Small businesses met with the Consumer Financial Protection Bureau to share their thoughts on possible changes to how loans are originated.
Among other proposals, the bureau wants to ban brokerage firms and creditors from enforcing origination charges that vary with the size of the loan. Instead, the should only charge flat origination fees.
Official proposals won’t arrive until July, but the mortgage industry is vocalizing concern that the bureau's new fee system will result in lack of competition at the lower end of the market in that lenders will avoid originating lower-balanced loans. For example, companies likely will take 1% of their average loan amount to come up with their own flat fee, meaning that borrowers with lower-balance loans will pay a higher fee than mid-to-high loan borrowers.
Rich Andreano, a partner at the Washington, D.C., law firm Ballard Spahr who is familiar with the discussions, says the CFPB did not directly react to the concerns of the panel of about 17 depository and nondepository financial institutions.
The Dodd-Frank Act requires the CFPB to meet with small institutions before proposing any rule that would significantly impact them.
“The bureau was more in a listening mode as opposed to sharing ideas or thoughts or saying whether they agreed or disagreed with the comments,” Andreano says. “They were asking for examples of points that were made, but really were not tipping their hand one way or another.”
The CFPB declined to comment.
The small business panel has until June 4 to follow up with written comments, which the CFPB will use to develop official proposals by July. The bureau hopes to finalize them by January 2013.
“The fact the bureau did not provide guidance is not surprising at all. But it is a little unnerving when you’re the one providing the comments and their nodding — are they nodding because they agree with me or because they understand what I said?” Andreano laughs.
The CFPB is developing borrower loan disclosure forms to provide clarity during the origination process — forms that Andreano says could be used to eliminate what the bureau says is borrower confusion over the purpose of discount points and origination points.
But now the industry is confused.
“It’s something the industry scratches its head over,” Andreano says. “We don’t see that. We think if there is confusion, it’s probably not as extensive as the bureau believes it to be and it’s probably something that can be dealt with by disclosure.”