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Attorneys General Urge Senate to Approve Consumer Bureau Pick
The Wall Street Journal (10/18/11) Randall, Maya Jackson

On Oct.18, 37 state attorneys general declared their support for Richard Cordray, the nominee to lead the new Consumer Financial Protection Bureau (CFPB). The effort is intended to put heat on Senate Republicans, who vowed to block any nomination, regardless of the nominee’s qualifications or party, until the agency structure is changed. Republicans argue the CFPB’s powers are much too broad, particularly those of the director, who they say would be able to wield significant power over banks and consumers in a way that could deal a blow to the fragile economy. In their letter, the group of attorneys general, who represent a wide range of political interests, described Cordray as a brilliant, “well-qualified” leader who has defended consumers while also working to find fair and reasonable solutions for the financial industry. “Some of us may disagree with aspects of the Dodd-Frank legislation. But we are united in our belief that Mr. Cordray is very well-qualified to carry out the responsibilities of this position,” they said. Sen. Richard Shelby (R-AL), the top Republican on the Senate’s Committee on Banking, Housing and Urban Affairs, maintains that the “Discussion of any nominee’s qualifications to run this bureaucracy are premature until President Obama stops ignoring Republicans’ calls to make it accountable to their elected representatives.” Utah Attorney General Mark Shurtleff plans to urge Utah’s Republican senators to support the nomination despite GOP concerns about the CFPB’s structure. Shurtleff stated that as a Republican he shares concerns about the Bureau’s structure, but that he wants it to move forward to address problems facing consumers. He also added that Cordray would take a balanced and fair approach to address those problems.

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SGA White Paper Reports on Vehicle Driver/Owner Liability Shifting

AFSA recently released a white paper on automated traffic enforcement systems legislation that holds the “registered owner” of the vehicle liable for traffic violations. AFSA opposes legislation that allows the vehicle leasing company to be held liable for traffic violations incurred by the lessee through these monitoring devices. While some of these bills exempt vehicle leasing companies from its provisions, they still place an unfair burden on the companies because they require them to affirmatively rebut the presumption of liability – such as submitting affidavits or appearing in court – and provide inadequate time frames to dispute the citations. These limitations can lead to expired tickets that carry penalties of noncompliance, such as the suspension of vehicle registration privileges, preventing the company from registering any new leased vehicles. Requiring lessors to contest violations incurred by the lessee also puts them at a competitive disadvantage in “lease or buy” situations and may deny some consumers the benefits of leasing by raising the price of leasing relative to buying. In the current legislative session, 115 bills were considered in 25 states and the District of Columbia. Legislation has been enacted in nine states: Alabama, California, Illinois, Maryland, Rhode Island, Tennessee, Texas, Virginia and Washington.

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AFSA Members and Texas DMV Quickly Provide Aid to Wildfire Victims

AFSA members quickly collaborated with the Texas Department of Motor Vehicles, Vehicle Titles and Registration Division (VTR) to assist Texas residents affected by the recent Bastrop County wildfire. Their cooperation helped expedite the insurance claim process on vehicles that were damaged or totaled in the wildfire by enabling victims, from Sept.19-30, to take simplified steps to obtain a copy of their vehicle title in one day rather than a week or longer.
To seek lender participation and help spread the word about the program, the VTR contacted AFSA’s National Title Solution Forum (NTSF) Committee on Sept. 14. The program was rolled out only two business days later. “We were very pleased with the rapid turnaround of lender support, and the quickness with which AFSA acted to support Texas,” said Monica Blackwell, Director of Title Services, Texas Department of Motor Vehicles. Lenders and the Texas DMV temporarily expedited 252 loans/titles for victims of the state wildfires, Blackwell reported.

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Inside the Beltway
CFPB Supervision Chief: Old Methods, New Approach to Guide Exams
American Banker (10/17/11) Davidson, Kate

While the Consumer Financial Protection Bureau (CFPB) will utilize many of the same examiners and similar methods that banking regulators have used for years, the supervision and examination manual the Bureau recently released will require examiners to look at the information gathered in new ways.
"Our primary concern is risk to consumers and if information is being provided to them up front in a transparent fashion," said Steve Antonakes, CFPB associate director for large bank supervision. Antonakes emphasized that the manual is the first version and will be refined over time. The CFPB plans to hold town hall meetings and roundtable discussions to solicit feedback from covered institutions.
For many of the laws under the CFPB’s jurisdiction, including the Truth in Lending Act, Real Estate Settlement Procedures Act and Fair Credit Reporting Act, the manual incorporated many of the procedures used by the Federal Financial Institutions Examination Council. As outlined in the manual, CFPB exams should be data driven and applied similarly between banks and nonbanks.
The manual also will evolve with procedures organized by different products and lines of business, such as mortgage servicing. L. Richard Fischer, a partner with law firm Morrison & Foerster, said that the mortgage servicing provisions indicate that the Bureau plans to take a much more detailed approach on that issue, which could take up a significant amount of effort and resources. Fischer said the CFPB could focus on debit cards and pricing next as the Bureau continues to add detailed procedures according to specific product lines.
Kip Weissman, a partner with Luse, Gorman, Pomerenck & Schick, said the manual's provisions relating to unfair, deceptive and abusive acts or practices was predictable, but it will be difficult to know how the provisions will be applied or interpreted in practice until a few rounds of examinations have been conducted. "The first entities examined are really going to have no certainty as to what the approach is going to be," Weissman said. "And that's going to continue for a while."

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CFPB Now Testing New Mortgage Disclosure Forms
Reverse Mortgage Daily (10/18/11) Gerace, Alyssa

As part of its work to combine Truth in Lending form with the Good Faith Estimate, the Consumer Financial Protection Bureau (CFPB) is testing a revised design with consumers and industry, as well as overhauling the disclosure form that informs borrowers of final terms and costs at closing. While the mortgage loan application form is in the final stages of revision, the CFPB states it is working on a closing disclosure that will be “just as clear and effective as the application disclosure will be.” The CFPB is testing the latest prototypes, comparing a fixed-rate and an adjustable rate loan, in Albuquerque, N.M. According to the CFPB, consumers and industry will be asked to comment on the application disclosure form again in the future, as it will need to work together with the closing form.

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Director vs. Board: Does An Agency's Structure Really Matter?
American Banker (10/14/11) Adler, Joe

Republicans have insisted in the battle over the Consumer Financial Protection Bureau (CFPB) that the agency’s sole director must be replaced by a five-member board. Most financial regulators are operated by a board of five to seven people and are subject to committee votes and quorum rules. Only two – the Federal Housing Finance Agency (FHFA) and the Office of the Comptroller of the Currency (OCC) – are run by single leaders. Multi-member boards help ensure agency’s decisions have broad support; decisions are made more in the open through public meetings; and some ensure members of both political parties are represented. Having the Senate confirm board members results in an “institution that is more responsive to the Hill,” said Donald Lamson, a former OCC official. However, boards can make it difficult when quick decisions are needed, and problems among board members can cause the agency to have problems functioning. In addition, a position vacancy can create many problems with management of an agency, and it can be difficult to find qualified individuals for secondary voting seats.
Proponents of the CFPB being led by a board say that it is necessary because of the amount of power the Bureau was granted by Dodd-Frank. Unlike the directors of FHFA and OCC who have limited authority, the CFPB has broad power to interpret and enforce rules for every financial institution, said Mark Oesterle, a counsel at Reed Smith and former senior staffer for the Senate Banking Committee. The agencies that have the most authority to make policy determinations are all boards. “The FHFA has a single head, but the fundamental differences are that the statutes are a little more constrained and they only apply to 14 entities… the CFPB has everybody. When you combine the scope of its powers and the range of entities it oversees, I would argue that no one else with a single director has that kind of authority,” Oesterle added.

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National and State News
US States Near Foreclosure Deal with Banks
Reuters (10/18/11) Viswanatha, Aruna

Mortgage settlement talks between U.S. states and top banks are nearing agreement on resolving a major sticking point and a deal could be reached by the end of the month, according to three people familiar with the talks. Under the proposed $25 billion settlement, banks would receive broader relief from potential state civil lawsuits in exchange for refinancing underwater loans, the sources said. Banks have been reluctant to settle because they wanted broader legal protection. Originally, the attorneys general were only considering legal protection for shortcuts taken during mortgage servicing and foreclosures, such as so-called "robo-signing." However, the state attorneys general reportedly have agreed to release major banks from claims that they made legal errors when first originating the loans. For their part, banks would agree to refinance mortgages for borrowers who are current on their payments but are still underwater.
Approximately 20 percent of all mortgages are bank-owned, and CoreLogic data shows that an estimated 22.5 percent (or around 10.9 million) of all residential properties with a mortgage are underwater. Underwater loans typically are not eligible for refinancing.
The success of the talks has been uncertain lately and took a major hit last month when California Attorney General Kamala Harris said the settlement would not provide enough relief for her state's homeowners. But a refinancing plan could lure California, which has approximately 2 million residents underwater on their home loans, back to the table.

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Bill would Prohibit Debit Card Fees
The Miami Herald (10/18/11) Sanders, Kate

On Oct. 17, Florida Rep. Jeff Clemens (D-Lake Worth) proposed legislation that would prohibit banks from charging Florida consumers monthly dormancy or service fees for using debit cards. Bank of America plans to start charging a $5 monthly debit card fee on its customers in January, and others are expected to follow. While a state ban on these fees may seem like a good idea to consumers, many wonder if states are even able to prohibit these fees. According to Clemens, Cuomo vs. Clearing House Association, a 2009 U.S. Supreme Court case, ruled that federal law did not preempt states from enforcing their own laws in cases against national banks. The banking industry, however, says the state cannot impose this law because of the U.S. dual banking system, where national banks answer mostly to federal regulators, and under federal law they are able to charge these fees. Trish Wexler, a spokeswoman for the Electronic Payments Coalition, says the fees come in response to a $6 billion loss banks and credit unions face because of the passage of the Durbin amendment, which caps interchange fees. If Clemens idea becomes law, “consumers are either going to lose their debit cards or they’re going to pay another way,” Wexler stated.

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State Rules on Foreclosures
The Wall Street Journal (10/19/11) Timiraos, Nick

The Massachusetts Supreme Judicial Court ruled that a homeowner who bought a foreclosure that had been conducted improperly by the foreclosing bank in 2006 didn't have legal ownership of the property. The Oct. 18 decision found that sales of bank-owned properties with unclear title were invalid, even after an unknowing third-party buyer later bought the bank-owned property.
The 2006 purchase of a foreclosed property in Haverhill, Mass., by Francis Bevilacqua, was at issue in the case. The court upheld an earlier ruling that Mr. Bevilacqua didn't own the property because the foreclosing party, a servicer acting on behalf of investors in mortgage-backed securities, didn't own the mortgage when it initiated foreclosure proceedings.
The decision, which could affect any number of borrowers in Massachusetts, casts a cloud over the legal ownership of any property in the state that banks didn't properly convey title when foreclosing. Any homeowner who bought a home with a "tainted foreclosure in their chain [of title] is going to have to do something to give clean title" when they sell or refinance the property, said Bevilacqua’s attorney.

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Banks in St. Louis Area Getting into Payday Loan Business
St. Louis Post-Dispatch (10/14/11) Gallagher, Jim

Big banks are getting into the payday lending business, and according to consumer groups are luring the unsuspecting into an expensive cycle of debt. Consumer groups are now aiming the same censure at banks as they aim at payday lenders. Payday loan businesses have been consistently under fire and are currently the subject of a referendum consumer groups are working to get on the Missouri ballot. The referendum would sharply limit payday interest rates. Banks maintain that these “advance loans” are a convenience for customers facing emergencies and unexpected bills, and that customers have been highly satisfied with them. Banks require customers to have a checking account and a regular direct deposit to get a loan, so they have less trouble collecting. If the paycheck isn’t enough, the bank will withdraw the money anyway and some also let borrowers in trouble convert to longer payment plans. Banks also impose a “cooling off” period on customers who have been in debt for several months.
In Illinois and Missouri, annual percentage rate (APR) limits are set on such loans provided by payday loan operators and state-chartered banks. Nationally chartered banks have no such limits. Another area of contention between banks and consumer groups about these loans is that payday loans typically charge an APR around 444 percent, whereas banks’ APR is as low as 120 percent. The Treasury Department proposed new rules for bank payday lenders in June that would require banks to explain to customers how the program works and warn them that it can be costly and require cooling off periods. They also would not be able to collect more than the amount in their checking account and cause an overdraft. Several credit unions have come up with an alternative to the controversial loans – requiring short-term borrowers make deposits in a savings account with every loan, in hopes of breaking them out of the cycle of debt. “The idea is that the savings account will grow as the customer keeps borrowing until they no longer need a loan,” said Patrick Adams, CEO of a St. Louis Credit Union.

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GM Financial to Offer Dealer Financing by April 2012
F&I and Showroom (10/14/11)

GM Financial will launch a full-service inventory financing platform by April 1, 2012, the company’s president and CEO, Dan Berce, announced on Oct. 13. The new program is the next step in GM Financial’s evolution from an independent subprime lender into a full-scale captive finance company. The commercial finance unit will offer inventory financing, real estate loans for store upgrades and capital loans. “The goal here is not to supplant Ally. It’s having a platform that’s going to give dealers optionality and a choice,” said Berce. “Ally served the market well for GM, but they have 80 percent of GM’s dealer business—that’s a situation GM was uncomfortable with from a concentration standpoint.” The company is also committed to maintaining and growing its non-GM business, which has increased in volume significantly since the acquisition of GM Financial, Formerly AmeriCredit Corp., by GM. “This speaks to the fact that subprime auto lending is relatively underserved in the market,” Berce said. GM Financial’s leasing program has also seen an increase since it was launched nationally in July. The expansion of its leasing program into Canada, after its purchase of FinanciaLinx Corp. in March, has allowed GM’s lease penetration there to triple.

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October 20, 2011

Forward To A Colleague

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