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CFA Conference Examines Military Lending
On December 1-2, the Consumer Federation of America (CFA) held its annual conference on financial services in Washington, D.C. AFSA served on the advisory committee to help plan the conference, and several staff members attended and participated in the discussion.
Rep. Barney Frank (D-MA) gave the keynote address, arguing that Senate Republicans are abusing their “advice and consent” role by blocking the confirmation of Richard Cordray to lead the Consumer Financial Protection Bureau (CFPB). The retiring Frank also predicted that the gridlock in Congress is unlikely to be broken before elections in 2012.
CFPB acting director Raj Date also addressed the conference. Date advocated for the confirmation of Cordray, so that the bureau would be able to exercise its full powers under the Dodd-Frank Act, including the supervision of nonbank financial institutions.
The conference also included a panel discussion on meeting the financial services needs of military servicemembers, during which panelists discussed alleged loopholes in the 2007 Department of Defense (DoD) regulations limiting the terms of consumer credit extended to active duty servicemembers and dependents. Admiral Steve Abbot (USN-Retired), President of the Navy-Marine Corps Relief Society, shared that aid provided to repay payday loans has declined dramatically since 2007. Still, CFPB Office of Servicemember Affairs official Pam McClelland observed that new recruits must make important decisions quickly, placing them in a position of vulnerability to “quick-fix” solutions, such as high-cost, short-term loans. The panelists agreed that the DoD should reexamine the 2007 regulations and consider broadening the range of products covered.
White House Opens Offensive to Confirm Consumer Agency HeadThe Hill (12/04/11) Wasson, Erik
On Dec. 4, the White House launched a major offensive to get Richard Cordray confirmed as the new head of the Consumer Financial Protection Bureau (CFPB). The White House will be targeting senators from seven states (Alabama, Indiana, Iowa, Maine, Nevada, Tennessee, and Utah) with a media and lobbying offensive that includes providing special access to local media from these states and organizing lobbying by mayors and other local officials on Cordray’s behalf, according to White House spokesman Josh Earnest. He stated that these states were chosen in most cases because they have “senators who seem to be on the fence or have made statements not supportive of Mr. Cordray.” A Senate vote on Cordray’s nomination is expected to be held on Thursday, but it is very unlikely that he will get the 60 votes needed. Forty-five Senate Republicans sent President Obama a letter stating they will not confirm any nominee “absent structural changes that will make the Bureau accountable to the American people.” Senators Scott Brown (R-MA) and Lisa Murkowski (R-AL) were the only Republicans not to sign onto the letter.
The Administration also released a report detailing the consequences of failing to confirm Cordray. They said that the CFPB will not be able to regulate non-bank financial institutions including payday lenders, debt collectors and credit bureaus until a director is in place, and pointed out common complaints about abuses by these institutions. They emphasized that having a director in place will especially benefit military service members, who often fall victim to easy credit offers; the elderly, who are regularly victimized by confusing credit terms; students, who have significant issues with private student loan providers; and Latinos, who often pay high fees on wire transfers to send money home. “Without a director, Americans will not be protected from falling prey to many of the harmful practices that contributed to the worst financial crisis since the Great Depression,” the report said.
CFPB Unveils Prototype for Simplified Credit Card AgreementAmerican Banker (12/07/11) Davidson, Kate
On Dec. 7, the Consumer Financial Protection Bureau (CFPB) unveiled its newest prototype, a shorter, simplified credit card agreement. The proposed agreement is roughly 1,100 words – much shorter than the average 5,000-word credit card agreement. "Credit cards can be complicated, with many moving parts that impact the cost to consumers," Raj Date, the bureau’s acting leader, said in a speech. "When a consumer has to read through pages of legal fine print in their credit card agreement to figure out how their card works — it's easy to get confused. With a short, simple, easy-to-understand credit card agreement, consumers can clearly see the terms of the deal and make the decisions that are right for them." The agreement explains the prices, risks and features of the credit card upfront, including how and when the costs change and what to do if there is an error. The bureau also developed standard definitions in plain language, but rather than including them on the agreement, they have been moved onto a separate website.
The bureau intends to improve upon the form prototype using feedback from industry and product testing, said Date. He also acknowledged the improvements already made to credit cards for consumers by the 2009 CARD Act, but said there is still room for improvement. Unlike the prototype disclosures for mortgages and student loans, "here they're trying to create a single document that would embody the entire relationship. I think that is a much more complicated task," said Jeff Taft, a partner in the law firm Mayer Brown. "The question becomes, how do you reduce the length of these, reduce the legalese, when a lot of that is driven, in fact, by the legal requirements? If this is what you're sending out, you're going to have to modify Truth in Lending and Reg Z," Taft said.
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CFPB, Agencies Form Task Force to Crack Down on Mortgage ModificationAmerican Banker (12/01/11) Davidson, Kate
On Dec. 1, the Consumer Financial Protection Bureau (CFPB), Treasury Department and the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) announced the creation of a joint task force to combat scams targeted at homeowners seeking relief under the Home Affordable Modification Program (HAMP). The task force also issued a consumer fraud alert that provides tips about the types of companies consumers should be wary of, such as those claiming to be HAMP “experts,” or that ask for payment upfront for mortgage modification services. According to Christy Romero, the deputy special inspector general for SIGTARP, the goal is to educate consumers and help them recognize modification schemes. “Mortgage scams harm not only homeowners, but legitimate businesses and the market as a whole,” said Richard Cordray, the CFPB’s enforcement chief and director nominee, in the news release.
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Stand Up Missouri Coalition Launches to Rally Against State Payday Loan Ballot InitiativeThe Sacramento Bee (12/07/11) Stand Up Missouri
On Dec. 7, Stand Up Missouri launched an initiative to oppose the Missouri Payday Loan Ballot Initiative and protect access to traditional installment loans in the state. The group, which describes itself as “a non-partisan coalition representing Missouri consumers, businesses, civic groups, and faith-based organizations,” plans to host several rallying events throughout the state in the coming months.
“Missourians are being asked to sign a petition for a ballot initiative that would cap lending rates,” said Tom Hudgins, CEO and Chairman of Stand Up Missouri. “While the initiative is being reported as an effort to protect consumers from payday loans, it would actually restrict access to all small loans, including beneficial traditional consumer installment loans. These traditional loans help individuals and families get access to safe and transparent credit in a way that enables them to preserve their financial security."
The proposed ballot initiative “would ultimately eliminate all small-dollar loans in the state and has the potential to further devastate local economies, which are already stressed in the current climate,” the coalition stated in a recent press release.
Las Vegas Council Approves Foreclosure OrdinanceThe Las Vegas Review-Journal (12/07/11) Spillman, Benjamin
Banks that own empty, foreclosed properties in Las Vegas must now register and maintain them, or face fines and possible jail time, according to a new city ordinance. “As the foreclosure epicenter of the United States, Las Vegas is burdened with a high number of houses with green pools, broken windows, overgrown weeds and vandalism,” said Chris Knight, director of the city’s department of building and safety. The blighted properties are an eyesore for neighbors and can attract crime and diminish nearby property values. Additionally, many would-be-homeowners who are interested in buying these properties are unable to because of unpaid liens against the property. The new ordinance hopes to reduce these instances because the registry would track empty, bank-owned properties and the stiffer penalties would compel banks to care for houses.
Many of the problems with distressed vacant properties, however, occur in the period after homeowners stop making payments but before the bank takes ownership, according to Bill Uffleman, president of the Nevada Bankers Association. The new ordinance could put banks in the position of being responsible to care for properties they do not legally own. Under the ordinance, banks have 15 days after a notice of default to inspect the property to determine whether it is vacant. If vacant, they have 10 days to list it on the registry and pay a $200 fee. Banks and lenders that do not comply after receiving notice and a misdemeanor citation could face a $1,000 fine or six months in jail. Councilwoman Lois Tarkanian said the ordinance wouldn’t be needed if banks, lenders and other institutions had done a better job in cooperating with the city’s efforts to maintain neighborhoods. “We’ve tried to correct this problem and have not had help from the banks. We’re moving in the direction we need to.”
Consumer Credit in U.S Rose in October to Two-Year HighBloomberg (12/07/11) Kowalski, Alex
According to a report released by the Federal Reserve, U.S. consumer credit rose in October to the highest level in two years, driven by an increase in non-revolving debt such as auto and student loans. Credit increased by $7.65 billion to $2.46 trillion, the most since October 2009. Revolving debt, which includes credit cards, expanded by $366.2 million. "It's hard to determine whether spending on credit is a sign of optimism or a sign of distress,” said Dana Saporta, a U.S. economist at Credit Suisse, “but just anecdotally we feel there is the beginning of tentative feelings of comfort in taking on slightly more debt." While spending climbed in the third quarter, Commerce Department figures show that the savings rate fell to 3.8 percent, the lowest since the end of 2007. In addition, the level of consumer borrowing still remains low compared to that before the recession. “As I spend time with our consumer lending divisions and out in the public with customers, people are paying debt down,” said John Stumpf, Chief Executive Officer of Wells Fargo & Co. While the “pool of consumer loans will shrink,” auto loans “will be a growth area” along with student loans, Stumpf said.
Credit Card Use is on the RiseCNN Money (12/05/11) Ellis, Blake
Credit cards are now “back in favor” among consumers, according to Silvia Tavares, senior vice president at First Data. “Consumers have spent the last couple of years de-leveraging and reducing credit card use, but during the past month – and since April [of this year] – they’ve been using their credit cards more and are starting to return to pre-recession buying habits,” she stated. Purchases made with credit cards rose 10.6 percent in the third quarter of 2011, compared to a 5.9 percent gain in debit card use. In an effort to get consumers to choose credit over debit, banks have been increasing solicitations and boosting incentives. Credit card mailings have surged 85 percent since the beginning of 2010, according to an analysis conducted by research firm Mintel Compermedia. While debit card rewards programs have been cut at several banks, card issuers have been ramping up perks and rewards programs on credit cards. Major issuers have eliminated charges like foreign transaction fees and balance transfer fees. Eight out of ten credit card offers this year have been for cards with rewards points, miles or cash rebates – up from six in ten offers two years ago, according to Mintel. As debit cards become less-cost effective for banks – especially since the fees debit card issuers can charge retailers has now been capped at 21 cents per transaction – this trend is likely going to only intensify. Javelin Strategy & Research recently projected that online credit card use will rise 63 percent from 2011 to 2016, compared to a two percent increase in debit card use.
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AFSA's mission is to protect and improve the consumer credit business, maintain a positive public image, and create a legislative climate in which reasonable credit regulation can and will be enacted. The association operates in the public interest, encourages and maintains ethical business practices, supports financial education for consumers of all ages, and provides other assistance in related fields on an as-needed basis.
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