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AFSA Newsbriefs will not be published next week. The newsletter will resume on Thursday, January 4.

Happy Holidays!

Top Story
GOP Keeps Appointments on Hold
The Wall Street Journal (12/19/11) Randall, Maya Jackson and Trottman, Melanie

Senate Republicans are employing delay tactics to prevent President Obama from making a recess appointment during the holiday break. On Dec. 17, Senate Minority Leader Mitch McConnell stated that he would allow Senate votes on Obama nominees only if the president made assurances that he would not use his recess appointment powers. Republicans also moved to keep the Senate technically in session until they return in January – the same tactic they used during a break in May. Richard Cordray, the former Ohio Attorney General and the president’s nominee to lead to new Consumer Financial Protection Bureau (CFPB), is the main target of the block by Republicans, who maintain that they do not want a director confirmed until changes are made to the bureau’s structure.
The White House, however, remains undeterred. "Without a confirmed director the bureau can't exercise its full ability to protect consumers, which is why the president will keep fighting for Cordray and against Republican attempts to weaken these important consumer protections," said White House spokeswoman Amy Brundage. This response has only fueled speculation that President Obama will override the efforts by Republicans. According to legal experts, even if the Senate stays in a “pro forma” session, Obama could install his nominees after the Senate goes home and before a placeholder session convenes. However, legal experts say Obama’s best opportunity would be on Jan. 3, during the split second between the two congressional sessions, as an appointment during the “pro forma” session would likely lead to a legal challenge.
The standoff in the Senate over the CFPB has also snagged the confirmation of nominees to head the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. All the nominees would be charged with implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act and are expected to have a hard stance on the nation’s largest banks.

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AFSA Comment Letter Addresses Nonbank Supervision

On Dec. 19, AFSA and the National Association of Industrial Bankers (NAIB) submitted a comment letter to the Financial Stability Oversight Council (FSOC) on its second notice of proposed rulemaking (NPR) regarding the process by which the FSOC would determine if a nonbank financial firm would be categorized as systemically significant and subject to additional regulation. AFSA and NAIB’s letter stated that “the Council should ensure that non-depository captive finance companies are clearly excluded from the scope of coverage within the language of the final rule.” The letter also argued that the FSOC should ensure that the final rule and proposed guidance is not finalized prior to the adoption of relevant definitions and other related regulatory initiatives are completed by the Federal Reserve Board, the FSOC and other federal agencies, and in no event should the FSOC begin the designation process until such other regulations are finalized. Additionally, AFSA and NAIB wrote, “the Council should more clearly define the metrics used, and factors considered, in determining whether a nonbank financial company poses a threat to the financial stability of the United States.”

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Inside the Beltway
Commentary: Both the Merchants and the Fed Misread Durbin
American Banker (12/15/11) Patrikis, Ernest T.

According to this opinion piece by Ernest T. Patrikis, a partner in the New York office of White & Case LLP and former general counsel of the New York Federal Reserve, both the retailers and the Federal Reserve Board (Fed) got the Durbin amendment wrong. A provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the amendment called for the Fed to establish standards to limit the amount of interchange fees. The statute left the Fed to "establish the standards for assessing whether any interchange fee . . . is reasonable and proportional" to an issuer's cost. The Federal Reserve implemented this requirement by setting a cap of 21 cent per transaction plus 5 basis points of the transaction’s value.
Patrikis argues that the board was not required to fix a cap, rather, the statute calls for the board to establish standards. In his statement supporting the inclusion of the provision in the Dodd-Frank Act, Senator Dick Durbin (D-IL) said the “amendment would not have the Federal Reserve set interchange prices.” The board has stated that Congress could not have intended to create a requirement that each fee received for each transaction be reasonable and proportional to cost and that it would be “virtually impossible to implement.” Patrikis states that difficulty implementing a statute does not give a government agency the authority to rewrite the statute to correct its faults, even if it is a valid reason for Congress to make revisions to the law. “The plain language of the statute and the intent of its framers make clear that a cap does not meet the statute’s requirement of “reasonable and proportional” fee standards, Patrikis adds.

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CFPB Seeking Whistleblower Tips on Lending Violations
American Banker (12/15/11) Davidson, Kate

On Dec. 15, the Consumer Financial Protection Bureau (CFPB) announced that it has a toll-free hotline and dedicated email address for tips from whistleblowers about violations of federal consumer financial laws. It will also have an online tips portal on its website early 2012. "We are providing whistleblowers and other knowledgeable sources with a direct line of communication to the CFPB," said the bureau's assistant director of enforcement, Richard Cordray,  in a press release. "Their tips will help inform Bureau strategy, investigations, and enforcement. And they will help us fulfill our commitment to consumers." According to the press release, employees are protected under the Dodd-Frank Wall Street Reform and Consumer Protection Act from being terminated or discriminated against for providing information about potential violations to their employer or local, state or federal officials; testifying about potential violations; filing any lawsuit under a federal consumer financial law; or refusing to participate in violations of the law. The law also provides penalties for complaints that are frivolous or brought in bad faith.
People who submit tips have the option of remaining anonymous or requesting confidentiality after they provide their contact information to the CFPB. The bureau also clarified that whistleblower information and law enforcement tips are distinct from consumer complaints, which is available for individuals who have personally encountered problems with financial services companies.

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National and State News
CNW: December Subprime Credit Applications Jump Sharply
SubPrime Auto Finance News (12/20/11)

Credit applications in all vehicle finance categories saw significant increases in December versus a year ago, according to the most recent data released by CNW Research. Subprime approvals rose 53.9 percent, non-prime rose 20.1 percent year-over-year and prime approvals increased by 12.5 percent, signs that have led CNW President Art Spinella to project positive gains in sales for new and used vehicles next year. While the pre-approval rate declined this November versus a year ago, analysts noted that the number of subprime borrowers financed in all channels rose more than 13 percent compared to November of last year, including the buy-here, pay here segment, which Spinella said shows “the ability of these lower-demographic buyers to increasingly nail down credit.”
CNW also reported that satisfaction in leasing as a financing option continues to rise to pre-recession levels, with satisfaction levels for second (or more) time leasing customers remaining steady. "Among lease outlets, independent lease companies rank highest in customer satisfaction versus captive finance companies or financial institutions," added Spinella.

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Florida Supreme Court Terminates State Mediation Program
DS News (12/20/11) Bay, Carrie

Florida Supreme Court Chief Justice Charles Canady issued an order terminating the state’s mandatory foreclosure mediation program, which was established in December 2009 to help the state’s courts deal with the “overwhelming number of mortgage foreclosure cases coming into the system.” In his order, Canady cited the program’s low success rate – only four percent of cases resulted in settlement – in resolving foreclosure disputes. “The Court has reviewed the reports on the program and determined it cannot justify continuation of the program. Accordingly, upon issuance of this administrative order, the statewide managed mediation program is terminated,” Justice Canady said. Canady’s order also stated that cases already referred to or pending mediation as of Dec. 19 will still go through the program, but no new cases will be accepted.

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Obama Taps Berner for New Financial Research Job
Reuters (12/16/11) Lynch, Sarah N.

President Barack Obama has nominated Dick Berner to head the new Office of Financial Research (OFR) in the Treasury Department. Berner is currently a counselor in the Office of Research and Quantitative Studies at the Treasury Department, where he has been working to set up the new office. Prior to his positions in the government, Berner served as the chief economist at Morgan Stanley and Mellon Bank.
The new division, which was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), has broad powers to collect and analyze data from financial firms to check for systemic risk. Democrats have spoken out in support of the new office, which was “designed to help understand the factors that threaten our financial system, provide early warnings, and allow regulators to act on that information," said Senator Jack Reed, a senior Democrat on the Banking Committee. However, Republicans have raised concerns that the OFR’s powers are too far reaching and that it could become a target for hackers. In a U.S. House hearing earlier this year, Berner told lawmakers that data security would be the new office’s top priority and that it would be “accountable and completely transparent.” Berner still needs to be confirmed by the U.S. Senate.

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December 22, 2011

Forward To A Colleague

GoldPoint Systems
Counselor Library
Life of the South
Balboa Insurance
Allied Solutions
ParaData Financial
Wells Fargo Preferred Capital
Carleton, Inc
AFSA Newsbriefs

AFSA Newsbriefs is a weekly executive summary of AFSA initiatives and consumer credit articles. AFSA Newsbriefs is free for members. Send an email to newsbriefs@afsamail.org to subscribe.

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.

The American Financial Services Association has provided services to its members for over ninety years. The association's officers, board, and staff are dedicated to continuing this impressive legacy of commitment through the addition of new members and programs, and increasing the quality of existing services.