Transcript CFPB FinEx Webinar: Tips to Help Your Clients Get Smart About Credit October 2021 Presenters: Melinda Croes, Training Institute Manager, Credit Builders Alliance; Patrice Alexander Ficklin, Founding Director, CFPB Office of Fair Lending and Equal Opportunity; Susan Grutza, Policy Counsel, CFPB Office of Fair Lending and Equal Opportunity; Bobby Conner, Senior Council, CFPB Office of Fair Lending and Equal Opportunity; and Jonah Kaplan, CFPB Consumer Reporting Markets Program Facilitator: Heather Brown, Ed.D., CFPB Office of Consumer Education, FinEx Program Lead >>Dr. Heather Brown: Hello, and welcome to the CFPB's Financial Education Exchange, or the CFPB FinEx webinar on "Tips to Help Your Clients Get Smart About Credit." This is a recording of a previously offered webinar that we are re-recording due to technical difficulties. My name is Heather Brown, and I am the Program Lead for the CFPB FinEx program. I will be your host for the webinar today. I would like to take some time to introduce our speakers, and then I will go through some slides and read the disclaimer, and then we will hand it off to our speakers. First, I'd like to introduce Melinda Croes. She's the Training Institute Manager at Credit Builders Alliance. Her slide deck for this webinar when it's posted on the website may be posted separately because she recorded at a separate time. Prior to joining the Credit Builders Alliance, Melinda worked at the University of Chicago's Financial Education Initiative, writing a financial education textbook for high school students. Additionally, she spent over 15 years developing and managing financial wellness and match savings programs for low-income audiences at Heartland Human Care Services in Chicago. Melinda is a licensed social worker and holds a master's in social work from the Jane Addams College of Social Work at the University of Illinois at Chicago. She received her bachelor's of art in psychology from Trinity Western University in British Columbia, Canada. We'd like to welcome Melinda to our webinar today. Next, I'd like to introduce Patrice Alexander Ficklin. Patrice is the founding director of the Office for Fair Lending and Equal Opportunity at the Consumer Financial Protection Bureau. Patrice's office leads and directs the Bureau's efforts to ensure fair, equitable, nondiscriminatory access to credit for consumers and small businesses. Patrice is a graduate of Georgetown University and Harvard Law School. She's a mentor and a model to many people at the Bureau and truly an expert on fair lending. I'd like to introduce Susan Grutza. Susan is policy counsel at the Consumer Financial Protection Bureau's Office of Fair Lending and Equal Opportunity. She joined the Consumer Financial Protection Bureau in 2020. She's a graduate of Stoneybrook University and Syracuse University College of Law, and I'd like to welcome Susan as well as Patrice. And last but not least from the Office of Fair Lending, I'd like to welcome Bobby Conner. He is senior counsel at the Consumer Financial Protection Bureau's Office of Fair Lending and Equal Opportunity. He joined the Consumer Financial Protection Bureau in 2014. He received his JD from Rutgers Law School where he was a Fellow at the Eagleton Institute of Politics. I'd like to welcome Bobby. And I'd also like to welcome our final speaker, Jonah Kaplan. Jonah has worked in consumer financial services for over 20 years. Since 2015, he served at the Bureau's Division of Research, Markets, and Regulations. He leads the Consumer Reporting Markets Program. The program originates and delivers market research and analysis for internal and external audiences. Recent content includes the Bureau's 2021 List of Consumer Reporting Companies, which helps consumers understand and act on the data consumer reporting companies collect about them, and Payment Amount Furnishing and Consumer Reporting, a report that describes the prevalence of actual payment information in consumer credit reporting. He has also worked in the Bureau's Office of Consumer Response, where he helped to manage the Credit Reporting Consumer Complaint Program. Jonah is a Magna Cum Laude graduate of Brandeis University. He received his master's from Columbia University of International and Public Affairs, and we thank Jonah for joining us and sharing his excellent research as well. I welcome all of our distinguished panelists. With that, I'm going to go to introduce you to a couple of things about the CFPB FinEx program, but first, I have to read a disclaimer. This presentation is being made by a Consumer Financial Protection Bureau representative on behalf of the Bureau. It does not constitute legal interpretation, guidance, or advice of the Consumer Financial Protection Bureau. All opinions or views stated by the presenters are our own and may not represent the Bureau's views. I'd also like to let you know that any third-party links that you may see that are included in this webinar do not reflect the Bureau's endorsement of those links. It does not reflect endorsement of the views shared in those links, the products or services offered in those links. The Bureau has not vetted these third parties, their content, or any products or services the may offer. There may be other possible entities or resources that are not listed that may serve your needs. I'd also like to introduce you to the Bureau's mission. The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective by consistently and fairly enforcing those rules and by empowering consumers to take more control over the economic lives. And this is just some information about what you receive when you join the CFPB FinEx program. As a financial practitioner, you become part of a network of over now 40,000 financial practitioners. Additionally, we have a LinkedIn page, and if you go to the link in this page, you can find out more information on joining. And you'll receive a welcome letter that will explain all of the benefits of the program in more detail. I'd also like to remind viewers of our coronavirus Web page, which continues to be updated regularly. It's a very robust page that includes links to the White House Coronavirus Task Force page, CDC, and Health and Human Services. So please use it. It can be a one-stop shop for any questions you have about the pandemic. I'd also like to call your attention to the resources for practitioner portal on consumerfinance.gov, and this is the page where we—if you go to the bullet that says Adults at the bottom of this screen print, you will see on that page, the upcoming webinars and the information for joining the webinar. We've recently begun posting the login information for that as well. So you can get everything you need to join the webinar from there. On the right column, you can join the FinEx program by putting your email in and pressing Submit. And with that, I just want to move through this page quickly. It's another detail page about the resources we have in FinEx on financial well-being, principles of effective financial education, money motivations which is the behavioral side of finances, and also our webinar training. All past webinars are posted on this page, and you can watch them, the full recording. You can read the transcript, and you can also download the slides and use them yourself. Feel free to take them and use them as they are, or if you change them, please review our logo, but we encourage you to use the decks for your resources. And here's a page where you might want to just take a quick picture or when you get your slides use it as a reference to other things that we've talked about all in one neat little place for you. The only thing we did not mention is that you can get copies by going to the Web address on the second bullet. Thank you. And with that, we are going to begin our webinar today. This is the original date that we offered the webinar. As I mentioned, this is a recording. So we've updated just one or two small things, but with that, I'll hand it off to the next speaker for the day. >>Ms. Patrice Alexander Ficklin: Good morning. I am Patrice Alexander Ficklin, director of the Office of Fair Lending and Equal Opportunity at the CFPB. We are honored to be able to tell you a little about the fair lending work that we do and our recent work that might be helpful to you as you work with your clients. Before we get started, I would like to thank Heather Brown and her wonderful FinEx team for putting on this important event and inviting us to speak today. Ensuring access to fair and nondiscriminatory credit is a statutory mandate of the CFPB, one that the Office of Fair Lending is charged with carrying out. Credit inclusivity and fair access to credit are important and matter a great deal to every consumer. People use credit to go to college, open businesses, and buy homes. In general, they use credit to build a better future for themselves and their loved ones. Credit discrimination prevents people from having access to these opportunities and can make credit more expensive, and when we say access to credit, we mean this to include not only consumers but small businesses as well. Today we will highlight some of the resources for both consumers and small businesses that the CFPB has available, which include Know Your Rights brochures in seven languages for both consumers and those who work with consumers and a new Small Business landing page on our website for small business owners with helpful resources to better interact with the CFPB. Before we get into some of our new resources, Bobby Conner, senior counsel and team lead for Fair Lending, is going to talk a bit about the Equal Credit Opportunity Act, one of the important Federal laws that helps us prevent and fight credit discrimination and promote access to fair and nondiscriminatory credit. Bobby? >>Mr. Bobby Conner: Thank you, Patrice. As you mentioned, I'm going to speak about the Equal Credit Opportunity Act, or ECOA, and how it protects consumers. First, just a little background. ECOA is a Federal fair lending law enacted in 1974. So ECOA has been around for about 47 years. The law was first enacted to prevent sex discrimination and was later expanded to cover other protected characteristics, including race, color, religion, national origin, age, marital status, receipt of public assistance income, and exercising your rights under the Consumer Credit Protection Act. Put very simply, ECOA makes credit discrimination illegal, and it holds lenders responsible if they break the law. Several government agencies enforce ECOA, including the CFPB. Regarding the scope and applicability of the law, ECOA protects consumers during all aspects of a credit transaction. From the time you apply for credit until when the account is closed, you are protected. Also, it's important to note that ECOA applies to any type of credit, including car loans, credit cards, home loans, student loans, business loans, and as Patrice said, Susan will be talking about small businesses in a little bit. And it also protects—covers other types of credit. Next slide, please. As only a few examples, because of the protections under ECOA, lenders are prohibited from rejecting a credit application based on any of the protected characteristics or changing the credit terms or conditions based on any of the protected characteristics. This includes offering a higher interest rate or excessive fees because of a consumer's race or national origin or other protected characteristic. Lenders are also prohibited from asking if the consumer receives alimony, child support, or separate maintenance payments, and they are also prohibited from asking if the consumer is widowed or divorced. Note, however, that a lender is sometimes allowed to ask whether a consumer is married, unmarried, or separated. Lenders are also prohibited from asking for information about a consumer's spouse, such as the spouse's income. This would be allowed under certain circumstances, such as when applying for joint credit or when the consumer is relying on the spouse's income to get approved for the credit. Lenders are also prohibited from treating a consumer differently based on age. Note, however, that this too is allowed under certain circumstances. For example, when the consumer is too young to enter into a contract or when the consumer is at least 62 years old and the lender offers better terms to or otherwise favors older consumers. And, finally, lenders cannot refuse to consider public assistance income. For instance, a lender cannot refuse to consider the vouchers from the Section 8 Housing Choice Voucher Homeownership Program as a source of income or accept them for only certain mortgage loans. Next slide, please. We understand that discrimination can be very difficult to spot, but consumers and their advocates can more easily spot credit discrimination if they are prepared and aware of warning signs. Some warning signs of discrimination include whether someone is treated differently in person than on the phone or online, discouraged for applying for credit, or perhaps they overheard the lender make negative comments about a protected characteristic, or they are refused credit even though they qualify for it based on the advertised requirements, or perhaps they're offered the credit at a higher interest rate than they applied for, even though they qualify for a lower rate based on the advertise requirements. Next slide. Discrimination can also be difficult to combat on an individual basis. However, there are ways consumers can arm themselves. This includes doing research. When seeking credit, consumers should research current interest rates and compare credit products and offers from several lenders. Knowing their credit history. This topic is explored in greater detail by other panelists today. So let me just note that, if needed, consumers should ask whether their credit report is available in their preferred language. Asking about the total costs. This is very important. Consumers must look beyond the monthly payment. Be sure to understand the rates and the total amount of interest and fees paid over the long run. And, finally, staying in control and being sure before signing. Consumers should never feel pressure to sign. They should take the time that they need to make sure that the credit product and terms work for them. Next slide, please. As Patrice previously mentioned, we recently updated our brochures on lending discrimination, highlighting all the protections under ECOA that we just discussed. Our brochures are user friendly guides for both consumers and those who work with consumers and are currently available in nine languages, and best of all, they are free of charge. We strongly encourage you to review them, give them to your clients and networks to help us educate consumers about their rights and these important protections under the law. And with that, I will turn it over Susan to talk about small businesses. >>Ms. Susan Grutza: Thank you, Bobby. The Bureau has been particularly active in this space recently and with good reason. Small businesses have been called lifeblood of our communities, as they are primary job creators and wealth builders in communities across the country, especially in minority communities. When small businesses succeed, our economy is stronger, more equitable, and more resilient. Small businesses in particular have struggled through the COVID-19 pandemic, with over 33 percent of small businesses closing at the height of the pandemic. It was widely reported that many small businesses struggle to access the small business relief funds that Congress appropriated during the COVID-19 emergency, including minority- and women-owned businesses. Even before the pandemic, though, accessing funding was a challenge for many entrepreneurs, many of whom turned to personal and family savings to get their businesses off the ground. Ideally, small business owners who wanted to use credit to grow their businesses would be able to obtain it, but some entrepreneurs struggle to access fair and affordable loans. Failing to ensure equitable and accessible lending to small businesses stifles innovation and competitiveness, and it hampers American entrepreneurships in our cities and our suburbs, on our farms, and in all of our communities. Let me tell you a little bit about what the CFPB has been doing in this space. On September 1st, the CFPB issued a proposed rule to require covered financial institutions to collect and report, to the CFPB, data on applications for credit for small businesses, including those that are own by women or minorities. If finalized, the rule would require lenders to disclose certain information about their lending to small businesses. This data and information would allow community organizations, researchers, lenders, and others to better support small business and community development needs. The Bureau is also seeking information from small business owners themselves through a small business landing page with information and resources for new and existing small business owners. This page includes a Tell Your Story portal, which lets small brains entrepreneurs share their stories about applying for credit. This page is available at the website here, and I would like to walk through some of these important resources with you today. Bear with me as I attempt to share my screen. As I mentioned, the CFPB is working on collecting better information from small business lenders, including data on lending to minority- and women-owned small businesses. By collecting better information, we and other government agencies can facilitate enforcement of fair lending laws but also enabling community organization and lenders to identify needs and opportunities for women-owned, minority-owned, and other small businesses. As I mentioned, this small business landing page includes a portal for small business owners to tell their stories and experiences in applying for small business loans. The portal is located here. Small business owners can share their studies by completing these fields and clicking the Tell Your Story button on the bottom of the page. The shared stories of challenges and successes in the credit marketplace will help inform the CFPB's work, including consumer education, supervision, and enforcement which help us protect small business entrepreneurs and to create a fair ending marketplace. Now, to help encourage small business story submissions, I want to share with you our video no fair access to credit. [Pause.] >>Ms. Grutza: I apologize. It seems as thought we're having some technical difficulties getting the video to play. [Pause.] >>Ms. Grutza: Again, apologies for the difficulties with the video. So, if you could pass it back to me, I will continue to navigate through the small business landing page. Okay. So, as previously mentioned, with this page, we are hoping to better communicate with small business owners including linking them up with helpful information such as resources to help them get started. If you scroll to the very bottom of the small business landing page, there is a section that provides information and resources to help prepare for small finances for entrepreneurship as well as information about funding, loans, and grants, links to help minority-, veteran-, and women-owned small business as well as other small business resources available. I'll now hand it back to Patrice and close us out for this section of the presentation. Thank you. >>Ms. Alexander Ficklin: Thanks so much, Susan. In closing, thank you for your time and attention today. We hope you find this information helpful and that you will share these resources with your clients and networks, and again, we strongly encourage folks to share their stories with us about their experiences with small business lending and to avail themselves of the resources for those who are seeking to start businesses or fund their small businesses. Your information and your stories will help us greatly as we work to protect consumers and small businesses. Thank you again. >>Dr. Brown: Thank you to the Fair Lending team. We really appreciate that presentation, and next, we're going to have Jonah Kaplan. >>Mr. Jonah Kaplan: Thanks, Heather. Good to be here today. If we can go to the next slide, please, and yes. There we go. Consumer Reporting. Hello. My name is Jonah Kaplan, and I work in our Markets Group. I cover consumer reporting, and today I'll share with you, at a high level, some of the work that the Bureau has been doing with respect to consumer reporting, with a focus on topic areas that are relevant for you and your clients. Next slide, please. So first thing to share with you today is COVID response and some of the work that we have been doing with respect to the pandemic and the declared disaster around the pandemic and COVID response. If you go back to when the natural disaster was first declared back in 2020, the very first thing the Bureau did was join with other regulators with respect to urging lenders to work with consumers on loan modifications and to help consumers during this very difficult time. Soon thereafter, Congress passed the CARES Act, and one of the things that did is it amended the Fair Credit Reporting Act. For consumers who had a loan accommodation with their lenders, one of the things that these amendments did is they require that lenders share data into the credit reporting system in a way that wouldn't harm those consumers have a loan accommodation. So the Bureau was very active here to ensure a CARES Act compliance. One of the ways that we tried to communicate to consumers is through the internet and providing communications on the web really to encourage consumers to be aware of their rights under the CARES Act, especially to hear, to ensure that if they get a loan accommodation that they credit files to make sure that that information is appropriately reflected in their credit report, and so the Bureau produced and posted content. Here you can see a screenshot of that. It was featured in the New York Time this past September, encouraging consumers to make sure that their credit files reflect the loan accommodations that they obtained from their lenders. Next slide, please. And so, to that end, one thing that we in my group and in the Markets Group we've been doing every year—and actually, we just came out with a 2022 edition of what you see in front of you, which is a list of consumer reporting companies. What this list does is it shares with consumers all of the different kinds of company that are collecting and selling data about them, and so this could be helpful for you and your clients to take a look at this, identify companies that might be important to your clients, so that they can take appropriate action. Next slide, please. The idea is to make it easier for them to see and act on the information in their reports, depending on their specific situation. So they can request the reports, review and fact-check the reports for suspected inaccuracy, dispute with the companies as needed, which is their right to do. They're entitled to a reasonable investigation of their disputes, and then once those disputes are settled, to go back and make sure that the information is updated as appropriate. Next slide, please. So here's some additional content that the Bureau originated in the past year. This is on tenant screening. So the Bureau has originated a lot of content, and it's really a great resources for you and your clients around tenant screening and requesting tenant background reports. Next slide, please. So Heather asked me to give a quick market update on trends and alternative data. Alternative data refers to the kinds of information that doesn't typically appear in a credit report, and so I'll just very quicky talk about some of the things that we've seen lately. Alternative data is relevant here because the data can be used to help lenders make credit decisions about loan applicants to supplement information in a credit file, and in so doing, it can expand credit access. So a couple things to share with you is basically some efforts by others. The OCC has an effort called Project REACh, and they sponsor a convening where they bring lenders together to explore data solutions. And some of them, I think—at least one that I'm aware of—is now live. I think the Wall Street Journal did an article about this. The second is in the housing space. Fannie Mae now has automated the consideration of rent data as part of their underwriting, and I think since we did this presentation, Freddie Mac has also started a program on using leveraging rent data as part of their underwriting. Then lastly is a State law that was passed and enacted in California, SB-1157, which is an opt-in and subsidized housing in which tenants in subsidized housing can have their landlords share their rent payment history into the credit reporting ecosystem. So here is just a snapshot of some of the efforts that we've been seeing and that we're tracking. Next slide, please. So one of the things that we do at the bureau is we original research. Here, you can see some illustrative research that the Bureau has originated on credit invisibility, natural disasters in credit reporting, and the early effects of the COVID pandemic on credit applications. Next slide, please. So now I'll just give a quick overview of some research that we did in late 2020 that looks at the coverage of payment data in the credit reporting ecosystem where I and my colleagues wrote this report that looks at how well payment amount is covered in the credit reporting ecosystem, and the long story short there, compared to other data elements, it's not well covered, as you'll see. Next slide, please. So we came out with this paper, the purpose of which is, in a very descriptive way, just describe what we see in the credit reporting ecosystem in terms of the actual payment amount variable and how well it's represented in the credit reporting ecosystem and really to describe what we see. We talk about—we try to explain the variants and the different incentives that might be driving the coverage of that information because companies have the choice to decide what they want to share into the credit ecosystem, but that has real implications for consumers and also for lenders and credit risk managers. Next slide, please. So, when you look at the credit reporting ecosystem, the database is at the three largest nationwide credit reporting companies: Experian, Equifax, and TransUnion. Most credit reporting data is credit card data and retail revolving credit data. As you can see, nearly two-thirds of all data are those two products, and so, to a large degree, as those two datasets go, so goes the credit reporting ecosystem. Next slide, please. So what we found when we looked at the data, the credit reporting data, is that when it came to these two products, credit card and retail revolving, you see a significant dip in coverage of the payment amount furnished, 40 percent of credit card and a little over 70 percent in retail resolving, and because those two datasets are so large within the credit reporting ecosystem, it drags down the overall coverage to 65 percent. Next slide, please. What we're talking about is the literal amount that consumers repay month-over-month, and so here is an actual credit report. And you can see the same lender for two different products, but one where they've made the decision to contribute the payment amount information, as you can see in the top, which is a mortgage loan, and then below, which is a credit card where it's missing. So you can see it up top, but you can't see it on the trade line below it. Next slide, please. And so the prior slide is to the decision that the lender made about whether to contribute that information, and so what we see when we look at the behavior by product is you see this dip per credit card and retail revolving. And it looks like it took place over basically a 12-month timeline from around early 2014 to early 2015. Next slide, please. And so the research, like I said, that research is relevant because if the data isn't there, it can't be used to underwrite consumers and assess them. So it's relevant for that reason, and models can't use it. So that's just a quick summary of one of our research papers. I'll now hand it back to Heather to wrap up. >>Dr. Brown: Thank you so much, Jonah. That was really interesting research and very insightful and enlightening for me. I'd like to thank all of our speakers today, Susan, Bobby, Jonah, and Patrice for joining us, and I'd also like to thank Melinda for being a part of the webinar and recording previously. If you have any questions about access to the slides or the recording or any questions about the materials and would like to reach one of the panelists for some reason, feel free to email me at cfpb_finex@cfpb.gov. I look forward to having you at future webinars. Thank you.