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CFPB Nominee Advances on Committee Vote
The Hill (10/06/11) Schroeder, Peter

On the morning of Oct. 6, the U.S. Senate Banking Committee met to consider the nomination of Richard Cordray to be the first Director of the Consumer Financial Protection Bureau (CFPB), which was established by last year’s Dodd-Frank Wall Street Reform and Consumer Protection Act. On a party line vote of 12-10, the committee’s Democrats voted to report the nomination to the full Senate, with all of its Republican members voting against.
Cordray, the former Attorney General of Ohio, currently leads the bureau’s Division of Enforcement. The Banking Committee held a Sept. 6 hearing on his nomination, which reinforced divisions among senators. That hearing focused less on the nominee’s background and qualifications than the structure and role of the bureau itself. Nearly all Senate Republicans have committed to blocking the confirmation until specific reforms are made to the CFPB. AFSA supports those proposed changes.
Despite the committee reporting the nomination to the full Senate, a clear path forward is not evident. Senate confirmation would effectively require a supermajority of 60 votes.
“My colleagues and I stand by our pledge that no nominee to head the CFPB will be confirmed by the U.S. Senate – regardless of party affiliation – without basic changes to the bureau’s structure,” said Sen. Jerry Moran (R-Kan.), a Banking Committee member, in a statement released before the vote.
Immediately following the committee vote, Treasury Secretary Timothy Geithner appeared before the panel for a previously scheduled hearing to deliver the annual report of the Financial Stability Oversight Council. Looking to the senators who objected to Cordray’s confirmation, Geithner warned that allowing the post to remain unfilled “would leave a vast array of nonbank financial institutions outside the scope of consumer protection.”

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AFSA Sends Letter on Nevada County Vacant Property Ordinance

On Oct.3, AFSA sent a comment letter to Clark County, Nev., detailing its concerns about the county’s proposed ordinance relating to the registration of abandoned residential property. AFSA agrees that lenders should adequately maintain vacant properties after the properties have been legally transferred to them and tenants have vacated. In its letter, AFSA explained that many foreclosure filings do not proceed all the way to forfeiture and in other instances borrowers walk away from their property before a foreclosure is complete. This means that lenders have no practical means of judging when to assume responsibility for the property’s upkeep and have no right to enter the property before a proper transfer occurs. AFSA pointed out that speeding up the foreclosure timeline for properties that have been abandoned would allow the lender to assume responsibility over the property faster, and thus its upkeep. Some uniformity in foreclosure laws would help lenders comply with them. Currently, the volume of municipalities legislating on foreclosures has created an unreasonable, unworkable and costly burden on lenders.

Keeping its members informed of municipal activity, AFSA closely tracks vacant and abandoned property maintenance ordinances. Please contact Susan Sullivan at ssullivan@afsamail.org for more information.

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Broward County Boys & Girls Clubs Receive MoneySKILL Training

The AFSA Education Foundation teamed up with World Omni Financial Corp. to provide teacher training for the Boys & Girls Clubs of Broward County, Florida. Instructors from each of the 12 clubs participated in the training, which was given by Susie Irvine, President & CEO, AFSAEF, and David Walsh, AVP, Associate Development & Quality Assurance, World Omni Financial Corp.
Walsh underscored World Omni’s and the JM Family Enterprises’ commitment to encouraging Boys & Girls Club members to strive for academic excellence. He gave an overview of MoneySKILL and what its modules cover, and shared financial facts for young adults, as well as the fact that money problems is fourth on the list of what people fear. Irvine showcased the instructor administration site online, registered and approved the instructors, and walked them through a module.

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Inside the Beltway
Todd Zywicki: The Dick Durbin Bank Fees
The Wall Street Journal (09/29/11) Zywicki, Todd

Todd Zywicki, a professor of law at George Mason University and a senior scholar of the Mercatus Center, believes the Durbin amendment, which places price controls on debit interchange fees, will cause many changes to retail banking. Banks have imposed fees on standard checking and debit card accounts as well as for particular bank services to make up for lost revenue. Wealthier consumers have avoided a lot of these fees by meeting new requirements, such as maintaining high minimum balances, but many consumers who previously banked for free will be unable or unwilling to pay them. According to an estimate by economists earlier this year, “as many as one million individuals will drop out of the mainstream banking system and turn to check cashers, pawn shops and high-fee prepaid cards,” Zywicki said. Consumers will be encouraged to shift from using debit cards to alternatives such as credit cards and prepaid cards, which are not affected by the price controls. However, while offsetting lost revenues for banks, the shift will decrease the savings the Durbin amendment provided retailers, meaning retailers will likely return to Washington to extend the price controls to credit cards, Zywicki added. Zywicki also expects product innovation, including security, to decline or stop because banks will not want to make investments that they can’t recoup because of the lost revenue from interchange fees. Zywicki believes the most notable change will likely be the closing of bank branches, which had been a source of growth in the last decade, because the Durbin amendment makes new customers unprofitable and eliminates the incentive for banks to compete by offering more branches. “Conceived as a narrow special-interest giveaway to large retailers, the Durbin amendment will have long-term consequences for the consumer banking system. Many low-income consumers will not [be able to avoid the pinch of higher banking fees]. Banking will become less innovative and consumer-friendly,” said Zywicki.

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Freddie and Fannie Reject Debt Relief
The New York Times (10/05/11) Dewan, Shaila

In Arizona, almost half of homeowners with mortgages are underwater, compared to the national ratio of approximately one in five. The state has offered to pay half, up to $50,000 of a $100,000 loan reduction, if banks would forgive some of a homeowners’ mortgage debt. But only three homeowners have been approved for debt reduction since the program launched in September 2010, largely because the two largest mortgage guarantors, Fannie Mae and Freddie Mac, will not participate in the Arizona program or elsewhere. Loans are ineligible for Arizona’s program if they were bought by either of the two companies, which guarantee more than 70 percent of U.S. home loans. While Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), recently indicated that he might make it easier for homeowners to refinance, the agency has not budged on debt relief. Fannie and Freddie maintain that reducing principal is bad for business and taxpayers. The administration says it lacks the authority to require the FHFA to comply with its policies encouraging principal reduction. And the FHFA is not alone; neither the Federal Housing Administration nor the Veterans Administration allow principal reduction on their loans.
Fannie and Freddie are proponents of forbearance, arguing that if future lenders believe borrowers may not have to repay the full amount of a loan, they will price that risk into their loans, raising costs for everyone. But debt forgiveness advocates say that forbearance does not increase a borrower’s willingness to pay. Mark Zandi, an economist at Moody’s Analytics, stated that some principal reduction is needed to lessen the amount of foreclosed homes on the market, which would in turn allow prices to rise and make it less likely that homeowners would default.

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Small Business Lending Jumps, but Credit Struggles Linger
The Wall Street Journal (10/05/11) Maltby, Emily

Although small businesses received more government-backed loans last year than ever before – a record $19.6 billion – data has shown that many U.S. entrepreneurs still have problems gaining access to capital. Small Business Administration (SBA) loans are intended to encourage banks to lend money to more small businesses, because they lower the bank’s risk by guaranteeing a portion of each loan if a borrower defaults. But when the SBA expanded the pool of small businesses eligible for the loans by raising the loan amounts it would guarantee, it made smaller loans less attractive to banks. In 2011, the number of loans of less than $150,000 issued to businesses decreased to 29,682 from 34,238 last year. However, SBA remains optimistic. “We’ve had an extremely successful year…and we are back to pre-recession lending levels. But we still have some gaps. We’re not back in [the terms of] small loans and loans to underserved markets,” said Karen Mills, the SBA’s Administrator. Mills said the primary obstacle for banks is the work and cost associated with making smaller loans, and the agency is reducing and streamlining paperwork. To address the gap, SBA began two initiatives in Feb., both of which offer fast approval times, minimum application paperwork and government guarantees of up to 85 percent for smaller loans. However, getting these loans to small businesses remains difficult. SBA-backed loans traditionally make up a fraction of all small-business loans, often indicating how small businesses are doing in broader capital markets.

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National and State News
City Council to Weigh Vacant Property Ordinance
The Chicago Tribune (10/05/11) Glanton, Dahleen

On Oct.5, an ordinance was introduced at the Chicago City Council meeting that would replace the ordinance relating to the upkeep of vacant properties adopted earlier this year that faced threats of legal action by financial institutions who criticized the ordinance’s lack of conformity and the vagueness of the requirements it imposed on lenders. The proposed ordinance is a compromise developed by both the city and banks that lays out the mortgage servicer’s responsibilities more clearly. Banks also agreed to work with the city to pass a bill in the state legislature that would standardize requirements statewide. The bill would require municipalities to create a way to expedite foreclosure proceedings, which would decrease the time it takes for a property to go through the process significantly. According to David Spielfogel, chief of policy and strategic planning for the mayor’s office, in addition to the compromise ordinance, they are also working toward a solution in Springfield that would ensure regulatory certainty for both sides. “We share the city’s concern about our city neighborhoods and we worked with the mayor and his staff and the alderman to create policies that will work for everyone” said Tom Kelly, spokesman for JP Morgan Chase. “We wanted to make sure it was workable for the mortgage servicers and for the neighborhoods.”

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Lawsky Touts Creation of New York Financial Office
American Banker (10/03/11) Adler, Joe

The launch of New York’s new Department of Financial Services (DFS) – a merger of the state’s banking and insurance offices – was formally announced Oct. 2 by the department’s head, Banking Superintendent Benjamin Lawsky. DFS will supervise 3,900 institutions with $5.7 trillion in assets, with its focus divided into five main divisions – insurance, banking, financial frauds and consumer protection, real estate finance and capital markets. DFS was created to address gaps between the state’s previous regulatory bodies, and according to its statute, will automatically oversee any new financial product or service not currently regulated by another agency. A new director of enforcement, who will focus on criminal investigations in the financial services industry and be a “new powerful cop on the beat,” will also be added to the agency, Lawsky said. Lawsky also discussed the development of a code of conduct that came out of his work with Gov. Andrew Cuomo as attorney general to root out corruption in the student loan industry. He stated that he wants to use these same principles with other financial services products and noted that the new agency will have to maintain a careful balance between enforcement and encouraging economic growth. DFS has also been given a job creation initiative.

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Cheat Sheet: How Death of Settlement Talks May Help Banks
American Banker (10/03/11) Davidson, Kate

The settlement talks between the state attorneys general and the top mortgage servicers is likely at an end, which may ultimately be a good thing for banks. While the collapse of a settlement means banks will not be able to put the charges of improper servicing quickly and completely behind them and may now face separate investigations and lawsuits, it also means banks will not feel forced to agree to the $20 billion settlement AGs have been pushing for – a sum banks see as significantly surpassing their actual liability. The talks effectively collapsed after California Attorney General Kamala Harris pulled out of negotiations Sept. 30. New York Attorney General Eric Schneiderman was pulled out of the process previously and has said he would pursue his own litigation. More states have followed. While Iowa AG Tom Miller insists the settlement talks with the remaining states are still viable, observers believe the potential for a significant deal is small. Sources have said that servicers now expect the Justice Department, which has taken the lead on behalf of federal officials, to pursue their own settlement. Observers also predict that the Consumer Financial Protection Bureau (CFPB) will take a larger role in negotiations. “To the extent that the CFPB gets in there first and cuts a deal, which has always been a looming threat to the AGs, that would probably lend more closure and relief to servicers in the end than some kind of ongoing sideways negotiations with the AGs,” said Tim Rood, a partner and managing director at the Collingwood Group. A settlement with the Justice Department could also provide uplift for the market. However, the absence of a global settlement has drawbacks for both servicers and AGs. Servicers face the continued threat and cost of litigation. State AGs, rather than doing costly, widespread investigations of abuses, will likely turn to supporting lawsuits initiated by private plaintiffs.

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Big Squeeze for Grads: Student Loans Rise, Job Opportunities Dim
The Christian Science Monitor (10/05/11) Price, Margaret

College students and graduates are now facing a common dilemma – how to pay back their student loans when jobs are not available. The costs of tuition have been rising steadily, and grant programs are failing to keep pace with them. On the other side, job opportunities are in short supply, which means finding a good-paying job to repay those student loans has become a significant challenge – one that is likely to intensify as policymakers trim education subsidies in order to tackle the federal deficit. Thirteen percent of college graduates ages 20-24 were unemployed as of July 2011 and last year, student loan debt surpassed U.S. credit card debt. This problem does not only affect students; their debt impacts the economy because the loans decrease their ability to spend. The U.S. long-term competitiveness could also suffer, because more high school graduates may skip higher education as the costs appear to outweigh the advantages. According to Rich Williams, a higher education advocate at the U.S. Public Interest Research Group, “About 10 to 15 years ago, only about one-third of students needed to borrow money to graduate, and borrowers needed only about $12,000” on average. Today, Mark Kantrowitz, publisher of FinAid.org, says about two-thirds of college students need loans, and the average borrowing exceeds $27,000. The Department of Education has said the default rate on federal student loans is still below double-digit levels at 8.8 percent, and points out a number of debt repayment programs have helped former students manage loan payments. However, the situation students are in may only get worse, as changes such as the federal government’s incentives for repaying student loans on time disappear and the budget cuts in this summer’s compromise target college loans.

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95th AFSA Annual Meeting

October 6, 2011

Forward To A Colleague

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

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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.

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.