Individual Responsibility

By TBA Chairman Ignacio Urrabazo

When is it appropriate for individuals to take responsibility for their actions? There are certain instances in which the answers are cut and dry. For example, if I run a red light or speed, I’m likely to get a ticket. If I don’t pay my taxes, there are severe penalties. If I am late returning a library book, there are fines.

For some reason, however, the answers are not as clear cut when it comes to banking. During the past few years, the regulatory process has appeared to transfer nearly all responsibility from the consumer to the business community. The banking industry has perhaps been affected the most.

For instance, the Consumer Financial Protection Bureau recently issued new rules regarding “ability to repay” and qualified mortgage standards. The new rules, which were mandated by the Dodd-Frank Act and will become effective Jan. 10, 2014, will change every aspect of how we offer mortgage financing to the consumer.

The new “ability to repay” requirement seeks to assure that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans. As a banker, who would knowingly make a loan to anyone who could not repay? Texas banks have always been doing this, and it’s the prime criteria for ANY loan.
The consumer has the ability to bring action against the creditor for violations for failure to comply with the standards and can recover special statutory damages equal to the sum of all finance charges and fees paid by the consumer. Under this new rule, the responsibility has shifted from the consumer to the creditor based on his/her ability to repay. Does the consumer have any responsibility for repayment? Whatever happened to “I promise to pay?”

In addition, if consumers take out a home mortgage and fall behind on their payments, they are subject to foreclosure. Right? Not necessarily. Housing rights activists demand meaningful relief in the form of loan modifications, loan forgiveness or other arrangements. What happened to individual responsibility?

Another area in which consumers are not expected to take responsibility is overdrafts. Even though customers have all the tools they need to balance their checking accounts—online banking, smartphone apps, voice/automated balances over the phone, ATMs, alerts, mailings, etc.—regulators say we are abusing these “hapless” people. The CFPB will now be looking more closely at how banks present OD services and the consumer’s understanding of how OD service works---particularly for heavy users (10 or more yearly.)
I don’t understand. All the banks that I’m familiar with promote the responsible use of their OD program by providing robust information about the program to customers at different stages of the customer’s life with the bank. Customers have the ability to manage and monitor their checking account balance at any time from just about anywhere.

They can opt-in or opt-out of automatic overdraft programs at any time, with no questions asked. We provide them with comprehensive disclosures and complete transparency as to how the overdraft program works. We disclose total YTD overdrafts on their statements and whenever a consumer exceeds six ODs in a 12-month rolling period, it needs to be disclosed and the bank needs to offer alternatives to the consumer. We offer counseling sessions before they enroll in the program and on a continuing basis. This process is very clearly governed by the fed’s Reg E requirements.

Overdraft protection is a credit-driven product that many of our customers want. Those who don’t want it can easily opt out; the customer has a choice. Where else can a consumer get an automated line of credit with no application or credit check for emergencies? I’m aware of a bank that has more than 100,000 accounts that average less than $300 that never get overdrawn.

I think that the CFPB is misguided in thinking that the heavy users are low- to moderate-income individuals when, in fact, in the banks that I’m familiar with, the opposite is true. At a particular Texas bank, the statistics showed that 71 percent of the heavy users come from middle to upper income folks and only 2.9 percent came from low income individuals.
The majority of our customers, who have no problem with their accounts, are the ones who suffer. The regulators seem to forget that the bank doesn’t cause an overdraft; the customer does. Simply by taking individual responsibility for your bank account by balancing your check book, you can avoid all overdraft fees.

So to repeat my question, at what point are individuals responsible for their own actions? Regulators are operating under the assumption that they know more about our customers and our communities than we do and that we need more rules to conduct our business. In reality, nothing could be further from the truth.