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CFPB Convenes Military “Financial Fitness Forum”
Several AFSA members and staff attended a “Financial Fitness Forum” in Washington, D.C. on Dec. 13. Convened by the Consumer Financial Protection Bureau’s Office of Servicemember Affairs, the forum brought together policymakers, senior representatives of the military service branches, and financial institutions. The day-long symposium included panels on the personal financial readiness of the military force, products and services tailored to military personnel and their families, and responding to the needs of the military consumer. The forum followed the bureau’s September Request for Information on Consumer Financial Products and Services Offered to Servicemembers, to which AFSA responded.
Panelists expressed a desire to improve financial literacy among servicemembers, while casting doubt upon the willingness of the Department of Defense to invest in financial education. There was general agreement that programming should be delivered in smaller bites and more frequently, and that it should be mandatory for new recruits.
As the discussion turned to “lower-risk, lower-cost” alternatives to common forms of small-dollar credit, it became apparent that certain depository institutions offer economically unviable loan products to military consumers and subsidize them through other product offerings.
The CFPB billed the event as the first step in fostering an ongoing dialogue with financial services providers that serve military personnel and their families, and an opportunity to learn about products and services currently offered to or used by this population. While the day provided a forum to exchange knowledge about the unique financial needs of, and challenges faced by, military consumers, its usefulness was limited by the fact that the audience was not permitted to ask the panelists questions.
Independents Executives Discuss Pressing Issues at AFSA Summit
For the second consecutive year, AFSA hosted an Independents Summit to give top management from AFSA Independents Section members an opportunity to discuss shared challenges and hear first-hand about the association’s initiatives. On Dec. 8, more than 30 executives met in Charlotte to learn about legislative challenges in North Carolina and Missouri, Dodd-Frank and CFPB developments, the Conference of State Bank Supervisors’ licensing efforts, research opportunities, and an AFSAEF consumer education initiative on installment lending.
Appraisal Management Companies Examined in AFSA White Paper
On Dec. 13, AFSA’s State Government Affairs department published a white paper on Appraisal Management Companies (AMCs). The regulation of AMCs has rapidly increased in recent years, due to growth in the industry, the development of model legislation by industry opponents and the enactment of the Dodd-Frank Act, which mandates their registration and supervision at the state level. Twenty-nine states have AMC laws that, among other provisions, list prohibited acts and practices and establish disciplinary actions. AMC-related legislation is currently pending in seven states: Florida, Hawaii, Massachusetts, Michigan, New Hampshire, Pennsylvania and South Carolina. AMC-related regulations are currently pending in five states: Florida, Kentucky, Oregon, South Dakota and Texas.
Shortened Card Agreements May Weaken Issuer EnforcementAmerican Banker (12/12/11) Fitzgerald, Kate
The Consumer Financial Protection Bureau (CFPB) recently unveiled a 1,000-word prototype for a simplified credit card agreement that is about 80% shorter than the average 5,000-word version used by most issuers. But issuers are concerned about the legality of enforcing implied provisions in the shorter forms. "While the bureau's goal of simplifying customer-account agreements is a good one, we have serious concerns about whether the courts would enforce all the various provisions that would need to be incorporated into the short forms only by reference, without the specific language backing them up," said Alan S. Kaplinsky, a partner with the Philadelphia law firm Ballard Spahr LLP.
Several different courts have rejected attempts by companies in other industries to enforce provisions that are referenced instead of spelled out in agreements. In place of lengthy legal definitions typically included in credit card agreements, the CFPB made its own definitions available to consumers on a website. But Kaplinsky doubts that credit card agreements can be so drastically reduced without jeopardizing important legal explanations and limitations for issuers and consumers.
"The bureau is understandably concerned about consumer information overload, but issuers have never put anything into these agreements that was frivolous," he says. "It's a good discussion to start, but I'm very skeptical about whether you can really reduce the verbiage in credit card agreements without opening up a whole new batch of problems."
CFPB Releases More Mortgage Disclosure FormsReverse Mortgage Daily (12/14/11) Gerace, Alyssa
On Dec. 13, the Consumer Financial Protection Bureau (CFPB) announced its newest attempt at simplifying mortgage forms, by combining the HUD-1 Settlement Statement and Truth in Lending disclosure forms consumers receive at closing. The two prototype forms that the CFPB released detail closing costs and transaction items. One of the forms is more similar to the current HUD-1 settlement statement consumers receive when closing a mortgage. The second is modeled after its prototype for the mortgage disclosure forms during the application stage.
In the latest forms, the CFPB included disclosures required by the Dodd-Frank Act and made some changes to make the forms easier to understand and use with the application disclosure forms. The CFPB released two previous prototype forms in November, and used the comments it received to make a single prototype based off of the previous round’s designs.
This round of prototypes provides the same information as the previous prototypes, but in a format using the design of the CFPB’s application disclosure, including sections corresponding with the application disclosure and simpler language. The CFPB is accepting comments by consumers and industry on the two forms, “Sassafras” and “Mimosa” on their website.
US House Panel Advances Mortgage-Market OverhaulThe Wall Street Journal (12/14/11) Zibel, Alan
Legislation designed to reduce the mortgage market’s reliance on federal support and prepare for the eventual elimination of Fannie Mae and Freddie Mac was passed by the Republican-led House Financial Services Subcommittee on an 18-15 vote on Dec. 14. However, analysts predict that legislation scaling back the federal government’s support of the housing market will likely not advance until 2013 at the earliest. The legislation, sponsored by Rep. Scott Garret (R-NJ), would restructure the market for securities backed by home loans that don’t carry a federal guarantee that ensures investors are paid if borrowers default. It also would give the Federal Housing Finance Agency (FHFA) and Securities and Exchange Commission (SEC) the power to set standards for new types of mortgage-backed securities issued without federal support. The bill could be paired or combined with one by Rep. Jeb Hensarling (R-TX) that would shut down Fannie and Freddie over five years.
While Republicans and Democrats want to scale back federal support of the mortgage market, conflicts over how to do it have led to little progress. Many Republicans want the FHFA as the main source of federal support for the housing market and get rid of Fannie and Freddie. However, industry lobbyists, Democrats and some Republicans see this as unrealistic and say it could cause higher priced and less available mortgages. Reps. John Campbell (R-CA) and Gary Peters (D-MI) have introduced alternative legislation that would replace Fannie Mae and Freddie Mac with private companies that would issue mortgage-backed securities with an implicit federal guarantee against default. Although Garret has received criticism for his proposed legislation not being more bipartisan, Democrats have endorsed aspects of his bill, such as having standards for mortgage lending and mortgage securities.
Auto Lending Rebound to ContinueThe Detroit Free Press (12/14/11) Snavely, Brent
Auto loan delinquencies have stabilized and are down to near record-low levels, according to the most recent data from TransUnion. For the last three months of 2011, just 0.51 percent of people with an auto loan will be 60 or more days delinquent on their payments, down from the peak of 0.86 percent for the final three months of 2008. The volume of automotive loans for new and used cars is rising, said Peter Turek, automotive vice president of TransUnion’s financial services business unit, a trend he expects to continue into 2012. Auto lenders signed 28 percent more loans during the second quarter of this year compared to the second quarter of 2009, Turek noted. He expects that banks and auto loan financing companies will be competing even more for new business in 2012, because the housing industry remains unchanged and additional credit card regulations can hold back aggressive card offers. Alternatively, sales of new cars and trucks are expected to increase by more than 1 million next year, according to LMC Automotive. This trend means that consumers looking at buying new vehicles should be able to get more flexible terms and relatively low interest rates. Auto leasing is also on the rise and has received support by manufacturers who see leasing as a way to boost brand loyalty, Turek stated. Leasing increased from 18.5 percent during the third quarter of 2009 to 23.7 percent for the April to June period.
Home Bargains Abound, but Willing Lenders Are Rare BreedThe Wall Street Journal (12/13/11) Andriotis, Annamaria
Homeowners are increasingly turning to family members and online sources for loans. The number of first-time home buyers this year that received a cash gift or a loan for a down payment from family or friends rose from the historical average of 27 percent to one-third, according to the National Association of Realtors. Demand for home-related financing from so-called peer-to-peer lending sites is also on the rise, according to the sites Prosper and Lending Club. Financial advisors say that traditional lenders’ reluctance to provide mortgages to anyone with less than stellar credit – even with the rock-bottom mortgage rates – is driving the demand.
In intra-family loans, borrowers often save on interest because parents are likely to charge less than banks. Parents can also earn a higher return from these interest payments than they would on a certificate of deposit or money market fund. Consumers are also turning to online lending sites, in which applicants receive money from investors after the companies screen and approve them for a loan. Social networking sites, such as Weemba, which connect lenders directly with borrowers, are another alternative financing source consumers are increasingly using. On these sites, users post loan proposals and companies, including banks and credit unions, review the applicants and contact those that they are interested in. However, these alternative financing routes can be costly to consumers. According to these companies, their fixed rates are higher than traditional mortgage rates in part because they are unsecured. Lending Club’s rates run from around 7 to 28 percent and Prosper’s run roughly 7 to 35 percent.
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