whether someone could say, even if — even
if the definition remains, uh, pretty standard with what was followed with third-party debt
collectors, that the tie-in to Dodd-Frank and UDAAP, that those could potentially apply
to first-party debt collectors. And, I guess, that was just something we were trying to
make clear. And we had a similar question as to the seven-day timeframe, and we raised
an example of, uh, consumer — us — a bank calling a consumer, talking to a consumer
regard to a specific debt, where there is a follow-up made for a payment. You know,
we talk on a Monday, follow up for payment on Wednesday, and payment doesn’t come in
on Wednesday, if it would apply, if that — that UDAAP, um, potential could apply. Could a
— a bank, even, potentially, be, um, prevented from calling that consumer on Wednesday or
Thursday just to see if there was issue with the payment? I don’t know if you have an immediate
reaction on that, or if that’s just something you’d want to make clear down the road. No,
Jeanni, I thank you for the question, certainly, and — and there are a lot of considerations
here. I think the — uh, specifically, as you noted, the FDCPA applies to third parties,
and that is the intent of this rule. Um, so we — we certainly recognize, though, the
very concern you’re raising as to what may happen, uh, or whether this does provide a
framework that entities want to comply with just from a — a — again, a safe-harbor standpoint.
Um, so those — that is something that’s in the back of our mind. I would say, we’re — we’re
very explicit that the rule itself applies to third-party collection only. You asked
about — Oh, sorry. Go ahead. No, go ahead. Oh. You’d asked about questions that we have,
and I have one and — and, just, we talked about, for the most part, the banks, and my
bank included, were first party. So, we’re not third party, so I’m not an expert on this.
But when you’re talking about the phone calls, um, one of the questions that I have is, is
the phone almost becoming a hindrance on the collection effort? Because most people now,
if you don’t recognize the number, you don’t pick up the phone. And then, it seems that
the trend now is, people don’t have voicemail, they’ve never set up their voicemail box,
or they have one, and it’s maximum capacity, and they just let it sit there, that it seems
that the — the phone — and I know, just, internally talking with us as a first-party
collector, um, we have a very difficult time getting a hold of the person or even being
able to leave a message. And, just, in a prior life that I had that I worked closely with
a collection company, and I — I spent a week listening to calls, and I was amazed at how
hard it was to actually even be able to make a connection over the phone with a person,
that — You know, I was listening to calls, and you would just hear: Beep, beep, beep,
the — you know, the mailbox has not been set up. So, I was just — one of my question
is, how do you see the phone going forward? I mean, it makes sense that that’s why we’re
going down, you know, the — the text or the email, which, of course, then there’s the
hyperlink, and we’re very sensitive about hitting a hyperlink because we can have other
types of, um, data-security-type issues. But, first and foremost, it seems that that phone
was very prominent before, but where do you see that now? Sure, and — and the Bureau
is — is aware of concerns, uh, by industry in general about the, sort of, declining efficacy
or perceived declining efficacy of outbound telephone calls. Uh, we’re aware of specific
robocalling, um, softwares that — that industry claims are causing, basically, fewer calls
to go through. Uh, in some cases, the caller may not be sure of the outcome of the call;
they don’t really know what the termination code was. So, they don’t know whether the
consumer knew the call was, uh, landed or not. Um, and then, we’re also aware, in — in,
sort of, an adjacent industry, which is — is more the outbound telemarketers, that they’ve
actually published some numbers talking about, I think, somewhere around 20- to 30% decline
in efficacy of — of, uh, outbound calling. So, it’s an area we follow very closely. Just,
if I could add, calling frequency is one of the higher categories of complaints that the
Bureau receives. So, while we are certainly aware of and tracking the developments in
communication, and it’s one of the reasons why the NPRM looks to address newer technologies,
it is still, at least as of right now, one of the areas that we do hear a lot of consumer
complaints about. We’re a first-party, uh, collector, as well, so a lot of them don’t
apply, but we do occasionally send some of our charge-offs and things like that to, uh,
collectors. And my concern, a little bit, is, by the time we would send something to
a third party, if it was an opt-in as you’re suggesting — Um, you know, I think, Sameh,
you said that the information changes constantly, and by the time we, as first party, would
turn something over, that opt-in is probably old. It’s gone; there’s no way they’re going
to be getting ahold of them. So, I — I do like the protections for the consumer if they’re
being harassed on that, but I really think that having good protections allows to not
have it be a — a — an opt-in because they can, um, take some steps to go backwards.
Our biggest issue — and I think that’s where this, um, discussion gets sideways sometimes,
is, we all have that person in our mind of who is being harmed, or, in our case, I’m
frustrated I can’t get ahold of my customer to help them. They — they won’t answer the
phone because they’re either embarrassed or they don’t want to talk. And if they’d just
pick up the phone and — or answer an email or if I get on social media and say, Hey,
can you — can you at least talk to me about this, um — But when you look at your — a
case like your mother, I — uh, that’s where, I think, we get sideways real quick. Uh, just
a, Bryan, quick follow-up question, um, because I — I’m curious as — when a first — or
any — any of the first-parties, when you get to that point that you transfer the debt
to a third-party, um, is — what’s the communication to the consumer like at that point, and is
that an opportunity, when the consumer understands they’re going to be hearing not from the bank,
from — from a different collector — And at that point, maybe that’s when that opt-in
or opt-out conversation happens. I — I would — my answer to you would be that by the time
I send something off to them, uh, my only communication with the consumer is a return
piece of mail because I just can’t get ahold of them. So, we’ve — we’ve — it’s — it’s
done. Uh, there’s no way I’m going to be able to get ahold of them. Maybe to answer your
question from our institution’s experience — We do let our members know that we’re sending
out to collections because they need to know that they are going to be working with a different
party for, uh, the payments and arrangements about that. So, they are notified at — at
that time. Would that, then, be an opportunity for that opt-in-opt-out conversation if you’re
making that direct handoff? About the types of communication, the — the vehicle. Uh,
I mean, depending on — again, on how the different institutions handle that communication
with members — Sometimes ours is — I — I would say, it — it probably is not an ideal
time for that opt-in conversation because a lot of those — uh, that communication is
in the form of a letter mailed to, and we’re not — we’re having difficulty connecting
with them — Got it. — over the phone or through other means. So, that letter’s not
going to give them that opportunity to respond back. I — I echo what, uh, the folks are
saying about the phone calls, you know, just not being able to get ahold of somebody, and
the letters, and, um, maybe a point of clarity for the section about the communicating before
credit reporting — You know, if somebody does send out a letter and that letter comes
back with an incorrect address, then — you know, then what happens? What’s the clarification
on, you know, can that then be sent into the credit bureau? I, uh — I had a comment, too,
to circle back to — Oh. Yes, I was wondering if you were asking for a — uh, an answer
to your question, uh, because if a — if a letter does come back, then it’s not — Uh,
typically, what happens right now, even with validation notices, is that another letter
would have to be sent. Now, that doesn’t mean that if it doesn’t come back, it doesn’t always
equate to it being delivered, reaching the right person, being opened and understood.
So, that is something that we keep in mind. Um, but the case law under validation notices
is that if they are returned, uh, then it typically, uh, spurs another letter. And — and
it could not be reported, the debt could not be reported. Well, so, at that point, you
get into the question of whether the communication has been made. If your communication was through
a letter, then you have not made the communication. Okay. And if I could slide a quick question
in: When you — when you send a letter to one of your consumers that you’re placing
it with a collection agency, do you actually let them know what collection agency that
— to expect a call or a letter from? This is if it’s — in — in our case, we’re first
party. So, it would be coming directly from the bank, but the customer just has not changed
their address with — with us. Yes. So, I was more interested in the use of, say, goodbye
letters, uh, from the creditors, saying, Hey, goodbye, you’re now going to hear from Acme
Debt Collector. Uh, I will have to get back to you on the — Sure. — content, uh, specific
to that, but we will. Thanks. We have, uh, five minutes left, uh, to this session. And
so, I just want to, just, give a five-minute warning. If I — if I could go back — Um,
I had a comment, uh, on the — the call contacts and the — the, um, if you contact a — the
consumer, and then seven days before you can, uh, contact them again — Uh, and just, uh,
technologies that are available out there as it relates to calls — Um, uh, the Bureau,
I would recommend, consider allowing for the potential for direct-to-voicemail, uh, messages
to be left after a contact, uh, especially if the Bureau is proposing safe-harbor scripts
or safe-harbor disclosures within those voicemail contacts. Uh, that would allow for payment
reminders, uh, or if — if they had set up promises to pay with the debt collector, uh,
just to give them, again, a — an additional reminder — you know, You said you’d pay by
Friday. Uh, but allowing the contact to be a direct to voicemail could be a good alternative,
uh, to a — a live, uh, phone call contact, so. Okay. Uh, I thought I saw another light
on this side, but — No? Okay. Well, um, this has been, uh, very, very good, and — and
one of the aspects of — of this discussion was to be able to have a response, a back
and forth between consumers, uh, the, uh, credit union, um, and, um — and the, um — and
the, uh, banks. Uh, I think that part of the reason why we’re here is not only to, uh,
state our comments or — or — or recommendations but also to hear the other side and then respond
with, um, ways that might make some sense, so that you can actually get, um, a double
coincidence of one. And so, I — I — I truly appreciate, uh, what has been done, uh, at
this time. And so, uh, if there are no other comments, uh, we are going to get ready to
roll into the next session. I want to, again, thank John and Kristin, uh, for, uh, engaging
us and, uh, also, informing us. Uh, thank you. Thank you, and, um, we’re back, um, on
the — and we’ll focus on the, uh, second, uh, topic, uh, which involves the, uh — the,
um, education and engagement of — of consumers. Uh, interestingly, um, uh, in this session,
we have, essentially, a, uh, full basketball team, which, uh, suggests that, um, it is
an area of great importance to the CFPB, uh, because they have, uh, considerable resources,
uh, represented in this space. Uh, we are joined today by, um, Janneke Ratcliff, who
is the Assistant Director, uh, for the Office of Financial Education. We are also joined
by — by — with — we are also joined, um, um, by, um, Irene Skricki, who is the Senior
Financial Education Program Analyst for the Office of Financial Education, uh, and Gail
Hille — excuse me, Hillebrand, uh, who is the Associate Director, um, for Education
and Engagement of — Consumer Education and Engagement, Michael Herndon, um, who is the,
uh, Deputy Assistant Director of the Office of Older Americans, and Judith Ricks, who
is an Economist in the Office of Research. I thank all of you for being here, and, uh,
I turn it over to, um, the team. Okay, thank you, Dr. Johnson. I guess I will kick off
first. I’m Janneke Ratcliff, Office of Financial Education. Um, I met with, uh, both, uh, uh,
the — the Community Bank Advisory Council and the Credit Union Advisory Council yesterday,
so it’s good to also be talking to the, um — the — the, um, CAB members today. For
some of you, this’ll be a little bit of a repeat between what Irene and I are sharing,
but we — we will talk about the Start — the Director’s Start Small, Save Up initiative,
but we really also wanted to introduce, in a more, um, focused way, the — the newest
research we have on how financial education can make a difference on people’s financial
wellbeing. So, uh, that is our topic for today. Um, I — I want to just spend a minute, before
I turn it over to Irene, to talk about this idea of financial wellbeing. Our question
in the Office of Financial Education has been — our challenge has been to really try to
understand how it is that, um — that — that the time and money spent on giving people
financial education is well spent and actually makes a difference in their — in their financial
lives. And, uh, across a range of different ways of helping people save or improve their
credit or, come — you know, do bankruptcy education or — or, um, save for retirement
— a whole host of things — a universal theme is that it all helps to improve their financial
wellbeing. And what we really wanted to do was understand not what financial wellbeing
means to me but what financial wellbeing means to people out there, in their real lives,
and to connect things around financial education and financial behaviors to what really has
meaning and value in their day-to-day lives. So, we went to them and we asked, What does
it mean to feel — you know, feel financial wellbeing? And we got this definition, which
is both universal but also highly personal, um, and it involves these elements of having
a sense of financial security and financial freedom of choice in the current moment, through
things like having control over your day-to-day finances or, um, being able to make the kind
of decisions that — that make life fun, enjoyable, have quality of life, and then, when you look
at the future, feeling secure that you could deal with a financial shock and feeling like
you’re on track with those long-term life/financial goals, you know, be it retirement, be it education,
um, be it home ownership, et cetera. So — so, this is the definition, um, of financial wellbeing
that — that undergirds, um, so much of our work in financial education. It undergirds
the Start Small, Save Up initiative, which we’ll — we’ll touch on and talk about how
they relate, um, and it undergirds, even, the things we’re trying to do with youth financial
education and with financial education across the — the life cycle. So, um, Irene is going
to talk about the latest research that we just released this year on how financial education
can make a difference in people’s financial wellbeing. Great. Thank you, Janneke, and,
uh, we specialize in having hard-to-pronounce names here in the Office of Financial Education.
Um, we — we gave you a run for your money there, Dr. Johnson. Sorry about that. Um,
so, once we came up with this definition, which was a few years ago, the question is,
well, that’s great, but then how do you measure it? How do you know if you are, uh, succeeding
in helping someone, uh, improve their financial wellbeing? So, we did a research project to
develop a Financial Wellbeing Scale. Uh, a scale is a set of questions that leads to
a single number at the end, similar to, like, the SAT. Um, uh, and, uh, we came up with
this scale of 10 questions. It was rigorously tested, evaluated across thousands of people,
um, to be, uh, a way– again, to get at what Janneke said — of measuring, uh, uh, kind
of, uh — a single concept but that’s customized and unique to each person but that then can
be compared across people. And so, the scale is 10 questions. Um, they’re, kind of, deceptively
simple in a way — I’m securing my financial future; uh, I’m just getting by financially;
I have money left over at the end of the month — but they’re each measuring a different
aspect of those four, um, boxes that Janneke put up. Um, we, um, put this scale out. When
you take this, you get a score between zero and a hundred, um, and just so you know, it’s
— it’s set so that 50 is around the midpoint. It’s not an academic scale, where, you know,
80 is passing. Um, and, uh — because people assume, I’m going to get 80, and say, Oh,
I didn’t do that well. And, like, actually, it’s — you have to be doing really well to
get an 80. Uh, and so, then, once we had this scale, we wanted to better understand, what,
uh — what — what does it mean, what — what — what are Americans finding in terms of
their scale — uh, in terms of their financial wellbeing, um, and have a better sense of
the lay of the land. So — oh, and in order to help people to use this, uh, scale, we
have a web page, Find Out Your Financial Wellbeing, where you can take that quiz online, and it
will pop up your score on a pretty, colored band there to let you see where you stand
relative to the national average, and it will also allow you to get comparisons — I think
that’s one more push. Let’s see — yes — comparisons based on others of the same age or, um, uh,
uh, same employment status. You’re comparing, kind of, yourself to others. And then, it
also links to our different tools and resources to help you, in fact, improve your wellbeing
if there’s particular areas you want to work on. So, that’s on our website. It’s been accessed,
um, quite extensively by the public. Um, but, again, we wanted to know, uh, what’s the state
of financial wellbeing in America. And so, again, some of you may have heard about this,
but we did a — a survey to better understand — a nationally representative survey, um,
and we — again, we found the average was around 54, which is what we expected, uh,
and we did some more analysis to better understand, um, what, uh, a good versus — I mean, bigger
is better in this case — but what a — what a good score versus a less-good score is,
and where there’s break points, where increasing your score has a significant impact on your
overall, kind of, sense of financial wellness and other, um, financial circumstances. And
so, we have these, uh, sort of, quirky bands of zero to 29, 30 to 37, et cetera, from very
low to very high. Underneath it are the percentages. You can see that about a third of Americans
are kind of in the middle, um, uh, especially if you look at, kind of, the 40 to — the,
uh, 50 to 60, um, kind of, more stylized band in a way. About a third of Americans are kind
of in the low to very low, and about a third in the, um, high to very high, approximately.
Um, and then, just so you can see how this reflects, uh, real-life financial experiences,
um, people who have a very low score, 82% of them have, uh — can’t come up with, uh,
less — have less than $500 in liquid savings. Up in the high range, very high range, only
2%, um, are unable to, uh — or don’t have $500, uh, and similarly with difficulty to
cover expenses. So, you can see that, you know, people do much better when they have
a higher wellbeing score, which is exactly what we would expect. We were hoping that
this, in fact, um, is meaningful. People are reporting on that their wellbeing actually
corresponds to meaningful financial, um, circumstance. So, this was all the background. We had all
this data. Um, we wanted to understand, okay, so what can we learn from this about what
actually impacts financial wellbeing? How do you improve it? What can financial education
do? And so, we took this — this data, which was descriptive, and actually did some analysis.
We controlled for income, we controlled for other factors we could see in order to come
up with, um, a sense of, um, again, what’s — what’s, kind of, impacting — what — what’s
correlating with what. Um, and, uh, the — there’s the — you know, the — the secret is going
to be revealed in this line here, which is that financial skill is part — is a key part
of that pathway, though I will lead you to that — to that story, but we kind of gave
away the — the punchline here. Um, there were a bunch of different things we looked
at in terms of understanding, what are the — the drivers of financial wellbeing: uh,
financial knowledge, attitudes, behaviors, skill, uh, financial situation. I don’t know
if any of else you had this, but when I was a child, I had a plastic cog toy that looked
just like this, and you could move the cogs, and you turned — and I spent hours playing
with this. So, I feel like — Did anyone else have that as a kid? Yeah, I’m seeing some
nods. Um, so I feel like I discovered the key to financial wellbeing when I was four.
Yeah. I just didn’t know what the labels were, but — I love this diagram for that reason.
It brings me back to my childhood. So, the answer is this — here we go. We’re done now.
This is the answer. Um, I like to show this slide because for any of you in the room who
are researchers, this is actually the model with the coefficients and the, kind of, equations
and all the — you know, the — the, um — the significance, uh, levels. Obviously, it’s
not exactly, uh, clear to — really, almost to anyone unless you are — So, we have a
simplified version, but this is just to show, we did lots of — we actually did something
called “structural equation modeling,” which I have a — a faint sense of what that means,
but, um, uh, it’s a way to understand the relationships between — between different
factors. So, the next diagram — for a minute, don’t look at the blue lines, um, but this
is the simple version. Again, ignore the blue box. Financial skill leads to financial behavior,
leads to financial situation, leads to financial wellbeing. I’ll say a little bit more about
each of those. Um, uh, looking at the final piece, financial situation is, uh, strongly
associated with financial wellbeing. That sounds obvious, but remember, here, we’re
controlling for income. It’s not just, you have more money, you’re better off. If you
control for income, people with a better objective financial situation are doing better, and
by objective financial situation, we mean, um, uh, some measures around hardship, around
negative experiences with credit and debt, um, having trouble paying expenses. So, ways
to look at your — and liquid savings is included there, as well. So, it’s looking at your financial
situation, holding income constant, um, and that is highly, uh, linked to financial wellbeing,
which is good. If it wasn’t, you could say people are just answering whatever they want
to these questions, and it’s not related to reality, but, in fact, it is highly correlated.
Uh, and so, that’s part of the pathway. Well, then, what impacts people’s financial situation?
Um, and, clearly, you can guess, because the next box is financial, uh, behavior. Uh, now
the blue box will move. Financial behavior is strongly associated with financial situation,
um, uh, and we had a list of, um, a number of behaviors we looked at, um, and, um, specifically
— if I can get this to move — these are some of the financial behaviors that were
highly, uh, uh, linked or correlated with financial situation and, therefore, financial
wellbeing. Again, these won’t surprise you, around money management, propensity to plan,
and savings habit, things like paying bills on time, staying within budget, checking your
statements, bills, and receipts for — for, um — for errors, following through on your
financial commitments, um, sticking to a budget, um, consulting your budget-to-guide spending.
Um, so these types of behaviors — uh, again, it sort of makes sense when you think about
it — uh, will lead to a better financial situation, leading to more financial wellbeing.
Now we’re going to go one step further to the left to understand, uh, what is the most,
um, strong association with financial behavior, and here, we’re looking at things like knowledge,
uh, and other things, and — surprise, surprise, since I gave it away earlier — the answer
is financial skill. It was most strongly associated with financial behavior, um, more strongly
than financial knowledge. Now, again, skill and knowledge are — are interactive. There’s
a — there’s a — kind of a cycle there — as you do more, you know more and vice versa
— but if you hold all things constant, financial skill is extremely important. Financial self-confidence
was, as well, financial self-efficacy, and, again, there’s a — kind of a feedback loop
amongst all those things. So, what do we mean by financial skill? Let me see if I can — whoops.
I was — I’m sorry, I just pointed the laser pointer at you. That was the wrong button.
I wondered why I was seeing a red, flashing light over your head. Um, so, financial skill,
the way we defined it is, um, uh, knowing how to find reliable information to make decisions,
knowing how to process that information to make a decision, and then how to execute or
implement those decisions. Uh, and if you think about it, it makes sense. You don’t
need to know everything about mortgage rates — what’s the mortgage rate, how have they
changed over time, you know, things like that. You need to know how to — go — how to find
a trusted source, know what information you need to get, get it, use it, figure out how
it applies to you. Um, and so, financial skill is a — it’s a — it’s a type of knowledge
in a way, um, and we do think it is — I mean, it is something that — that can be taught.
I mean, you can take financial education classes and have them emphasize more the skill portion:
How do you help people find the information they need and use it? Uh, and so, that is
really, uh, a key — I think, a key, um, now, foundation, I think, going forward for our
financial education efforts. At least, I hope it is. Whoops, that was the laser pointer
again. Um, the way we measured it, we actually have a scale again — we love scales — another
10-question scale. Um, again, these are self-reported skills, but we find people actually are — are
— are, um, fairly, um, uh — fairly good about reporting this sort of thing. This scale
is also available. Um, both the scales I’ve shown are available for the public, for financial
educators, for industry, anybody who wants to use it. Um, we have resources to help people,
um, use these things. And so, the scale — uh, the skill scale, again, is, similarly: I know
how to make financial decisions that are good for me, I know how to follow through on intentions,
I know how to make myself save, um, I know when I need advice about money. Um, things
like that is our Financial Skill Scale. Um, and so, lastly, here’s the model. Without
the blue boxes, basically, these — these, uh — this pathway to financial wellbeing,
um, and it really suggests that financial education can help consumers, especially by
— by working around that financial skill piece. And, again, many other things one can
do, but financial skill is, uh — is one way to kind of organize how, um, existing financial
education, uh, is — is done. We can kind of convert, uh, to focusing on the skill part
of that equation, I think, fairly easily. And quite a few of the Bureau’s tools and
resources do that, in fact. Um, and this is just, kind of, reiterating that. So, now I’m
going to turn it over to Janneke — Okay. — to talk about how that applies — Thank
you, Irene. — to other things. Um, so, I guess, you know, my sense is, when we talk
about financial skill as the pathway to financial wellbeing and that these behaviors matter,
it’s, like — does not feel revolutionary. Maybe it even feels obvious. Um, but — but
the fact that it’s so obvious is — is — is innovative in the field of financial education,
where a lot of work has been done around trying to fill people’s heads with a lot of general
content and knowledge and concepts, and there hasn’t been as much emphasis on this skill
piece and on this behavior-based focus. So, it is refreshing in that it — it helps people
focus on skill and which skills, and it helps educators focus on behaviors and which behaviors.
So, we’ll just try to operationalize that by talking about our savings initiative and
talk about how we’re taking a skill-based and behavior-based approach to that. Um, in
the research we did, we found that, uh, the amount of liquid savings a person has is very
highly, um, uh, related to their financial wellbeing score and that even small amounts,
uh, make a big difference and are associated with a big difference. So, people who have
virtually no — no liquid savings have an average financial wellbeing score of 41. If
they just go up another jump to $250 to $500 range, it’s a big step up. If they go over
a thousand, you know, you see another step up to 52 as an average. So, it — it seems
to be a place to focus for helping people build financial wellbeing, and here is, again,
the model Irene showed us. And to just operationalize that for, uh, Start Small, Save Up, the Director’s
savings initiative: The research showed that how much you have saved is an important — one
of the very important factors in the objective financial situation correlated to your sense
of financial wellbeing, which is not surprising, because you saw how being able to weather
a — a financial shock is an important part of someone’s sense of financial wellbeing.
So, that fits. Um, and we found that when we looked at the behaviors, as you, perhaps,
noticed, reporting having a regular savings habit was correlated with actually having
more savings, and when we asked them about things they knew how to do, people who reported
knowing how to save, um, were much more likely to have, um, a savings habit. So, the implication
is that, perhaps, by teaching people the skills and the how-to around savings, you will see
the development — and — and also building the confidence piece. Then, you’ll see the
development of this savings habit, um, and — and then, that will, um, impact the amount
saved and, ultimately, the financial wellbeing. And I feel like, yesterday, we had some good
conversations with — with, uh, members of the — the CUAC and CBAC around, uh, for example,
how to help people build that skill through account features that, um, sort of, get them
started and then help them build that habit. I felt like we had a lot of conversation that
focused on the importance of, really, that habit. So, um, thanks for that conversation
yesterday. For the Bureau’s own resources, you know, we’re talking about the — these,
sort of, three elements of starting small, which is a good way to build a habit. It’s
not that hard to begin saving if you can start putting, um, aside small amounts to plan for
the unexpected as a — as a framework since that relates to much to people’s motivation
and their sense of financial wellbeing. And then, um, we have heard a lot about the value
of automaticity in — in helping to reinforce that savings habit. Um, so, that — that leads
us to some discussion questions and some discussion opportunity. Uh, Dr. Johnson, uh, you can
— you can take it from here. Okay, thank you. Um, actually, I — I did want to start
out with a couple of quick questions. Uh, we only have, really, 10 minutes because we,
um — we have, um, one other presentation, uh, but just in terms of the — the formulation
of the, um, measures — Um, one, um, I — I would offer that — that the next stage, uh,
should, um, really consider, uh, something of a transition — uh, transition, um, probability
matrix, because the presumption here is that the people are not saving and they’re not
doing, but it could just be that they have a volatility of employment, uh, someone is
ill, uh, and so they were saving, but now they — they’re — now they’re in a situation.
And so, a transition matrix, just similar to what, uh, Moody’s and the rest of them
do — they have AAA, and then a — a AAA company can actually wind up being junk, uh, is something
that I would suggest that you look at, um, because that — that gets rid of the unique
direction — unique directional element. And then, the other point that I would like to
make is that, um, your Z score that you’re effectively generating, or those categories
that you’re generating, um, are, um, being generated based on, uh, cross-sectional, uh,
information — again, back to that notion of transition. You may — you may also want
to look at longitudinal. And so, with that, um, the direct questions that are before us,
um, I’d love to open it up. Brent? I’ll do — um, great work here. We at, uh, the National
Endowment have been evolving to this decide model about decision-making. We have something
called mindful money-management behaviors: People, uh, consider consequences of their
actions, willing to accept responsibility. And — you know, based on their values. Uh,
another issue is clutter. Uh, again, a few keynotes on something called “financial stacking,”
this inability to decide or make choice but giving people a formula to — to — to align
what they see, set aside, and — and focus, and then learn and repeat from that. So, it
is actually, uh, this choice decision-making matrix. Um, Sheena Iyengar, a great behavioral,
uh, economist who invented the Jam Test, uh, talks about too much choice sometimes, and
choice is a bet on the future. Uh, so teaching these principles, uh, absent of specific,
uh, uh — of, uh, techniques, uh, build a sense of momentum and, uh, uh, resiliency
to tackle emerging issues and new things. And then, real quick, a comment on the savings:
Uh, liquid savings is, kind of, a fulcrum for life, uh, that you can build on, emergency
savings. So, we’re suggesting to the Bureau seven action ideas to build on, uh, this,
uh, important initiative. I’ll — I’ll run them by real fast. Emergency savings as sidecar
with retirement is one. Uh, emergency savings is supplementary-complementary with a loan
product, uh, prize linked. Uh, emergency savings is debt-mitigation alternative. Basically,
if you have liquid savings, you have an antidote to payday lending, and to kind of get that
message out. Uh, it’s a, uh, educational sweet spot in the, uh, governmental, private sector,
nonprofit space of financial education with the Financial Literacy Education Commission.
This can be a hallmark of having, uh, the different agencies and our Director of Services
Vice Chair of the FLEC — and they’re undergoing a FLEC reform initiative. Savings bond is
number six. Number five, just the issue, uh, that the Bureau can have to help people navigate
the, uh, historical name cluttering — Roth, 401(k), 403(b), um, savings — but all that
to show, graphically, kind of, a pathway for them in savings. Well, thank you, all, and
I — I know that — You know how much I appreciate your resources, um, and we use them a lot
in Georgia, and the fact that you make them available in great quantities — Um, we appreciate
being able to adapt, um, various curriculum, um, when we do Train the Trainer workshops
to get direct to community. Those continue to be very helpful. Pleased that we’re getting
the latest, uh, uh, uh, Money Smart, um, curriculum update in Georgia as we’re, uh, working to
launch Bank on Atlanta. Um, but one of the things that we find in — in all the ways
that we try to help consumers is, the one-stop-shop approach is the most effective. Um, so, uh,
for example, we make sure that some of this information is put in a — in a — a video-type
form or a PowerPoint that can repeat that we distribute to community action agencies.
People are already going there for help, you know, paying their power bills or other forms
of assistance. So, the more you all can think about ways to — to go to the consumer where
they’re already going to get services that they need — Um, I certainly appreciate your,
um, documentation of the challenges faced by people who have, um — who are liquid-asset
poor, and we know that that is, really, ultimately, um, in — in my experience, the greatest challenge
to ultimate financial wellbeing, um, and — and as I always will do when we’re having these
conversations, remind everyone that liquid-asset poverty is particularly prevalent in communities
of color. Uh, decades — hundreds of years of structural racism in the country have led,
uh, um, black families not to have, uh, a home that they can rely on to — you know,
get a loan to pay for school, not to be able to pass on to their children. So, as you’re
thinking about and designing resources specifically to help consumers, uh, experiencing liquid-asset
poverty, uh, make sure that you’re working with, um — again, with the one-stop-shop
approach, with partners working in communities of color to make sure that these messages
— And — and, you know, it would be great if people could save $300 or $400, but if
you’re living paycheck to paycheck and you don’t have anything for collateral, um, or,
um, even worse, the only form of collateral you have is your car, and you take out a car
title loan and you’re paying 300% interest or more, you just get — you’re — you’re
just — you’re never going to get out of that poverty situation. So, again, I — I appreciate
your — your — all the work that you’re doing. It’s — it’s amazing, and just getting — doing
a little bit more to get right to where consumers are already going for help. Janneke and — and
Irene– We have time for one more. So — Go ahead. Go ahead. So, I was going to say, the
— the financial wellbeing questionnaire is excellent, and — and the part that’s particularly,
uh, great is the benchmarking to people of similar age and income levels. Um, you know,
like Liz was saying, what we have found is that the best combination is when you’re offering
the product and then offering that technical advice or assistance because that’s really
what drives permanent and lasting change in the lives of individuals to help them earn,
save, invest in their futures. I think that, you know, something that the Bureau could
consider, uh, was to match product utilization and not just simply with the educational materials,
things like incentivized savings accounts, um, school-based account, credit-building
products and other products, uh, where both can come together. And, uh, I would just like
to back — uh, kind of jump on what Luz was saying. Thank you guys so much. I mean, this
is — this is something that’s near and dear to my heart. Also, the company that I’m proud
to represent, Acorns, actually does this every single day. This is our business. Um, we believe
deeply in education. It’s embedded in everything that we do, and I — I really like the model
that you guys have built, um, just because I think, you know, if I — if I bring it to,
specifically, how we do it at Acorns, actually, the skill itself is actually becoming a customer.
Um, the behavior that gets established that’s really that habit is the way in which we use
automation to drive that good, positive behavior. And I think one of the things that, uh, I
would encourage everybody to continue to — to try to incorporate here is, we have a tendency
to approach this with — from a very rational point of view, and there’s — this is stubbornly
emotional. And so, the confidence and the optimism, as someone has a low score and moves,
kind of, up the chain, I think, is — is — is incredibly important. And so, you know, from
our perspective, education isn’t a top-of-the-funnel messaging strategy that then turns into, you
know, kind of, this disparate thing that happens, but then I need to action that with a product.
I think what you have to do is, you have to integrate that, and I think CFSI — CFSI has
started to really — Financial Health Network, sorry, they rebranded — um, but, uh — but
have really, kind of, come to that conclusion themselves, as well, and really trying to
become more product oriented because I think that’s actually the way to make impact, because
the issue with financial education is not about content. It’s about the ability to — to
drive action and build confidence. So, thank you very much. Okay. Well, we’re ready to,
uh, take on the next part of this, um, session, and we’ll begin with, uh, Gail Hillebrand.
Thank you, Dr. Johnson. Um, you referenced the size of our team. That’s because it takes
three of us to replace the incomparable Naomi Karp, who was going to speak today. Um, I’m
going to give her presentation. I’m joined by Michael Herndon, who will be able to answer
questions about this work and other work of the Office for the Financial Protection of
Older Americans, and by Judith Ricks in case you have any methodological questions. She
was one of our partners in the Office of Research here at the Bureau. So, we’re going to talk
about suspicious activity reports and what we have learned about financial exploitation
of elders from those reports. I don’t need to tell bankers in the room what a SAR is.
You file them. You know what those are. What we wanted to know is, what could we learn
from those SARs, which, since 2013, have had a box where you can identify, We think is
suspected or actual elder financial exploitation; what could we learn about this crime against
elders from these reports? Uh, by and large, you, the filers, can’t see these reports.
Your local law enforcement can see them, and we can see them as a regulator. So, that’s
why we did this study. Uh, here’s what we saw. FinCEN reports can tell us something
about what’s happening. They can identify transactional red flags, things like frequent
large withdrawals, uncharacteristic timing of — of, um, withdrawals. You know, if you
are 80 and, suddenly, your ATM card’s being used at midnight somewhere, and that never
happened before, there’s an alert, right? Um, they also include some behavioral red
flags. This, often, is a teller observation that the senior is with a person who appears
to be not allowing them to participate in the transaction and, sometimes, some other
behavioral red flags. Um, since we’ve had this information, now collected in electronic
form since April of 2013, we were able to look at both the structured data and also
the narratives that filers filed describing both the actual fraud and the attempted fraud.
So, here’s the study. Over 180,000 structured, uh, data, where, um, you and your colleagues
around the country checked the box that says “elder financial exploitation,” and then we
did a random sample, and we pulled out just over a thousand, uh, actual reports and looked
at what those narratives did. We had a five-person team with Research on Older Americans that
coded those so we could look at things like age, type of fraud, was it stranger fraud
or someone known to the consumer. The checkboxes don’t go beyond whether that’s caregiver or
a son-in-law or grandchild, but they do say “known to the consumer.” Uh, we did some crossmatching
to make sure that the random samples seemed to be telling us the same thing that the structured
data was telling us. And then, I’m going to tell you some of what we found. SARs filings
are up for elder financial exploitation. They were up, um, four — four X over the period,
uh, from 2013 to 2017. Regular SARs filings, uh, increased about 40% over that same time.
So, they’re up a lot. Uh, they were up about two X for depository institutions, and that
suggests that the money services businesses who also report are beginning to report at
a higher rate. And you’ll also see that, uh, in the picture here, where you see money services
businesses having an increasing share of the elder financial exploitation SARs. Now, it’s
bad news we still have this fraud. I’m still on the last slide. Thank you. It’s bad news
we still have this fraud. It’s good news that more people are reporting, but this is only
reporting to FinCEN through the SARs process. This does not include reporting to local adult
protective services or local law enforcement, and I’m going to talk a little bit later about
how important that is and what we can do there. And this does not mean that the share of fraud
is changing. This means the share of reports are changing. We know this is a deeply under-reported
crime, uh, so this doesn’t tell us that it’s going down for depository institutions and
up for money services. It only tells us the share of reporting is changing. Just in 2017
alone, financial institutions reported 1.7 billion in suspicious activities. Unfortunately,
across all of these reports, 80% showed an actual dollar loss, uh, since it covers attempts.
Some of them were, We saw this; we stopped it. And so, that other 20% is, uh, not a loss
to either the business or the consumer. We did also see that there were losses to, um,
financial institutions, as well as to consumers, although most of the loss was on the consumer’s
side. And as you see, right at the last bar chart here, the total amount being lost to
elders is still higher from the depository accounts than from the money services businesses.
That’s because your account is where your money is — uh, at least, that’s what we think.
So, monetary losses are common and substantial. As I mentioned, 80% had a loss. Um, older
adults had an average loss of 34 — just over $34,000 if it was, um — and filers had a
loss of, uh, almost $17,000 — $16,700. And that will be a case where the filer stopped
the transaction after it started and chose to incur the loss. Also, 9% of the SARs were
on credit cards, and as you know, that loss is less likely to fall on the individual than
on someone else in the system, including the filer. One-third of all the individuals who
were reported to have lost money were over age 80. Just think for a moment how hard it
is to earn that money back at that stage in your life. And the losses were greater, substantially
greater, when the person, uh, who perpetrated the loss was known to the consumer, more than
twice. We also found — and it’s not on the slide, but it’s in the report — the average
duration of these losses, the pattern of activity that led to the loss was 120 days. And that’s
where I want to come to early reporting. So, the good news: People are reporting to SARs.
The good news: A lot of communities are creating elder financial protection and prevention
networks to try to prevent and respond to this. Michael’s office and the Bureau is here
to help folks do that. The bad news that we found here is, 28% of all reporters checked
the box that said: We also told either the local adult protective services or the local
law enforcement about this — 28%. For those of you in depository institutions in the room
and listening in, you were at 52%. Money services business were at 1%. Now, more of their, um,
uh, reports were about stranger fraud, so there is also the question of, you know, if
you get the same Nigerian scam again and again, how many times do you report it. Uh, nonetheless,
that suggests there’s a lot of room for opportunity to improve there in terms of reporting, both
for depository institutions and for money services businesses. And we found that most
who did report were reporting to adult protective services. Only seven percent of those who
checked the reporting box said, I reported it to local law enforcement. Now, think about
that 120-day pattern. The sooner local law enforcement hears, the better shot they have
at stopping it for your customer and for the next customer and the next customer. So, when
we look at the implications of this report, we know that elder financial abuse is still
widespread. We know it’s very damaging, particularly at an age and stage in life where you can’t
make that money up. Um, we know that financial institutions of all types are filing more
SARs, and that’s very positive, but they are not indicating that reporting is also going
to local law enforcement and local adult protective services, and we think that’s a real opportunity
to strengthen, uh, prevention and response here. And we also know that local law enforcement
has access to these reports, and some are using them and many are not. So, in terms
of additional implications, um, it’s mostly stranger for money services businesses. It
seems to be mostly known people for depository institution. That means the responses will
be different. For money services businesses in the report, we say the response might be
a really, uh, big warning and some very good protocol training for the employees to make
sure that whatever anti-fraud protocols are in place are being followed every day, every
time. Uh, for those on the depository institution side, it may be more about alerts. It may
be about pattern monitoring to recognize these trends. Um, and for those of you who are in
states where you are allowed to place a hold on a suspicious transaction — we identified
four states that permit that by law — that can be a really valuable tool in making sure
that something gets looked into before the money goes out the door. Finally, before we
go to questions and discussion, if there’s anyone, uh, watching the livestream who is
currently aware of a potential elder abuse situation, whether it’s physical or, uh, financial,
you can find your local adult protective services by calling the Federal Elder Care Locater
at 1-800-677-1116. That’s provided, uh, by the Administration for Community Living, not
by the Bureau, but very important. If you — if you see something, say something. And
we’d be delighted to take some questions. Okay. We are invited to, um — to comment.
Uh, one, thank you. Um, uh, this was really good and quite informative to me in terms
of the level of — of challenge and, uh — and — but also the work that the Bureau is doing.
So, one question I have is — and I think this is going to be, perhaps, state by state,
but understanding what laws are in place to require reporting of, um, elder abuse. You
know, there are certain laws in place to require, um, you know, teachers to report suspected
child abuse. So, what — what — what is the Bureau able to — to do in — in that space,
um, and then, not only, um, requiring reporting to law enforcement but anything that’s being
done in some states to require law enforcement to act rapidly, particularly in the case of
potential clusters of abuse? Um, it does — it does vary greatly from state to state. Um,
some — like you said, some states, it’s anyone if you suspect a problem — uh, clergy and
— and those other — those other areas. What we’ve been doing is trying to show, um, recommendations
as opposed to saying specifically in each state or each local community what the protocol
should be or what their law should be, is to say, Here are examples, here are, um, uh,
models to follow, and trying to show, at the same time, some — what are the effects of
that, uh, because it’s going to, uh, be better if we have some sort of evidence and — and
can provide — say, This is what — in this state, this particular example worked or in
this community. I think a lot of the times, um, the community is where it needs to be
addressed more closely, and I mean almost a micro community. Are health care providers
aware in how to report they see some physical abuse possibly? Right. Right. So, it’s not
just a bank teller. Its’ going to be a pastor, a, um — a health care provider, neighbors,
and all kinds of places. So, we’re trying to really work on building those collaboration
and — and cross-communication channels at the very local level that then can be supported
by a bit higher-level policy. If you have those, um, examples of — I would — you know,
best practice or — or good practice protocols in a shareable format, I’d love to be able
to see that. Yeah, we — we do — we’re working on a lot of things within that network space,
um, as well. The Department of Justice, who we’ve been coordinating with in their Elder
Justice initiative, have some good examples of, um, uh, particular local communities and
what they’ve done on a variety of those elder, uh, financial fraud-prevention efforts. So,
we can — we can work with you to get — to get you all of that. One thing you can see
on this right now in our website is a — a pair of reports on elder financial protection
— um, we keep changing the acronym, but it’s Prevention and Response Networks. Uh, we did
a study with the Library of Congress documenting the value of those networks around 2016. More
recently, we have issued a report on some convenings we’re holding. Uh, what we are
trying to do is make ourselves available to go to a local area and introduce the players
to each other. So, if law enforcement and bankers and credit union leaders and adult
protective services get to know each other, they almost always want to work together,
but it’s that first step of coming together around this issue. Yeah. Yeah, thank you,
Gail and Michael. That’s — that’s very helpful. And I agree with you in terms of the community-to-community
approach because I think you’re more likely to bring those — those parties together.
Um, there’s a — a National Identity Theft Victims Assistance Network that also brings
those same parties together. We’re one of the states that’s — that’s a member of that
network. And so, perhaps we can talk later about, um, sharing strategies. Great. Thank
you. Dr. Johnson? Um, you mentioned four states that had passed some legislation. Tennessee
was one that recently passed some legislation from the Tennessee Bankers Association to
give the bankers safe haven, for lack of a better way to say, to stop transactions without
liability. Um, it’s moving forward, and it — it’s, I think, a good, proactive way for
banks to work with their states to be able to give themselves some protection, so that
they can intervene in these transactions. And so, that model legislation’s out there
and is in effect in Tennessee. Department of Financial Institutions, Greg Gonzales was
very much behind that, as well. Um, so it’s — there are ways that — that, I think, we
can move this forward, but it’s a big issue. Um, I don’t know if there’s a way to connect
this space with the, uh, uh, Save Up initiative, but grandparents are often the de facto emergency
fund for their family. They have the financial ballast that upholds — actually upholds communities,
in many ways, through equity in the home or just frugality and — you know, and just staying
with it and — for the best intent of their family. Uh, this issue of (inaudible, 177:04/1)
relation of, uh, retirement paycheck — and we’ve developed a website called My Retirement
Paycheck to look at this issue holistically. So, fraud and debt, of the seven, uh, or eight
key areas, are two of those considerations because you can — uh, instead of a spend-down
mode, you could end up with a steal-down mode as you’ve implied. And it just — uh, it’s
nonrecoverable, and there aren’t other, like, you know, alternate grandparents to bail out
the grandparents that lost it. So, it’s just — it’s just a big area for society as — as
— as we age, uh, but this type of networking of the Bureau with state and local officials
the Director mentioned earlier, this is — this can, uh, bring up, uh, synergies and — and,
uh, uh, interesting ideas from the field, uh, that will get this into common language.
Uh, Michael, you mentioned, uh, those other key, uh, uh, uh, uh, interveners on the local
level, uh, and have this as top of mind. It’s really just — just applaud this effort and,
uh, local districts’ attorneys are very involved in this, as well. So, thank you. I have a
question for the Bureau related to, just, are there plans to tailor resources to local
APS agents to help provide consistency in the, uh, investigations that they do? We — you
know, the — the APS agents that we work with are doing great work. We’ve just seen some
— a handful of incidents — instances where there may not have been consistency in what
we felt the investigation process that caused us to have to do later reporting and — and
rereport to APS agents. So, what — what’s the — the Bureau’s plan for that? Are you
saying for — to provide the APS workers models on case review and — and those kinds of things?
Exactly. Um, we — we’ve been working on trying to come up with resources to help, um, the
collaboration between all those — those areas and highlighting, where we can, again, examples
of, um — or positive examples in other places. As opposed to coming up with a real specific
set of protocols from ourselves, it’s more of highlighting what others have done. And,
again, I would refer to the Department of Justice. And one of the reasons we’re not
going too heavily into it is because we saw, what did Justice do, and what can we do to
complement it, uh, and collaborate closely with them. So, within their, um, multi-disciplinary
team, uh, uh, website, they have a, um — some — some examples about how to do that. One
of the things that I’d like to just comment on is some of your statistics. I — I — you
didn’t say this, but I kind of heard that you’d like us to — as bankers, to be able
to report that to local law enforcement more and to the vulnerable adults. But I’ve got
to tell you that — or to the agencies. Um, I think there’s two types — at least for
us, there’s two types of vulnerabilities. There’s some that people are just — they
got scammed. Yeah. And, um, that happens, they’re embarrassed, they don’t want to talk
to anybody about it. Um, in our judgement, they don’t need any help. It’s — it’s — it’s
one and done, and we, then, aren’t going to waste people’s time by moving that forward.
Mm-hmm. There’s others that — you know, in one particular case, I had a customer that
had came in, in three different months, and it was to the point where we did try to get
a hold of some people, some of the family members, and then we did contact the services.
So, I — I wouldn’t let your numbers skew the fact that that’s not being done. I think
that we as bankers do know our local law enforcement and we do know our local county and — and
all the workers and, I think, appropriately, um, send that information when we need help.
The other thing is, we just — our bank just held, um, a — as I’m sure most in the room
have done, we just held a seminar talking about some of the scams, and when we use certain
words like the elder abuse, that really infuriates them. It’s like calling them Millennials,
that they — they — that they — they don’t — they’re all being lumped into one, um,
section or one stereotype. And so, um, we’re seeing it not only with the older generation
but with some of the — some of the new scams that are coming out that are much younger
— Mm-hmm. — and I think you’re going to see more and more of that. So, I — I’d be
a little cautious that we’re only focusing on elder, although I — I see that you have
the statistics that — that it’s really happening there. So, those are my comments. Thank you,
that’s very helpful, and of course, to do work for elder Americans, you have to be thinking
about the caregiver generation and, also, what I like to think of as the pre-old, um,
which are folks who are working right now but need to plan for later financial life
security, and that’s both what you save and how you invest and how you manage your money
but also making sure it isn’t stolen from you or from those who you have to — you will
have to support if it is stolen from them. Now, I’ll add, some of my background has been
in different types of fraud and that some studies have said that fraud is not an issue
of age. It’s — everyone’s susceptible to fraud. It’s the type of fraud that typically
happens to you. If you’re in your twenties, you’re probably not going to fall victim to
a Ponzi scheme because you don’t have anything to invest. So, Ponzi schemes are going to
skew to older people, but you may be falling for online, kind of, scams — you know, purchases
on the — on the internet. So, we’re pretty aware of — of how to talk to certain audiences,
and we’re constantly looking at, what term should we use, what’s the tone in our materials.
Uh, we talked about a — a — an experienced financial consumer, or do we talk about an
older American. So, we’re — we’re trying to be very cognizant of that. Thank you. Um,
in San Diego, very focused on this. We’ve taken the approach of educating members and
employees, and we’ve seen a decrease in the number of reportings that we’ve had to do
as a result of that, which we believe is preventative. But on the other side, adult protective services
— we serve three counties. Two of the three are really good about it. One county’s not
all that interested, which is sad, but on the other side, we also don’t get back reports.
So, after we report, then we’d like to better manage the accounts if something was validated,
but we don’t get that information back. So, we don’t know if there’s any way to influence
them to be more — more, uh, sharing back to the organization, so we can better protect
our clients, as well. That’s very helpful to know. If you, uh, would like to share with
us, on any kind of a public or confidential basis, the material that’s working, we’d love
to see that. I’ve got one brief question. Do you all get involved in uniform state laws?
I know there’s this thing called USASLI (phonetic), the uniform state law group, but on — on
some of these elder fraud areas, where best practice laws are discussed, you know, like,
that might be a great forum to bring your research in front of, uh, people that kind
of tee up ideas for state legislative action and through various administrators. I will
say, uh, Brent, that — that, certainly, I know the Department of Justice is very involved
in those, uh, efforts on a variety of fronts. Uh, I will let Gail know, at least if there’s
a particular instance where we’ve paid attention or where our expertise has been sought in
those kinds of conversations. I’d say we’re probably, uh, cognizant of, uh, as we’ve talked
in other forums, too, the — the roles of the states there, but — but we are certainly
at their disposal if there’s something in particular that they wanted to explore that
— that touches on our expertise. But if — are there any specific examples of where we maybe
have, um, had our expertise sought? I don’t think we’ve been asked in the state uniform
law process. And as the Director said, state law is state law, but, um, we have an evidence
base about this problem, and we share it with anyone and everyone who wants to attack this
problem. Thank you. Uh, I’m curious to know, uh, have you seen any, uh — There’s several
states that passed laws. So, Texas passed a law, and that’s been, I think, in 2017.
Have you done a — a geographical analysis to see the efficacy of these laws, in — in
— in jurisdictions that — that have a law versus jurisdictions that don’t have protections?
Uh, I — I’m familiar with a — a listing. It wasn’t one that we created, but I — I
do recall finding a list and — and sharing it with Naomi, um, who’s not here today, to
say, Here’s a lot of helpful information for when we are talking about this to say, Here’s
the variety of — of how it’s different in each state, um, and then, uh, as well, kind
of using it as an example. Um, so I know that — that exists. It wasn’t something that — that
we created, but I know that resource exists. If your question is, have we done a data analysis
related to those states, many of those laws are quite new. That’s a very interesting thing
for us to consider going forward, but we haven’t done it yet. It — it would also be interesting
to see if it triggers a higher, uh — maybe — maybe the reporting will actually increase.
So, does reporting increase in those states, or does actual fraud decrease? Yes, that’s
very hard to measure. So, it — it would be — it would be interesting to try to tease
that out. I’ll leave it to your, uh, statisticians. I would note, too, that’s an area where I
know JP is paying attention. So, there is a — a — at the Office of Justice Programs
at — at DoJ — there is a — a — a presidential taskforce on, um, elder fraud. I do forget
what, exactly, the name of that taskforce is, but, uh — but we’ve been an active participant
in that effort, and there is, uh — it’s a — a great example, frankly, of a lot of interagency
cooperation at the federal level and then also with the states because there are a lot
of different, um, equities and expertises that — that can be brought to bear on — on
that particular question. So, uh, I imagine they are paying attention to that, but we
can at least flag, uh, an interest in that kind of, uh, comparison or study. I can also
mention that in the process of doing this data analysis, because of the point at which
the EFE SAR filing began, which was in 2013, there were only, I believe, two, maybe three,
states that had these law changes. So, in some of the preliminary analysis, we attempted
to look, over time, at these law changes, but we didn’t see any substantial increases
or substantial effects associated with those state law changes, which is one of the reasons
why we haven’t included it in the published report. We feel that we need to extend that
analysis a little further, gain a little more data over time, and potentially see some more
changes across other states. Uh, I can share qualitatively, when — when the law went in
effect in our institution, uh, we — we implemented training across the institution, and we’ve
stopped a number of, uh, instances because of the law and the protections it gives us.
So, I — but I can’t give you a statistical, uh, reference for that. I have, kind of, a
comment-question, and you had mentioned, um, what you’re seeing at banks, and we’re one
that does this as far as our VFA AML monitoring software. Um, we have components built into
it, looking for elder abuse or, um, financial abuse. And I had a question in terms of a
lot of the — we have — it’s dynamic, where we have the ability to modify parameters and
things like that, but I was wondering, have there been, um, conversations between the
Bureau and some of the larger providers at community banks use in terms of, are the — the
suggested parameters that they have set — are they hitting the mark? Are there new trends
that you’re seeing that maybe need to be factored into some of these programs that we’re using?
I — I’m not familiar with any analysis that’s deep enough to say, is — is the trends we’re
seeing that came from any reports or even just, sort of, anecdotally — to set parameters
within that. Ours tend to be a little bit broader about the possibilities of the, uh
— the recommendations we’ve given financial institutions about using technology. Where
I would like to — and we were thinking about doing more work in that area to be able to
provide more specifics and — and provide some of the evidence, um, and, again, this
— it’s such a fluid thing, especially when it gets into — when it’s elder abuse, because,
a lot of times, it’s family members, and that gets kind of blurry. Is the person — they’re
— they’re the power of attorney, but are they abusing that, and does the bank really
understand that? So — versus, somebody broke in your house and stole a TV. That’s a pretty
clear, cut-and-dried kind of thing to monitor and report and — and analyze versus the fluidity
that we see in a lot of elder abuse. Right. Yes. No, I understand. Definitely, they’re
the front line, you know. The — just the behavior and things like that — obviously
that goes into it, and that could be much more of a — a sign, but I was just wondering,
as there’s being — more data’s been collected, and unfortunately, as there’s more scenarios,
um, can we use that data. And I do recognize that schemes and things like that can change
over time, so something that was being used a year ago might not be relevant this year,
but I was just seeing that maybe that interaction between the — the system providers and the
results that you’re seeing, could that help build even more robust systems. We’ll follow
up with you on those systems providers, because we’d like to know more about what they are
tracking for because there may be some work to be done there. Thank you. Um, if we — if
we think about this in terms of faster payment systems — This is also another reason to
make sure that it’s not final, instantaneous, credited, you can’t take it back, because,
at the time we go to look at something, if we can’t get it back for the elder, their
whole life savings can be gone. So, I think it ties together. Are there any other comments
or questions? Well, um, do you want to do some — a wrap-up, Gail? Yes, thank you. Um,
I’d just like to highlight for you, the ConsumerFinance dot gov has our Older Americans page, which
has all of the resources that we offer for individuals and for people who serve them.
You will see there the Participant Guide for Money Smart for Older Adults. That’s the joint
project we have with the FDIC. Many of you give Money Smart, uh, trainings in your communities.
There is one specifically for older adults focused on anti-fraud. We also offer there
the Money Smart — uh, sorry, Managing Someone Else’s Money. That’s for family members and
others who are trying to do it right but are not, um, experienced financial professionals
and want to know how to do it right. And those are available for, uh, co-branding — we just
put that up, I believe — and also for, um, download and print if you want to make them
available to your customers. We also have a set of placemats for community meal-service
providers who can, if they’re giving meals to the elderly — The placemat, most of them
are anti-fraud messages, and, sometimes, on the back, there’s a — you know, a game or
something to reinforce the learning, and there are also some, uh, five-minute lessons that
meal providers can give while they’re waiting — people are waiting to be served. Um, and
I think I left out one of your programs, but those are — The big one is, if you do not
have a network in your community and would like to be part of starting one, uh, Michael’s
office is ready to help you do that. Gail, I just want to, uh, add, the placemats are
great. They’re so — I mean, they’re so easy for the senior to quickly get the information.
And am I correct, they come in English and Spanish? That’s correct. A number — Any — of
them — uh, a number of them do come in Spanish. That’s great. And I will say that if you find
the word game a little bit hard, we did that intentionally because when we sort of tested
it, the first version, a lot of the, um, people we were putting it in front of said, This
is too easy. Too easy. Give me a little bit — Good. Good. — of a challenge here. Well,
good. So, very responsive to your audience. So, thank you very much. Thank you. Well,
this concludes this session, and I’ll turn it over to Matt, uh, who’ll give instructions,
uh, for what we’ll be doing in the afternoon sessions. Thank you. Uh, this, uh, adjourns
the meeting for this afternoon. We’re going to go into lunch. Thanks. We are about to
get back into order. Um, and so, um, I’d like to, um, welcome you all back, and, uh, for
our final discussion of the day, the final session is focused on, um — on — on trends
in the mortgage — mortgage markets. Um, we have, uh, two subject matter experts from
the Bureau, uh, Mark McArdle and Jessica Russell. Mark is the Assistant Director for the Office
of Mortgage — of Mortgage Markets, and Jessica is, um, a Mortgage Data Assets Program Manager.
And so, I turn it over to Mark and Jessica. Excellent, thank you so much, um, and thank
you for coming. It’s always a — a great group to talk to. Um, so, today, we wanted to, um,
just run through some of the housing and mortgage metrics that we watch regularly. Um, it’s,
sort of, just a snapshot of the current market, um, and look forward to the discussion after
the presentation to understand how that meshes or doesn’t mesh with what you are seeing in
your markets and — and on the front lines. Um, so if I could get the slides — Oh, perfect.
There we go. There we are. Um, so, we’ll — we’ll talk through some macroeconomic trends, and
I’ve switched the order a little bit from what’s in your, um — the paper copies. Um,
then, we’ll talk about some general trends, um, and then end with a — a quick discussion
on home equity borrowing. Um, and this is just going to be a bit of a blitz, so hang
on. Uh, so, home — I thought I’d start with homeownership, um, since that’s one of the
key metrics for the housing market: um, currently at 64.3%, um, after, obviously, a long slide
and then a recovery. Um, I think one of the things we are still waiting to see is whether
that blip at the end is a — a turn in the trend or just a blip. Um, so that’s something
that we wanted to watch. Um, but it’s worth noting that when you disaggregate that by
race, um, you’ll see that there’s, uh, a persistent difference between the homeownership rate
between non-Hispanic whites and minorities, um, and we also think it’s worth noting that,
um, black and Hispanic consumers used to have similar homeownership rates leading up to
the crisis. You can see, that’s the blue and orange lines there. Um, and then, they really
diverged, and they’ve continued to diverge in recent years, and that’s something that
we think is, you know, worth knowing about and worth watching. African American homeownership,
I think, is at a 50-year low. Pretty close, yes. Um, and so, nationwide, um, home prices,
they’re about 11% above their prior peak. So, the graph here is just showing the change
in home prices, um, since 2002 September, um, and showing the difference between where
our prices are today and where they were at their prior peak, uh, which we think is an
interesting metric. And you can see, obviously, housing is local, um, nationwide, up 11%.
Areas like Vegas are still down 15%, um, and if you think things are caught and busy in
the D.C. market, then you haven’t been to the West, um, because in places like San Francisco
and Seattle, um, home prices are, respectively, 68 and 36% above their prior peaks. Um, the
— and this is a little dated. So, um, the newer data show a slight turn there, um, but
still very, very high home prices in a lot of the Western markets, and a lot of economists
are pointing to, sort of, a shortage of homes for sale being one of the contributing factors
there. Um, interest rates — obviously, a key metric that we watch on a — a weekly
basis. They spent most of 2018 above 4%, um, briefly hitting, um, as high as 4.9 — so,
not quite 5% but almost — um, and then, just this past week, um, went back under 4% for
the first time. So, obviously, that has a lot of, um effects on the mortgage market,
which we will talk about. So, one of the big trends, shifting from, sort of, macrotrends
to what’s going on in the — in the market itself, is, um, the — the difference between
purchase and refi. And as many of you know, um, purchases are the more stable, steady
market, whereas refi tends to be more feast than famine based on what interest rates are
doing. And so, given the prior slide, it’s, then, not surprising, perhaps, that, um, purchase
volume is increasing. So, consumers — more and more consumers are getting mortgages to
purchase a home, but refi volume has really dropped dramatically. It fell 34% in ’17 and
29% — another 29% in 2018. Um, so that refi volume, there’s just not a lot left to refi.
Um, with the new drop in rates, maybe there’s a few more, but still not the same volume,
and that has a lot of implications for lenders, um, and their profitability. Um, purchase
mortgages are, sort of — take longer and are — are harder to make, and they’re — they’re
more work to do. Um, so, in terms of underwriting, um, wanted to show a couple of graphs — these
are from the Urban Institute — that talk about underwriting. Um, for — So, we’re going
to talk about FICO scores, DTI, and LTV, which are, kind of, three of the main characteristics
you want to focus on. They didn’t all three fit, so we’ll do them one by one. Um, FICO
score — Uh, so I would say, in general, the — the credit scores are still pretty — are
— are very good. Um, the — the median FICO for a current purchase loan is about 31 points
higher than it was in the early 2000s. Um, so, that’s at the — the orange line at the
731. Um, and then, the blue line is the tenth percentile. So, you can kind of think of that
as, like, the lower bound. You really — if your — if your, um, FICO score’s below this,
you’ve probably not getting a mortgage. Um, and so, that’s currently at 642, um, where
it was in the low 600s, um, in the early 2000s. So, there, we’re, um, requiring higher FICO
scores than historically, which is a different story, actually, than what’s going on, on
the DTI and LTV side, um, where — Again, this — this first one is CLTV, the second
is DTI, and you can see, both of them — um, the measures have become looser. So, when
you look at LTV, um, more consumers — your median consumer, uh, now has a 95%, um, LTV.
So, smaller down payments are more and more common. Um, similarly, your median consumer
now has a 40% DTI at origination. So, those two metrics are getting looser, while credit
scores are remaining, generally, pretty — pretty high. Um, so, I know, sometimes, we talk about
access to credit and what — are, uh, underwriting standards loose or tight, and I think sometimes,
it — it’s nuanced because it matters on which metric you’re looking at. Um, on the servicing
side, just worth noting, as we all know, that delinquencies continue to be near historic
lows, which is, I think, good news all around. We have seen some blips, um, around — yes,
natural disasters, um, and — and the government shutdown, but, in general, um, delinquencies
continue to be very low. Um, and I would say, if there’s any upside to some of the — the
recent, um, disasters and whatnot, it’s that it has given servicers plenty of practice
at, um, understanding how to process these loans, and what we’re hearing is that they’re
getting better and better at that. Um, and then — oops — Uh, and this is why I — I
switched your slides around a little bit if you’re following along on paper. Um, but,
lastly, I wanted to just touch on, um, home equity and home-equity borrowing because I
think that’s, kind of, something that people think about when we think — compare it to,
um, historic trends. So, this graph shows the overall market size. Um, so, essentially,
if you were to take all the U.S. residential homes and you were to add up all of their
value, you’d get about $27 trillion. Um, that’s a trillion not a billion — $27 trillion,
um, and, of that, about 16.4% is homeowner’s equity. Uh, that’s that gray, um, there, which
is a humongous increase. Um, I think that’s the technical term for it. Um, it — it was,
uh, let’s see, closer to, uh, 6.8, um, around 2011. So, that’s nearly a $10 trillion increase
in homeowners’ equity, um, and you can see that, um, meanwhile, mortgage debt is also
increasing but not nearly, sort of, at the same speed as it was, um, in the past. So,
that — I think that’s worth noting. Um, consumers have a lot of equity. Much of that is considered
tappable equity, and, yet, what we see, um, is that consumers are showing a fair amount
of restraint in using it. Um, so this graph shows cash-out refinances. Again, rate term
or, sort of, your regular refinances — So, the cash-out refi is the, sort of, teal color.
Um, and you may hear these headlines that are like, Oh, 82% of refis are cash out, and
that sounds, maybe, kind of concerning, um, but a lot of that is just the disappearance
of the — the green, the rate-term refinances. Um, when you actually look at the overall
cash-out refi volume, um, it has increased, um, although in 2018, it was down a little
bit. Um, but it — it’s still pretty modest, I would say, compared to where it has been
historically, um, and, again, especially when you compare it to the previous slide, where
consumers just have a massive amount of tappable equity that they could be using and aren’t.
Um, so, we think that’s, uh, sort of, something interesting to see, especially from the consumer
behavior side. Um, and with that, that’s the end of my slide. So, I’ll — I’ll turn it
back over, um, for the discussion. Okay, this is, um, uh, very, again, interesting information.
Um, uh, certainly, there are a lot of drivers behind, um, these, uh, trends, and, uh — and
maybe, um, from the ground, um, perspective, um, both, uh, from the financial institution
side, as well as from the — from the consumer side, we might be able to get at some of those,
um, factors that are leading to these results. And then, the question, of course, is, uh,
will these trends persist. And so, opened up. Oops, sorry, sorry, I’ve got to cut that
off. Excuse me. Um, but I did have a question — a couple of questions. Oh, one other — one
other, um, uh, point of, um, order — Uh, it’s a little easier if you flip your card
up like this, so that, then, uh, we can call, because, um, they’re getting some feedback
when, um — when several of the mics are on. And then, the other thing I noticed is that
sometimes, someone will have their mic on, and then the light will go out because another
— because the system only holds four. So, some person gets knocked out, and they’re
out of the loop. So, if you just put your card up, we — we can then, uh, call on you.
And I’ve silenced my phone, so I’ll — I’ll pull my — put my card up the next time I
want to have the microphone. Um, thank you, both, um, Mark and Jessica, for the — the
presentation. I have, uh, questions about the Bureau’s, um, data that I didn’t see reported
today but wondering if you have collected and can report on data related to the fact
that redlining is still happening in this country, including — it’s a, uh, significant
problem in the city of Atlanta. Uh, and I know that’s shocking, but I — anybody who
would like me to send them the data, I will send it to you because it is there. Um, and
then, I — I would ask, um, if you have thought about or looked at that, um, chart that shows,
um, that, um, black homeownership is at a 50-year low, and that’s something not at all
— I mean, we’re — we’re very well aware of that and what that means in terms of overall
financial wellbeing for communities of color. Did you look at that in terms of the ages?
And I’m wondering if that — if there’s a generational link there is what — what we’re,
you know, anecdotally observing, is that as, um, seniors, um, are now seeing opportunities
— You know, they — they probably — You know, maybe they’ve owned their homes for,
um, most of their adult lives, and, um — and they may — they may have paid, you know,
$5,000 to $8,000 for it, and they can suddenly realize, you know, hundreds of thousands of
dollars. And so, we — we’re seeing neighborhoods where a lot of that is happening, um, so that
seniors are, um — and — and, you know, obviously, passing away or moving into assisted living
or some other arrangement. Um, but we’re seeing, um, a trend with — with younger, um, uh,
uh, black — blacks, um, that they’re not interested in buying a home. And that’s — I
think, across the board, we’re seeing that Millennials are — are much less interested
in buying a home. So, I’m wondering if you could look at not only the — the, um, uh,
disaggregation of the data by race but also by age, and if that might be instructive in
terms of why you’re seeing such a noticeable drop, uh, with, uh, black homeownership, even
compared to the — what had been close with — with, um, Hispanic ownership. Yes, great,
thank you. Um, so, to your question on redlining: Um, I would say, obviously, we have the HMDA
data, which is, sort of, the preeminent, uh, dataset that we use for that because it has,
um, the race and ethnicity categories in it, um, and — and hopefully — you know, and
are looking forward to using the 2018 data, which will have expanded information, um,
including additional fields that’ll help, um, see how much of the — the — the — uh,
the discrepancies are, sort of, explained away by, you know, differences in things like
credit score or, um, DTI, which we — wasn’t available before. Um, in terms of where we
are in terms of looking at specific redlining, I’d have to defer to my colleagues, um, in
our Fair Lending Office since they’re the ones who are focused on that, and, um — but
I — I know that — that they’re constantly looking at it, and I know they’re, um, excited
to be using the new HMDA data. I — I can — uh, uh, Jessica, I thought you’d actually
get to the latter part of the question, so I can certainly talk about redlining. But,
please, keep going on, uh, the next part of the question, which I’m also very interested
in the answer. Great, yes. Um, so your — your second question on the differences in homeownership
— So, those data come from Census. Um, I’m not sure, offhand, if they — I know they
have age breakdowns. I’m not sure if they have the — the race-age cross. I’ve not seen
that, age and race. Um, I — I haven’t seen it, but, um, we could go back and look. Um,
I will say, um, I think that the point about seniors cashing out is very interesting, um,
and that’s part of why we wanted to come to CAB, to see what people are seeing. Um, I
will say, on the — on the — the, sort of, Millennial and younger-homebuyer questions,
um, I think that raises, uh, really questions because at least the surveys that I’ve seen
actually say that, um, Millennials do have a strong interest in — in owning and buying
a home, um, in many ways, actually, higher — and I — I don’t have the numbers offhand,
but I want to say that it’s actually higher than the Boomers, and, in some ways, is more
similar to their grandparents in terms of aspirations. Uh– Yes, study on… Yes, on
homeownership, um, and — and, really, the difference, then, is — is less about what
they — they aspire to do and more about what they have the capacity to do, um, given, sort
of, their — their current income levels, and — and, also, again, looking back at the
home prices, um, when you’ve got, you know — Student debt on top of that — student
debt, but — but also, just, um, sort of, you’ve got — You know, looking at the wage
growth and comparing that to the home price growth, I think, is — is important, um, and
— and maybe — I’d be — I don’t want to go too far out on a limb, but, obviously,
that’s a driver there. I — so, I guess, to your point, I would be really interested to
know if — if there is a difference between, sort of, aspirational, um — sort of, homeowner
aspirations for young black consumers versus, um, young white or other minority consumers.
Um, I haven’t seen any information out about that, but I think that would be a really interesting,
sort of, piece to follow. Yes, I — I would echo that, too, Liz. I — I’d be very interested
in understanding that better, and there are some trends happening here. I think the question,
too, with respect to age and — and aspirations is, you know, perhaps expectations, too, about
what they — what they would like to have and what they can, uh, actually afford and
— and understanding, again, the factors there. Uh, we’ve seen some correlation, of course,
or, at least, some surmising that student debt has something to do with that. Um, but,
again, um, you know, it might just be where — where you live regionally, too. The — the
dynamics are very different in — in locations. So, again, getting some, um, more refined
understanding of that and the data that we’re seeing, uh, and understanding of studies that
are out there to — to really understand this would be useful. Just to — to give you one
last, uh, piece on — on the redlining issue — Uh, we are engaged in — in redlining investigations.
We have been, um, and, uh, to the extent that any of them come to fruition, you will — you
will see that, uh, in the public sphere. Uh, that’s certainly something that continues
to be a strong, uh, interest area. Thank you. I — I’d like to — look forward to that.
Um, Brent? I think, had his card up for a while. Right, thank you. Uh, just a quick
comment on supply, which is affecting a lot of this, and pricing — Uh, you know, there
are zoning and density wars happening around the country, just a lot of resistance. Just
want to mention three types of alternate housing: uh, obviously, auxiliary dwelling units, which
is, kind of, a zoning issue, but kind of putting something in the backyard or — or even subdividing
with, uh, appropriate, uh, safety approvals. This allows multi-generations to, kind of,
hang together, share the costs, and have a bit of privacy. Manufactured housing continues
to evolve, very important and a good source of employment, but also very interesting.
And I think some of that can be, uh, built to higher standards for, uh, resiliency and
natural disasters. And, um — and then, new kinds of senior housing, as an example, where
it’s dorm-like, but there’s shared social spaces, perhaps a shared kitchen but private
— private areas. I’ve actually seen those in Florida before. I think some of those are
going to come back, uh, and that could be, actually, an equity purchase by, even, uh,
children for their — for their parent, and then they can hold ownership to that. But
it’s, sort of — A — a former — uh, a developer that I met that built dorms created something
for seniors in a — kind of a — a group, uh, setting. And then, just, finally, there,
um — and I know the Director will know a lot about this — is, as, uh, climate changes
a bit, the, uh, issue of, uh, FEMA buying out homes — You know, so that decrease of
supply but, you know, out of floodplain areas, other areas where new restrictions on building,
uh, in the forest areas, uh — you know, uh, in urban forestlands. Uh, that’s a new phenomenon.
That is actually a cost to the government, too. Can I ask, um, a question? On the senior
housing, is that typically rented, or is that purchased? So, when — when I saw it, uh,
as — as an investor — and I own a small company in Colorado Springs that looked at
this — uh, it was offered up to investors, and then we would rent to the seniors. Uh,
so — and I didn’t go into it. I didn’t, uh, buy into that, but that’s, uh, an interesting
model. But I think if it were more made available more within families, that could be a really
interesting asset, uh, to provide, uh, privacy, senior protection, and care, and it’s — you
know, it’s short of assisted living. Yes, on — on that point, um, I think we’re seeing
some similar development, um, with the younger generation, as well, just in terms of — I
— I’ve noticed an uptick in, uh, venture capital flow into co-living-type models, um,
and they come in a variety of flavors. Some of these are more like rental buildings, with
shared services. Some of them, I think, provide for actually, uh owning an equity interest
in the shared development. Um, I — I also wanted to add, you know, on the question of,
um, homeownership among younger folks, that, you know, when we were looking at the average
credit score, um, for a mortgage, which, I think, hasn’t moved significantly, um, the
average credit score for folks in the Millennial, uh, uh, uh, generation is still, I think,
something like 625. Um, it’s still very low for folks under the age of — of 35. And so,
that can help to explain some of the gap between, you know, sort of, aspiration and — and — and
what — what’s actually available. If — if I could add to that last point — I’ve also
seen some interesting research, um, that points to, interestingly, sort of, down payment being
a perceived barrier, and I think that’s kind of interesting given the proliferation of
low-down-payment options in the market today. Um, so, I — I thought that was also worth
noting. One of the things I would — I would add is that, um, especially for, um, African
Americans, um, many of the cities where the housing prices have just soared, um, that’s
where the folks are. And — and as a consequence, um, given the combination, especially of those
folks who have gone to college and, uh — and, of course, of those folks who go to college,
on average, in the United States, 55% of African Americans who go to college don’t finish,
and that’s, um, you know, compared to an overall, um, percentage of 55% — or 45% that don’t
finish, uh, uh, as — on — uh, as average — as the average across the country. So,
you have a lot of people out there with debt, and the — the student loan debt is a throwback
to the kind of debt that, uh, they had in Britain, where people would have to go into
indentured servitude because you can’t — you can’t get rid of it unless you pay it. Uh,
so, um, that debt burden, uh, is one of the big — big issues. And then the other, as
I said, is that they live in places where the prices have skyrocketed. And in many of
the locations, like Atlanta, um, Dallas, Austin, uh, increasingly, Houston, um, the, uh, housing
prices are skyrocketing because people in California and people in New York are cashing
out and moving down and pushing the prices up, which, then, again, means that, um, the
folks who live there can’t afford to own. Um, one — one phenomenon we’re starting to
see, at least in Tennessee, is, a number of our community banks that had pretty decent
presences in the mortgage market, uh, have all decided to exit that market, primarily
because of the graph you showed around refinance. Um, there’s just not enough money in it. And
those folks were much closer to their local communities. Um, and so, it — it’ll be interesting
to see what you see in the data, going forward, for HMDA, the volume of reporters, um, that
are starting to show up and disappear as more and more of this is commoditized online. Uh,
a lot of the local banks are just — we can’t do it; it’s too hard, and there’s not enough
volume for us. I’d like to share our experience from, um — with Michigan State University
Federal Credit Union in East Lansing, Michigan. So, we do mortgages just in the state of Michigan,
but, um, we’re starting to see some of that aspiration become reality from the younger
homebuyers. We, in the last 12 months, uh, unusually — or — or inconsistent with what
we’ve seen prior to that — uh, we’re seeing a lot of first-time homebuyers and really
young first-time homebuyers, like under the age of 25. So, one-third of our applications
right now, um, over the last 12 months have been first-time homebuyers. And from a volume
standpoint, we have 500 applications in our queue as of last week. So, we’re getting a
ton of applications, uh, and, again, a third of those are first-time homebuyers. However,
we’re seeing a lot of, uh, cash above close, um, come in, so there — um, there’s good,
you know, DTI statistics, but those — I don’t know if those are incorporating what the actual
purchase price of that property was, because we have a lot of these younger borrowers — a
significant number are getting gifts that they’re bringing — gifted money that they’re
bringing at close that’s above, um — above the appraisal price on the property. So, they’re
coming — you know, they’re buying — their purchase price is well above the appraisal
price. They need a gift to, like, um, uh, actually get in the property and purchase
it. So, we’re seeing a lot of that, as well. Um, and then, we’re also seeing, just from
a risk in the — for these members, as well, is, as we evaluate assets, really, across
their membership, we’re seeing less and less retirement — uh, funds in retirement that
our members, uh, have as they come to the table for a — a mortgage application. And,
again, that’s maybe not affecting their ability — capacity to — to pay, but we are noticing
that as a trend in — in our mortgage applicants. And then, um, one of the things that may be
helping spur, some of the, uh, younger, um, members to homeowner applications is, uh,
nine months ago, we put our mortgage application on our mobile app, and we’ve already — we’re
already seeing — 40% of our mobile — our mortgage applications are now coming through
the mobile channel, uh, which, uh, we perceive as the adoption from the younger members.
There’s a lot there that’s really interesting. Um, I — I’d love to hear more, if you have
time, um, about the — the younger borrowers and what you feel like — if — if you see
any difference between their perceptions of their ability to get a mortgage and — and
what their — their actual ability to get a mortgage. Um, and — and, also, um, I think
your point on the — the mobile side is — is dead on. Um, I think that’s — that’s also
one of the topics we had hoped to cover in this, as well, um, is just the — the incredible
growth of the, um — the digital — sort of, digital mortgage in all of its various forms,
however you define it. Um, I think it’s — it’s a huge, um — it — it’s growing very rapidly.
I think, um, it has a lot of potential, so. I’m from a small, Midwestern town. We’ve got
12 applicants that are approved for FHA credits but no homes to buy. So, it’s a real challenge.
I mean, even in the state of Indiana, affordability of housing is definitely a problem. So, it’s
— you know, we were a big manufacturing state, with autos and GE and Westinghouse, and now
they’re all gone, and we have biotech companies that pay a lot less, candidly, and have a
lot less benefits and makes the affordability index a challenge across the state. Uh, I’m
going to echo that. What we’ve, uh, been talking to a lot of our rural communities about is
homeownership. Um, they can demonstrate the demand, much like you just did, but there’s
no developers who want to go into those communities and build houses. And so, it’s not just an
urban phenomenon. We’re seeing it almost as much in our rural markets as we see it in
the urban markets, at least in Tennessee. Um, we’re getting a lot of manufacturers coming
into those rural markets, and there’s nowhere for the people to live and buy homes. Um,
so we actually have communities that have done the — the study of the demand side of
it, and they’re trying to get developers to come in, and it’s just a tough — tough thing
to swing to get a developer to get a rural market. Yes, we, um — The — the graph I
showed on the — the prices by market, we have, sort of, a bigger one that we have internally
that looks at markets, and we — we put Fargo on there for a while because we thought that
was, uh, an interesting one to watch, and — and the price growth there was also really
outstanding. Um, so — so, I think, uh, your point about rural is really interesting. And
when I mean rural, I mean, these — Yes. — are — these — No, yes, yes, very rural, yes.
— are counties of, like, 4,000 and 5,000 people in the county. Yes. Yes. I mean, these
are very small counties, where there hasn’t been a new house built in 20 years. I’m curious
if other folks in more rural areas are also seeing that. Yes, one of the challenges you
have in rural areas are the appraisals, and third parties — Yes. — don’t like the appraisals.
The adjustments are too high, the comps are — are — are miles apart and aren’t terribly
comparable, but they’re properties that have been sold. So, there’s just a lot of infrastructure
problems in the rural marketplace, and — You know, and then, you know, trying to determine
a price, uh, for a property in those communities is very difficult. It just kind of comes down
to, how bad did you want it. Okay. It’s unfortunate, but — Yes. — that’s — There’s no — there’s
no kind of equilibrium in the marketplace. There’s just not enough activity to arrive
at that. Yes. You know, one of the things, I think, that’s important to look at — because
we see it in the Bay Area in California, um — You know, you’ve got organizations like
Facebook and Google, who are — were thinking about displacing tenants and buying properties
to house the employees that are coming into the town. And, you know, if — those of you
who go to the Bay Area go to L.A., there’s a huge, um, issue with, um, homelessness.
And so, some of what we’re talking about here has a lot of ripple effect, right, in communities,
um, and — and I think it’s important to kind of look at the more wholistic picture of what
the data tells us as people, you know, whether they’re African Americans or Hispanics or
others — You know, home ownership is not keeping up. What is happening, right? Because
now these folks have to live further away from where they work. Um, what’s happening
to small businesses? So, there’s a — a — a much broader implications that I think would
be good getting some insights about what this means into the — into the economy. Yes, for
sure. Well, I also wanted to add that it’s not just the, um, price that you pay in terms
of buying the house. Uh, in many communities, uh, certainly urban communities, um, the,
uh, property taxes are just a killer, and they go up every year. And as a result, um,
there are, um, seniors who have to move; they have to move in with relatives and — and
sell because they just can’t — they can’t keep up. Uh, even with the — with the, uh
— there are some places where, uh, seniors are protected, but most places have a, um,
uh — a, uh — I forget what it’s called or what it is — you know, like, a $50,000 grant
that — and then, above that, you — you have to start to pay. Uh, and so, that’s one of
the — one of the features that makes it very, very difficult. Um, you just — your — your
income just doesn’t keep up with the, uh, cost of — of a house. I had a question about
the — the data, the HMDA data that’s being relied up. Um, it seems that, just from analysis
that I’ve performed, in certain cases, there seems that there’s an uptick of — and it
seems like it comes, probably, from some more online lenders, which is probably to be anticipated
— but a lot of, um, information is being reported as not — not provided, uh, that
they didn’t wish to provide it. Has that impacted the analysis of that data, where there — there
can be an uptick where it’s very, um, opaque that you — we don’t know what — what race
or ethnicity is being reported because they’re choosing not to provide it, and particularly
if it’s online, there’s no, um, interaction to be able to, um, make some sort of determination?
Um, yes, so, I — um, I — I don’t have those numbers, uh, uh, with me. I know that the
Bureau has, um, looked at that. Um, I’m not really — Yes, I don’t know. Later on this
summer, we’ll have a datapoint paper, and one of the things we’re going to look at is
GMI and how often it was reported, so. And, uh, you’re right. If you’re — if it’s an
in-person application, they have to — to even guess at the — at the — the — but
online, they don’t have to do that. And so, with the share of online going up, it should
have an — Right. — impact on that. But we are doing that analysis right now. The one
gentleman I mentioned to you, you were using the mobile app and you saw an uptick of that
— Are other folks dipping their feet in the digital waters? Any — any experiences you
want to share? Oh, yes, we — we do that, as well, yes. We get a lot of mobile applications
on mortgages, and it’s — they really don’t — It’s — it’s interesting. They — they
really don’t want to talk to you. Right, they just want to — They just want to fill this
out and move on and don’t — you know, no sharing information — Oh, do I have to listen
to you on the disclosures? I mean, I — that’s the way it is. I mean, as far as the disclosures
are concerned, you know, I hear it from people all the time: Well, I signed my name 14 times
and I walked out and, you know — And — and it’s unfortunate. They have a little bit of
responsibility on their own to understand the obligation that they’ve committed to.
They just don’t really want to hear it. All they care about’s the house and getting it
closed and being done. So, you’ve got to kind of force them, you know, whether they want
to hear it or not. But it is definitely a challenge. Yes, I’d also be curious: Are — are
you all looking — when you’re talking about digital, is that, sort of, applying online,
mobile apps, e-recording, remote notary? I’m kind of curious. Which — There’s, like, this
whole suite of things that people talk about when they — they talk about that, and I’m
never quite sure which of those pieces people are using. The GOCs have pilots that help
you do underwriting using bank account data — But — yes, the more automated, um, validations
— We’re investigating solutions to provide those services, and so that’s on our roadmap.
We started with the — with the — the application process, and now we’re working for data validation,
trying to, like, more automate the underwriting of that process. We’re also looking at opportunities
— Um, to Bryan’s point, a lot of our members just want to apply and then, you know, there’s
a lot that’s going on behind the scenes, and we’re trying to provide them insight as their
loan file’s moving through the process and what steps are coming up and where that’s
at, so that they have a little bit of — they — on the, uh — they can log back into their
application and see from a self-service standpoint. They don’t have to call in and say, Where
are you at in this process? Again, to give them clarity, um, because that’s where we
see a lot of — you know, members are confused about what the process looks like and what
I should expect, and the more that we can be upfront with them on what they can expect
and where their app’s in the process, um, uh, kind of, like, pre-servicing, I think,
service, um, uh, and then, I — I think I already brought up the — the decisioning,
and we’re looking at solutions for that, so. Yes. Great. My question’s, sort of, off of,
uh — getting away from the mobile app for a second. It’s more of a curiosity question.
So, this $16 trillion in equity, where is it really coming from? Why has it grown so
fast? Is it because, you know, older Gen Xers, maybe Baby Boomers, have been such good savers
that they’re just not wrapping up debt into equity, or where — where has it really come
from? Yes, it’s a — it’s a good question. Um, these numbers come from the flow of funds,
uh, so — the — the Federal Reserve puts out, so, um, I don’t have a good way of, kind
of, necessarily breaking out all of the pieces. Um, it’s — it’s a few different things, though,
um, so contributing — Obviously, the increases in home prices is — is one of the big drivers.
Um, there’s the, sort of, natural amortization of the mortgage as a piece of that. Um, and
then — uh, then, there’s also, just, the — the group of people who own their homes
outright and who are buying in cash. Um, so that’s, uh — I — I remember when I first
looked at the cash share numbers. I was, sort of, like, shocked and — um, at just how high
they are, especially in some markets, um, and I think — oh, gosh, I — I’ll have to
look at my notes, but, um, the number of people who own their homes outright, um, is also
quite — it’s certainly higher than, I think, most people would expect. Do those numbers
include venture capital homes that were purchased during the downturn? Yes, so, the — the federal
flow of — the flow of funds — I — I’ll have to double check. Um, it does include,
uh — So, it’s residential housing, um, not necessarily — Owner occupied. — consumer
— like, owner-occupied consumer. Um, I think when we’ve looked at that, I don’t know that
we’ve looked at it for the equity. I know we’ve looked at it for the mortgage. It takes
it from, I want to say, like, close to — it’s like — I — I’d have to — to go back in
my notes. I — I want to say it’s, like, a trillion dollars-ish, um, when you go from
including everything that’s in the flow of funds to just including those that are, sort
of, your consumer, um, ones, which you can — we can validate against, um, data that
we see in consumer reporting — sorry, consumer credit reporting. Do you know, is the home
equity numbers — are those total outstanding debt or total lines of credit? Um, for flow
of funds, I believe that would be the amount that’s being utilized. Uh, don’t hold me to
it, though. Well, again, um, uh, uh, uh, this is — You know, the mortgage market has — has
changed dramatically, as you know, and, uh — and there are a series of factors and hangover
effects from the previous experience that may be, in fact, clouding the data at this
point, which then means that it’s hard to determine what the trend is. The tax law changes,
um, will have an affect over time, um, simply because, you know, the SALT doesn’t matter
anymore. Um, and I know that, um, when the, uh, ’86 tax act was passed, in anticipation,
I tried to move, um, residential — uh, not — not residential but apartment property
I owned here in Washington, D.C., and, uh, unfortunately, um, Black Monday happened,
and the person who was buying had his money tied up. And so, I wound up getting caught
crossing into the next year, and I know what that meant, uh, for me and for others who
owned — who owned, uh, investment property. They just got whacked. Uh, and so, um, the
changed tax law is going to have some impact, I think, as we — as we go — go forward and,
uh, may also explain why a number of people in — in certain locations — not only are
they — they may be cashing out because they see the — the topping of the market, or they’re
cashing out because they’re saying, Whoa, you know, I can’t write off my — my — the
— the — the taxes. And, um, and I certainly know, I sold my place in — in, uh — in Houston,
uh, because I was in the unenviable position of, um, paying a huge property tax in Texas,
because there’s no income tax, but living in Georgia and paying an income tax. And I
said, Oh, god, this is insane. So, um, I just think that we’re in a window here where things
are just, like, well, the washing machine is washing and — and, uh, we — we — we’re
really not going to be able to get a clear sense. But if you start to look at these tracers,
you may be able to figure out what’s really going to keep propelling up or — or taking
this down or keeping it flat. STAFF MEMBER MCARDLE: Yes, there was some data from the
Tax Policy Center which indicated that, uh — that folks taking the mortgage interest
reduction fell from 34 million, which was 20% of returns in 2017, to 14 million, only
8% of returns in 2018. So, yes — Yes. — tax policy has a big impact. Yes. I would say,
on the home equity front, for what it’s worth, um, the conferences I’ve attended, people
have generally said that, um, at least for home equity loans, in some cases, it’s more
the perception of the change of the law than it is the actual tax consequences, um, since
there are still circumstances where you can use home equity and deduct it. Um, but — but
they didn’t — but even that aside, they didn’t feel like that was, sort of, the primary thing
holding the home equity back. Uh, Erik from, uh, Austin Capital Bank in Austin, Texas — We’re
— we’re a small community bank, and we actually exited the mortgage market, uh, uh, with the
advent of Dodd-Frank — uh, the consumer mortgages. Uh, we reentered last year, uh, because we
knew we could do it at scale. Uh, I think a lot of community banks have exited this
market because you can’t do it at scale. We did about, uh, a little north of a hundred
million last year. We’ll probably do just shy of, uh, half a billion this year. Um,
about well over 90% of our loans are purchase loans. And so, uh, I convened the team, uh,
because I know just enough about mortgages to be dangerous, and I asked them to make
me look smart today, and — and after they told me that was impossible — Um, I have
just a couple of feedback points from, uh, the — the set of questions we have, which,
uh, one — one of the things that they — they said is — is driving up potential consumer
harm is the time frame requirements for disclosures for closing docs and that there’s no ability
for consumer to waive those and so that, often, consumers run up with, uh, additional rate-lock
fees or — or go out of contract and have to pay a contract extension. So, there’s — there’s
actual monetary damage to the consumer from the law that’s protecting them. So — so,
the ability of the consumer to actually waive that disclosure period, uh, at — at their
will — Uh, I — I — the loan officers had some, uh, comments on compensation, and — and
there’s some nuances to this I know I won’t get right, but they also wanted the Billy
(phonetic) to voluntarily reduce their comp if they made an error, and — and they don’t
have that ability. Uh, I — I can’t really, uh, talk to the details behind that. They
— they — in general, they said, uh, for as far as TRID, the forms are friendlier but
not as transparent and that they’re much more hard to get accurate. Uh, uh, and then, uh,
for HMDA, it was sort of, across the board, everybody involved said, it’s too much. It’s
too burdensome, uh, it’s — it’s used as a “gotcha.” Uh, you know, if you — if you liked
20 pieces of data, you’ll love 72. Um, but — so, where does it end? And — and so, what
is this data actually going to be used for and that — like, when they looked at the
definitions behind it, they said it became redundant in a lot of the categories. Um,
so, there — I think there’s a lot of interest in, why are we adding so many different pieces
of data, and what are we going to actually do with it, uh, to — to account for the burden
of — of going through and — and doing a HMDA scrub. On the HMDA datapoint, I’ll just
mention that many of the new datapoints relate to underlying credit characteristics, which
you really need if you’re going to do any kind of fair lending analysis. Before, you
just had, you know, race and — and — and interest rate, and you didn’t have any of
the underlying LTV, credit score, things that are part and parcel of a credit decision,
so. But I think it probably is important to note there that we do have an active rulemaking
and — and comment period on all of those issues, including the datapoints. Um, so,
certainly, getting the feedback and perspective on that — And I can tell you from a philosophical
standpoint, there are a couple of things going on here. One is, some of the datapoints are
required by law. So, obviously, those are — are datapoints that we will collect and
should collect. Um, HMDA is a disclosure law, so there is a — a, uh, some issues around
privacy, too, and concerns about being able to map back to the individual and — and some
things there, but — but the overriding purpose of the law is — is disclosure. Um, but the
last thing I would say is that, um, philosophically, from where I stand, uh, recognizing the two
things I just said being the — the starting points for the conversation on HMDA, if it
is data that we, uh, are not going to use or cannot use, we should not collect it. Uh,
so it is — with all of those things in mind that we’re moving forward on — on the issues,
uh, you know that you raised, there, too, and — and I will say, even though, uh, you
think you don’t catch the nuances on LO comp, that is one of those things that I have now
heard a lot about, and, uh, I think you did it justice. So, you — you can tell your staff
I — I said so. But, um, it is — it is something that, at least, we — we have heard and — and
— and know is an issue out there. And to follow up on Erik’s comments, when — With
respect to TRID, is there, um — I think every few years, you look at the regulation because
that — that is one that, I think, the — you know, the — the clarity, even though some
of it may be a little bit more opaque, but it — it’s in a more understandable manner,
but from the execution standpoint, from the financial institution, there is a lot of trip-ups
and — and so many nuances with it. It does make it very difficult to comply with all
of the — the myriad of, you know, round here, dash here, you know, this — You know, an
appraisal fee can’t change. But we don’t have control. You know, we — we have laws that
require us to rotate appraisers and things like that, so we’re rotating appraisers. Every
appraiser doesn’t charge the same fee. So, you know, we can be off by a little bit, which
isn’t us trying to slight anyone; it’s just how it’s coming up on our appraisal rotation.
So, there’s a lot of — You know, even though the — the grander aspect of it, I think,
is good, there are still so many aspects of it that make it very difficult to actually
execute from the particular community bank standpoint. Yes, we are, uh, undergoing our
TRID assessment right now, so it should be due in October of 2020, and we’re looking
at all these — these points in particular. I mean, we’ve heard them repeatedly, especially
about the materiality of mistakes: How do you correct mistakes? Those come up again
and again, and some private-sector players, like SFIG, you know, have made some progress
in sort of, you know, creating thresholds for errors and what should you look at on
— on — on TRID, but that’s good feedback. We look forward to working with you as we
go through the assessment. I would just, um, involve to, um, uh, what Director Kraninger
just said about the importance of having, uh, data that’s going to be used and maybe
not collecting data that doesn’t have a use, and I’m going to think back, um, to, again,
what David said this morning. Um, metrics are only as good as the data. And I’m — I
wonder if the Bureau — how the Bureau approaches, um, determining what — what you want to measure.
What are the metrics that’s intended and what the law says you should do in — in dealing
with this rule, um, so that you’re designing the data towards a specific set of key performance
measures, so — so that we know what — What’s the outcome? Do we know, when we’re starting
this data collection process, what — specifically, measurements we’re going to use the data in
order to change what specific outcomes? For HMDA, you mean? Well, for this conversation.
(Off-mic speaking) Yes. No, and — and for, uh — it was certainly — that point on HMDA,
but from a global standpoint, I absolutely appreciate where you’re coming from since
we were just talking about TRID a second ago, too. Um, I — I have been having, uh, at least,
extensive push — push and pull, probably, with the staff is a — is a good way to describe
it, on how we engage in the assessments, how we engage in the rulemaking process, to really
think about precisely the issue you just raised, because Congress gave us the responsibility
to assess, uh, whether a rulemaking actually met the outcome that the agency intended when
it was issued. And so, we’re trying to think back, and — and maybe debt collection’s a
— a better example of that, too, in terms of thinking about, we put out the NPRM. We’re
a while from a final rule, but right — you know, five years after we issue that final
rule, we’re going to have to tell, uh, the country whether the rule actually met the
outcome that we were trying to meet. So, thinking now about, how will we evaluate that, what
kinds of information is available, uh, in the marketplace or not available that will
help us think that through, so that we truly have the evidence base moving forward, uh,
to make that assessment meaningful and real. Uh, and so, certainly, we are absolutely engaged
in that conversation to — to think that through from the beginning of the process, and — and
we, of course, have a number of rules and inherited rules that we’re going to have,
uh, be thinking about, as well, um, in terms of looking at, just the — uh, more, the — the
10-year, um, and Regulatory, uh, Flexibility Act review requirement that’s not exactly
the same, but just in terms of, you know, from a philosophical standpoint, assessing
whether the rules are effective. Uh, we absolutely are trying to get a good sense of that, and
I think that’s precisely why we have, uh, the data collection authorities that we have,
and so using them smartly, uh, to do these assessments is — is a priority. Well, it’s
about time for us to begin to, uh, wrap up, um, our discussion, uh, for — for this, um,
meeting, uh, the last two days. And, uh — and so, first off, I want to thank, uh, Mark and
Jessica, uh, for — for really, um, uh, not only giving information but, really, willing
to hear and — and to respond and help us think through how you’re seeing the issue,
and, essentially, that’s one of the things that I think prompted Liz’s question, is the
— you know, the eyes that you look at this information, um — uh, that you use to look
at this information is really important. Um, I think of the effort that we’ve engaged in,
in the same way I think of a university. Um, I see a university as a place where there
are people who are helping people who are going to go out and help people. So, there’s
an upside-down pyramid. And, essentially, that’s what, um, has been done here today,
um, that, uh, we have assembled the, uh — the various, uh, committees, um, that, um — advisory
committees, uh, to come to, uh, provide some insight and experience, uh, to the, uh, staff
of the CFPB and, of course, to the Director. Uh, that would then, uh, radiate out, um,
throughout this country, uh, helping people, um, to be able to, uh, live, uh, their lives,
um, in a productive manner, helping people to contribute to the, um, growth of this economy
and, uh — and then helping future generations. And so, it is very, very important what has
happened today. Uh, I’d like to thank Director Kraninger, um, also, uh, Deputy Director,
uh, Johnson, who has been in and out, um, um, Andrew Duke, uh, Matt Cameron, of course,
and all of the Bureau’s, uh, staff and, of course, the advisory committees, um, for the,
uh, discussion and the work that has been done today in these important meetings. Um,
I truly believe that, uh, what has been discussed will emanate and radiate out, uh, to — for
the betterment of our overall society, and I know that the Bureau, um, takes this seriously,
uh, and will be using this discussion, along with other information, as, uh, the Bureau
contemplates, um, plans for — for, um, uh, next steps in the, uh, areas of — in their
— in its areas of responsibility. And so, with that, I’d like to say that the meeting
is adjourned, uh, and again, thank you.

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