Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB), told bankers at the American Bankers Association’s annual convention today to push for financial education for young people at the state level in order to bring up a new generation of responsible borrowers.
“Anything you say,” Cordray told the room full of bankers, “will have far more influence than anything we say in Washington.”
MC Bill Press humorously compared Cordray’s appearance at the convention to Daniel in the lions’ den, but Cordray enjoyed an affable back-and-forth discussion with ABA president Frank Keating, with whom he said he is in monthly contact.
Cordray’s talk focused on the CFPB’s Ability to Repay provision (ATR) and its Qualified Mortgage (QM) standard. Both are scheduled to take effect in January 2014 and center around making more efforts to ensure borrowers are capable of repaying loans they are issued and that the loans are transparent and fair. QM loans, for example, cannot contain balloon payments, and cap points and fees at 3%.
Cordray stressed that not all loans need to fit the QM model, particularly for institutions under $2 billion in assets or institutions that issue fewer than 500 mortgages a year. If non-QM loans on terms that have worked for years make sense to the bank, then by all means continue making decisions good for your business, Cordray said. A one-page document covering both ATR and QM would be distributed at the conference, Cordray said.
He also emphasized that a regulatory body in Washington is not necessarily the best means of connecting people to the proper financial products. Financial responsibility, fostered by education, is far better. Bankers should realize, however, that not all participants in the financial system will receive financial education in the home, and that, therefore, an effort must be made to get this education into the schools so that young people learn the virtues of saving and responsible borrowing early in life.
In all, 37 states have or are developing some model of financial education for young people, Cordray said, but bankers in the other 13 states should be pressing their state governments to implement something along these lines, for the good of both borrowers and lenders.
Cordray also pointed out that the CFPB has brought nonbank competitors, such as payday lenders, under its umbrella, which will benefit bankers, no matter what they may think of regulation.