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FSOC Approves Final SIFI Rule

On April 3, the Financial Stability Oversight Council (FSOC) approved a final rule laying out the process and criteria under which the FSOC will designate systemically important financial institutions (SIFIs) that will be subject to Federal Reserve Board supervision and enhanced prudential standards as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The final rule follows the FSOC’s advanced notice of proposed rulemaking in October 2010, a proposed rulemaking in January 2011, and a second notice of proposed rulemaking in October 2011. AFSA commented on each notice. AFSA’s latest comment letter noted that a designation “will have significant and far-reaching regulatory implications and costs, both in terms of time and resources, for nonbank financial companies.” The letter noted AFSA’s appreciation for the FSOC’s “continued efforts to establish clear and transparent procedures and guidance regarding the process by which nonbank financial companies will be designated.” The final rule adopted by the FSOC is very similar to the rulemaking issued last October.

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New AFSAEF Initiative Focuses on Installment Loans

To coincide with the start of Financial Literacy Month, the AFSA Education Foundation launched a new consumer education initiative called Personal Loans 101. The goal of Personal Loans 101 is to improve consumers’ understanding of installment loans and provide unbiased information to help borrowers make informed decisions about their loans.
The initiative centers on a set of educational materials that highlight different aspects of installment loans. The materials will be available in several formats: easily downloadable from the foundation website, as a booklet to hand out to consumers, and as a poster for members to display in their branches.
The first brochure in the series is an updated version of Understanding Personal Loans, which was first developed with several Independents in 2003. The brochure explains common loan terms, provides loan shopping worksheets and shares useful tips. Subsequent materials will address risk, cost and alternative loan options.
“Individuals and families need financial literacy skills to make sound financial decisions,” said Susie Irvine, President and CEO of AFSAEF. “Personal Loans 101 will be a comprehensive resource to help the underbanked fully understand small-dollar loans.”
AFSA members will play a key role in providing these materials to consumers. Copies will be available at the AFSA Independents Conference later this month, and the online version can be downloaded here. Members are encouraged to share the materials on their websites and spread the word about the initiative on Twitter and Facebook.

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Inside the Beltway
Obama Plans Overhaul of Student-Loan Debt Collector Practices
Bloomberg (03/31/12) Hechinger, John

Rather than basing student loan repayments on the size of their debt, the Obama administration has proposed requiring debt collectors to base the repayments on what the borrowers can afford. Debt collectors would also be required to follow a standard form to record borrowers’ income and expense information, announced the U.S. Education Department. Borrowers that protest would be offered an income-based repayment plan. After a period for public comment, the regulation could take effect as early as July 2013. In contrast to the current standard practice, debt collectors would also be prohibited from basing a payment plan for students that seek to “rehabilitate” their loans on the amount of the borrower’s loan. The department is also reviewing collector scripts to ensure that people are given the best information.

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FHA Restricts Mortgages for Consumers with Dinged Credit
American Banker (04/04/12) Berry, Kate

The Federal Housing Administration recently raised credit standards for prospective mortgage borrowers who have a collections action or disputed credit account of at least $1,000. As of April 1, those consumers must either pay off their debts or make a minimum of three months’ payments to be eligible for an FHA loan. However, borrowers who fell behind because of “life events such as medical, death, divorce, loss of employment, etc.,” have disputed credit or collections accounts that are more than two years old, or are a result of identity theft are exempt. The FHA's new policy is now similar to a long-standing requirement of private mortgage insurers.
The new policy is part of a broader effort to support the agency’s reserves, which have been depleted by an increase in delinquencies in recent years. While some mortgage lenders applaud the change as minimizing abuses of disputed credit accounts, others caution that it will reduce credit availability to many potential homebuyers when the housing market needs them. Many low- and moderate-income borrowers can only afford to buy homes through the FHA, and the new policy could leave out qualified borrowers with legitimate collections disputes. “This will reduce FHA loan volume and create more compliance problems for originators,” said Christopher J. Willis, a debt collections litigator at Ballard Spahr.
According to performance data, FHA loans with disputed credit and collections accounts over $1,000 had a higher likelihood of default, said HUD spokesman Brian Sullivan. "If you're carrying too much debt, you're inherently more at risk of future defaults," he said. In addition, disputed credit accounts or those in collections typically lead to manual underwriting. "It's not about denying access to credit to these borrowers," Sullivan said.

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Geithner says U.S. Far Behind on Housing Finance Reform
Reuters (04/04/12) Younglai, Rachelle and Lange, Jason

On March 4, Treasury Secretary Timothy Geithner told the Economic Club of Chicago that the U.S. has a long way to go in reforming its housing finance system and determining what should replace Fannie Mae and Freddie Mac, which fund the bulk of home loans. While the Obama administration has proposed to unwind Fannie Mae and Freddie Mac, the administration and lawmakers still struggle with how to reduce the government’s footprint in the housing market without damaging the economic recovery, he said.

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National and State News
American Express Pulls Gift Cards from NJ; Retailers Threaten to Follow
The Record (04/02/12) Morley, Hugh

Instead of letting New Jersey claim the value of gift cards not redeemed within two years due to a 2010 amendment to the state’s unclaimed property law, American Express has pulled their gift cards from the state’s stores, and several retailers are threatening to follow. The law, which is the only of its kind in the nation, allows the state to consider unused gift cards two years after its purchase as “abandoned” and take custody of the balance (which previously reverted to the issuer). According to the Christie administration, the law will raise $80 million and help balance the state budget.
In a statement, American Express said that it removed its gift cards because it was “not able to ensure compliance” with the part of the law that would require retailers to report the zip code of every card buyer to verify it was purchased by a New Jersey resident. Residents will still be able to purchase American Express gift cards online and make purchases using the cards in the state. The law is not yet in effect, but the state Treasury is in the process of determining the rules to implement the law. Representatives of retail merchants have said many retailers have already decided to pull their cards if the zip code requirement goes into effect because of the costly administrative and technological burden of compliance. However, the Treasury maintains that the law “is designed to return more gift card value to consumers,” rather than adding to the profits generated for the companies from unused gift cards.
American Express and other companies filed suit against the law after it was enacted, stating the amendment violates the U.S. Constitution, including the “due process clause,” which prevents the government from seizing property without certain steps. Although they obtained an injunction that prevented the law from being implemented, it was lifted in March. The courts dismissed portions of the law, but allowed the zip code requirement to stand.

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Report Finds Racial Discrepancies in Upkeep of Foreclosed Properties
The Washington Post (04/04/12) Dennis, Brady

On March 4, the National Fair Housing Alliance (NFHA) released a report pointing to discrepancies between how banks and lenders maintain and market foreclosed properties in white neighborhoods compared to minority neighborhoods. The fair housing group’s report resulted from an investigation that took place between May 2011 and February 2012. Funded by the Department of Housing and Urban Development (HUD) and Fannie Mae, the group examined more than 1,000 foreclosed properties in nine metro areas. According to the report, real estate owned (REO) properties in predominantly black and Latino neighborhoods were more likely to be left in disrepair and less likely to have for sale signs than REO properties in white communities.
Poor upkeep of REO properties can force down property values, attract crime and vagrancy and present potential health hazards, stated NFHA officials. According to the report, the “inferior way in which banks maintain and market their REO properties in communities of color actually changes the character of and serves to degrade the quality of life in these neighborhoods.” The report does not name the banks that owned the surveyed foreclosed properties, but NFHA officials say they plan to file administrative complaints with HUD based on their findings.

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Equifax: Lending Continues to Improve, Subprime Borrowers Gaining Share
SubPrime Auto Finance News (03/30/12)

In March, subprime origination growth across all lending sectors saw notable increases, particularly in the auto finance segment, where subprime borrowers now make up more than 46 percent of the market, according to Equifax’s March National Consumer Credit Trends Report. New auto loan originations to subprime borrowers have risen to the highest levels in five years, and the increased lending “demonstrates banks’ ongoing efforts to grow lending by providing credit opportunities to more consumers,” said Amy Crews Cutts, Equifax’s chief economist. “Year-over-year results show borrowers are taking advantage of the new opportunities and seeking to diversify their financial activity, which is building momentum toward economic improvement.” Auto bank loans have also risen, up 14 percent year-over year, representing a climb that is close to pre-recession levels.
New credit in 2011, however, remained below pre-recession levels at $782 billion, but gained more than 10 percent over 2009 and 2010 levels. Credit limits also rose this year, with retail credit card limits increasing six percent year-over-year and total bank credit card limits jumping 24 percent. Total consumer debt has dropped by double-digits, “driven by a nearly 12 percent drop in home financing balances,” according to Equifax. Non-mortgage and non-student consumer debt balances also had a significant drop, falling 22 percent from the 2008 peak of $2.05 trillion.

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March Auto Sales up 13 Percent, Recovery Quickens
Reuters (04/03/12) Woodall, Bernie and Bailey, David

March auto sales were strong, rising about 13 percent, rounding out the best quarter for U.S. auto sales since 2008. According to industry experts, this was due to consumers’ need to replace aging vehicles as gas prices rise, increased consumer confidence because of the improving job market, and inexpensive financing. “The fact that the (sales rate) is strong shows real strength on the retail side,” said Jessica Caldwell, a senior analyst at Edmunds.com. “If we can continue to see these signs of pent-up demand, I think that will bode well for 2012 and beyond.” Automakers’ profit per vehicle has also increased, as transaction prices for new vehicles rose an average of seven percent, while incentives such as rebates decreased. Industry sales forecasts for the year have also been forced higher as a result of March’s auto sales, and many expect that the demand will remain a supporting factor for U.S. auto sales well into 2013.

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April 5, 2012

Forward To A Colleague

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