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Review & Outlook: ‘Look at What We Do’
The Wall Street Journal (11/07/11)

Raj Date, the Consumer Financial Protection Bureau’s (CFPB) interim director, testified before Congress on Nov. 2, stating that the bureau’s rulemakings will be “sensible, fact-based, pragmatic and effective.” The bureau’s first significant regulatory guide, the Supervision and Examination Manual – Version 1.0,” was released on Oct. 13 and serves as a guide to the bureau’s thinking. The bureau has promised to regulate financial institutions in a “data-driven” and “consistent” approach, particularly concentrating on “students, older Americans, service members and the underserved.” Banks continue to request clarity on the CFPB’s expanded regulatory powers, particularly how they will define “abusive,” the new standard that resulted from the Dodd-Frank Act, but Date continued to avoid the issue during his testimony by simply emphasizing that the bureau will rely on an “evidence-based” analysis.
According to the manual, the CFPB’s approach includes exams which “must include a review of compliance management, any potential unfair, deceptive or abusive practices, and regulatory compliance matters presenting risk to consumers,” and “a review for discrimination” for lenders. When looking for discrimination, examiners are told to use a type of analysis that the Supreme Court has declared invalid under several federal antidiscrimination statutes – looking for business practices that have a “disparate impact” on minorities. The way auditors are encouraged to consider complaints in the manual is also unprecedented – in addition to considering complaints with the bureau and state attorneys general, they are directed to consider those lodged on private consumer advocacy websites. According to this editorial, the bureau appears to have vast powers, no Congressional checks and an already politicized agenda.

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AFSA Provides Written Testimony on Empowering and Protecting Servicemembers in the Consumer Financial Marketplace

AFSA submitted written testimony for the Senate Banking Committee’s Nov. 3 hearing on “Empowering and Protecting Servicemembers, Veterans and Their Families in the Consumer Financial Marketplace.” AFSA’s testimony emphasized that its members aim to understand and meet the needs of servicemembers and their families, and the association expressed an interest in working with the government to best meet servicemembers’ financial needs.
AFSA members strive to provide the best customer service and financial solutions to all of their customers, including servicemembers and their families, even in times of hardship and inconvenience, the testimony stated. AFSA works continuously with regulators at the state and federal levels to ensure that military servicemembers, veterans and their families are protected against unscrupulous lending practices.
Servicemembers and their families need to continue to have access to affordable, safe, and disciplined consumer installment credit contracts, AFSA stated. “AFSA is willing to meet with the entire military chain of command to inform them about our members’ financial products and seek their advice on additional guidelines that may be needed to encourage even better lending practices. We will work with the Department of Defense and the military branches to support efforts on financial education. AFSA wants to work with the CFPB’s Office of Servicemember Affairs to continue to encourage standards of ethics to ensure servicemembers and their families are not targeted by unfair lending practices.”

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New Executives Join AFSA Board of Directors

AFSA elected several executives to its Board of Directors. The new board members are Daniel E. Berce, president & CEO, General Motors Financial Company, Inc.; Bradford Borchers, executive vice president, operations, Springleaf Financial Services; Thomas F. Gilman, chairman & CEO, TD Auto Finance LLC; Mark Kaczynski, president & CEO, Nissan Motor Acceptance Corp. In addition, the chair of AFSA Business Partner Advisory Board, Sharon Mancero, vice president, Wells Fargo Preferred Capital, Inc., and chair of the State Government Affairs Committee, Luke McClanahan, vice president, Brundage Management/Sun Loan Company, were automatically appointed to join the Board.
Berce has been president and CEO of AmeriCredit (which was acquired by General Motors on Oct. 1, 2010) since August 2005 and previously served as the company’s president from 2003 to 2005, and chief financial officer from 1990 to 2003. Prior to joining Americredit, he was an auditor with Coopers & Lybrand for 14 years and was a partner of the firm. Berce served as a panelist at AFSA’s 2011 Vehicle Finance Conference. 
Borchers is replacing retiring member Rick Geissinger on the AFSA Board of Directors and Executive Committee. Geissinger will remain active on the AFSA Education Foundation Board as vice chairman. Borchers is responsible for Springleaf's branch network of approximately 1,100 offices. He began his career with Springleaf Financial Services in 1983 as a management trainee and has advanced through branch operations, serving in positions of increasing responsibility. He has been a member of the AFSA Operations Committee since 2008.
Kaczynski is replacing Steven Lambert, who is assuming other responsibilities within Nissan. Kaczynski joined Nissan in 2007 as controller of sales and marketing, Nissan America. Since joining Nissan, his responsibilities have been expanded to include finance responsibilities for parts and service and NMAC. Prior to joining Nissan, he held various executive positions with Fisher Scientific and has more than 10 years of experience with Ford Motor Company. 
Gilman has more than 38 years of experience in the global automotive industry and has been a senior executive and leader in several highly competitive business environments. He spent 27 years at Chrysler Corporation, where he held positions in finance manufacturing, product development, sales, marketing, treasury and international operations. Gilman is an active member of the AFSA Vehicle Finance Advisory Board and has participated on several vehicle finance conference panels.

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New Member Welcome

AFSA welcomes new active member Finco Holding Corporation (The Equitable Finance Company) and new business partner Carta Companies LLC.

Equitable Finance is an installment lender based in Portland, Ore. website

Based near Atlanta, Carta Companies LLC provides accounts receivable management. website

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Inside the Beltway
CFPB to Give Banks Advance Warning of Enforcement Actions
American Banker (11/07/11) Davidson, Kate

On Nov. 7, the Consumer Financial Protection Bureau (CFPB) announced that it will provide advance notice to financial institutions when they face possible enforcement actions, allowing individuals and firms the opportunity to respond to potential violations before the bureau takes legal action.“The Early Warning Notice announced today strikes a balance between the goal of fairness to those being investigated and our mission to protect consumers,” said Raj Date, the Treasury Secretary’s special adviser for the CFPB. “This process will help us fulfill our commitment to transparency in enforcing the law.”
The process is similar to the Securities and Exchange Commission’s “Wells process," which gives firms advance written notice of any investigation and offers them the opportunity to review and respond to the charges. Under the CFPB’s process, individuals and firms that are targeted for enforcement action will receive Early Warning Notices informing them that they may have violated consumer protection laws. Recipients will have 14 days to submit a written counter-argument focusing on relevant legal and policy matters. The advance notice is not required by law, but the CFPB said it believes it will “promote even-handed enforcement” of consumer laws. The decision whether to provide notice is discretionary and will depend on factors such as whether “prompt action” is necessary.
Many in the industry view this news as a positive move by Richard Cordray, the bureau’s enforcement chief and nominee for director. The announcement “shows the CFPB is taking industry concerns about due process seriously. While it isn’t everything many would want, it does show a willingness to listen and consider feedback,” said Reginald Brown, a partner with WilmerHale.
More information about the Early Warning Notice can be found here.

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Designing the Mortgage Form of the Future
The Wall Street Journal (11/08/11) Randall, Maya Jackson

On Nov. 8, the Consumer Financial Protection Bureau (CFPB) unveiled its newest drafts of mortgage forms that are designed to combine the Truth in Lending Disclosure and HUD-1 Settlement Statement forms – part of the ongoing federal effort to simplify the documents borrowers receive during the home-buying process. Unlike the previous form prototypes released, which focused on the application stage, the two new draft forms are intended to make closing costs and final loan details clearer for borrowers. The combined forms could aid consumers in determining whether what they are being charged at closing matches the terms and costs the lender quoted and help them understand the costs they will face over the life of the loan. However, rather than reducing the length of the documents provided, these forms add a sheet to the borrower’s stack, which the bureau says is largely due to the addition of information Dodd-Frank now requires to be disclosed. “Unfortunately, we don’t control most of what you receive at closing, so our page reduction efforts can only go so far. For now, we’re working on consolidating these forms and making this disclosure better,” the bureau said on its website. The bureau has already begun its testing of the prototypes with consumers, lenders, brokers and other industry in Des Moines, Iowa, and expects to conduct four rounds of testing and revisions through February 2012. They will likely seek formal comments on the draft forms beginning in July 2012.
The draft forms can be found here.

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Senate Dems Hope to Give States Power to Cap Credit Card Interest Rates
The Hill (11/09/11) Kasperowicz, Pete

Legislation that would allow states to cap the interest rates on credit cards has been introduced by Senator Sheldon Whitehouse (D-RI) and six other Senate Democrats. The Empowering States’ Right to Protect Consumers Act, S. 1829, would not set interest rates, but rather allow states to recapture their “historic powers to set interest rate policies within their boundaries,” Whitehouse said. It would go around a 1978 Supreme Court decision (Marquette National Bank of Minneapolis v. First of Omaha Service Corporation) that found that interest rates charged by nationally chartered banks take precedent over interest rate laws on the state level. According to Whitehouse, this decision has led many banks to become nationally chartered, which enables them to impose their own interest rates across various states. Whitehouse contends that the current system hurts consumers by assessing higher rates and harms small local banks that have to follow the rules in their states yet compete with nationally chartered banks. “This is a special privilege for big national banks that can move their offices to whatever state will give them the best deal in terms of lousy consumer protection and unlimited interest rates,” he said. The bill is co-sponsored by Senate Majority Whip Dick Durbin (D-IL) and Senators Mark Begich (D-AK), Al Franken (D-MN), Jeff Merkley (D-OR), Jack Reed (D-RI), and Bernie Sanders (I-VT).

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GAO Asked to Study Costs of Financial Crisis
American Banker (11/09/11) Wack, Kevin

Senator Tim Johnson (D-SD), chairman of the Senate Banking Committee, requested that the Government Accountability Office conduct an analysis of the total economic costs of the financial crisis, from the impact of mass unemployment and its effects to the destruction of household wealth to the effects on state and local governments.
"We must not forget that our economy suffered from inadequate regulations that contributed to the worst financial crisis since the Great Depression," Johnson wrote in a letter to the GAO. "American families and small businesses bore tremendous costs in lost jobs, homes, and savings."
Johnson also asked the GAO to consider any benefits of the U.S. government's emergency actions and enactment of the Dodd-Frank Act on stabilizing the financial system. He sent a separate letter to various financial regulators, asking them to provide information related to their efforts to write new regulations as a result of Dodd-Frank. The letter appeared designed to yield information that would counter Republican criticisms of the high cost of the law. For instance, Johnson asked the agencies to provide their plans to streamline regulations and reduce compliance burdens, as well as details on how each agency addresses smaller institutions’ challenges in complying with regulations.

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National and State News
Nevada Foreclosure Filings Dry Up After ‘Robo-Signing’ Law
The Wall Street Journal (11/07/11) Timiraos, Nick

Foreclosure filings in Nevada dropped by 88 percent in October – the first month after a measure was adopted by Nevada’s state Assembly that stiffened foreclosure-processing requirements and cracked down on “robo-signing.” The new law, which comes at the same time banks are gradually restarting foreclosures since they suspended them a year ago, makes it a felony to make a false representation concerning real estate title, subjecting individuals found liable to civil penalties.
While foreclosures in states where banks are required to go through the courts have slowed in the past year, they have not been as evident in non-judicial states like Nevada. The Nevada law also makes an important technical change to rules regarding the non-judicial foreclosure process by prohibiting trustees from handling foreclosures if the trustee is a subsidiary of the foreclosing bank.
According to real estate agents and housing investors, this law could have unintended consequences if it hinders the ability of the housing market to clear, particularly in hard-hit housing markets like Las Vegas where foreclosed properties are among the fastest selling. However, advocates of the law say the measure will put the real estate market on sound footing by ensuring that foreclosures are done properly so that that title defects don’t later lead to judges invalidating foreclosures.
The Nevada foreclosure slowdown comes amid an increase in the foreclosure rate to nearly double the historical lows seen a year ago around many parts of the country, according to a report released by Fitch Ratings. The increase is a sign that banks and other mortgage companies “are playing catch up on actions that have been delayed over the past year,” said Diane Pendley, managing director at Fitch Ratings.

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Is Student Lending the Crisis Around the Corner?
American Banker (11/09/11) Rehm, Barbara

The parallels between the mortgage bubble and what's happening in the student loan market are scary, said an editorial by American Banker editor at large Barbara Rehm. As happened with mortgages, both the student loan market and delinquencies are rapidly increasing and the federal government is playing too large a role. Similar to people buying houses they could not afford during the housing crisis, students are getting loans to pay for educations they can't afford, whether due to skyrocketing tuition, generous credit terms, or poor underwriting.
Total outstanding student debt is approaching $1 trillion and could surpass credit card debt for the first time in third-quarter data to be released later this month. According to the Department of Education, the default rate on student loans rose to 8.8% from 7% last year. While $1 trillion is much lower than the $8.5 trillion mortgage market, policymakers need to pay attention. For the last ten years, tuition and fees at public colleges have been increasing nearly 6% a year faster than the rate of inflation, the Obama administration reports. The Department of Education said two-thirds of the graduates of four-year institutions have student loans. The average debt for students at public institutions was $20,200 and $27,650 for graduates of private schools.
Aiming to save money, the federal government stopped guaranteeing student loans made by private-sector lenders as of July 2010. The private market for these loans has continued to shrink. Of the $118 billion in student loans made in 2011, $8 billion will be by private-sector lenders. Rehm argued that the government's dominance may be part of the problem. “Credit for every other type of loan has declined since the crisis so it's likely the student loan market would be a lot tighter if banks were still in the business,” she wrote.

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Foreclosure Backlogs Could Take Decades to Clear Out
USA Today (11/07/11) Schmit, Julie

If foreclosure sales in states that use a judicial foreclosure process remain at the current slow pace, it will take more than eight years on average to clear the 2.1 million homes in foreclosure or with seriously delinquent mortgages – which is almost twice as long as a year ago, new research shows. New checks that resulted after last fall’s foreclosure cases with improperly prepared documents have slowed the process, and the backlog suggests real estate prices in many markets are likely to be affected for years to come.
It would take lenders more than 50 years to clear out the amount of homes that are seriously delinquent or already in the foreclosure process in states like New York and New Jersey, where courts have imposed new rules, according to LPS Applied Analytics. Foreclosure lawyers in New York must now affirm that they reviewed documents and asked lenders to verify their accuracy, a rule which has led to foreclosure filings dropping to approximately 750 month from 3,500, according to Paul Lewis, chief of staff to the state’s chief administrative judge. Foreclosure filings in New Jersey have also decreased after the court requirement that leading companies prove that their foreclosure processes were sound.
Clearing the foreclosure pipelines has remained faster, at just under three years, in states like California and Arizona, where foreclosures don’t go through the courts, LPS reports. Those states have 1.9 million homes in foreclosure or with mortgage payments more than 90 days late. “The longer time frames give borrowers more time to work out their situations, and may support home prices by reducing the supply of distressed properties for sale. But they also delay recoveries because buyers may wait, fearing further price drops when distressed homes do hit the market,” said James Sacchio, RealtyTrac CEO.

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November 10, 2011

Forward To A Colleague

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