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Latest AFSA White Paper Focuses on Prepaid Cards
On April 11, AFSA published a white paper on federal and state regulations and legislation relating to prepaid cards, an industry that continues to expand. The paper discusses key federal regulations and other regulatory challenges – such as the Durbin Amendment and the Dodd-Frank Wall Street Reform and Consumer Protection Act – that could affect the growth of the industry. At the state level, the paper reports on legislation that focuses primarily on disclosure requirements and on regulating expiration dates, escheatment and fees relating to the activation and use of cards, such as reloading and dormancy fees. In the 2011-2012 session, 250 bills relating to prepaid cards have been introduced. Fifty-one bills have been enacted in U.S. Congress and 27 states.
New Member Welcome
AFSA welcomes new Active Member OpenRoad Lending LLC. Headquartered in Dallas/Ft. Worth, OpenRoad provides vehicle financing to borrowers across the country. website
CFPB Details Slew of Mortgage Rules Coming Summer 2012American Banker (04/09/12) Davidson, Kate
The Consumer Financial Protection Bureau (CFPB) released details about the new mortgage servicing rules that it plans to formally propose this summer. "The mortgage servicing rules we are considering reflect two basic, common-sense principles — no surprises and no runarounds," said CFPB Director Richard Corday. "For too long, mortgage servicers have not been held accountable to their customers, and the result has been profoundly punishing to homeowners in distress." The rules, which must be finalized by January 2013, include changes to the way servicers handle customer accounts and expanded disclosures for payments and fees.
The proposed rules currently under consideration aim to increase transparency and accountability by directing servicers to provide: (1) clear monthly mortgage statements that explicitly break down principal, interest, fees, escrow, and due dates; (2) warnings before adjusting interest rates on certain adjustable rate mortgages (ARMs) that explain how the new rate was determined, when it will take effect, dates of future adjustments, and a list of alternatives for consumers to consider; (3) options for avoiding “forced-placed” insurance; and (4) early outreach to struggling borrowers informing them of potential options to avoid foreclosure.
By releasing an outline of the rules in advance of the formal rulemaking process, the CFPB met the requirements of the Small Business Regulatory Enforcement Fairness Act (SBREFA). The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the CFPB to convene a small business advisory panel under SBREFA if a rule would have a significant impact on small businesses.
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Consumer Bureau Takes Step Back on Capping Credit Card FeesThe Hill (04/12/12) Schroeder, Peter
On April 12, The Consumer Financial Protection Bureau (CFPB) published a proposed rule that would soften the upfront fee limits on credit cards that were originally proposed by the Federal Reserve, and is now seeking public comments. The Bureau’s decision comes in response to an injunction issued by a South Dakota Court that blocked the previous proposed rule, which would have counted upfront fees towards the 25 percent cap, in an effort to address “the uncertainty caused by litigation.” The lawsuit was filed against the Federal Reserve when it tried to expand the 25 percent cap to include any fees charged before a card was issued, rather than just fees assessed one year after an account was opened, as it had originally proposed in January 2010. The rules fell under the Bureau’s jurisdiction after it opened in July 2011.
FHFA Chief DeMarco Loosens up a Bit on Principal ReductionMSNBC (04/10/12) Schoen, John W.
Despite arguments by democrats in Congress and Shaun Donovan, Secretary of Housing and Urban Development, that principal reduction could help underwater homeowners, communities, and investors, Federal Housing Finance Agency (FHFA) Chief Edward DeMarco has continued to express his concerns, although he told democrats on April 9 that the idea of principal reduction might make sense. Proponents of principal reduction argue that to help stabilize the market, avoiding defaults caused by homeowners who are unable to sell their houses before buying new ones is better for both homeowners and lenders. Available data shows that principal reduction "can allow people to pay [their bills], stay in their homes and increase the value of those mortgages,” said Donovan.
One of DeMarco’s arguments in opposition of the idea is the risk that homeowners not underwater will also ask to reduce their mortgage balances, but also has said more study is needed. “The far larger group of underwater borrowers who today have remained faithful to paying their mortgage obligations are the much greater contingent risk to housing markets and to taxpayers,” DeMarco said in a Brookings speech on April 10. After analyzing other tools the FHFA has used to keep people in their homes or minimize the loss to taxpayers when they cannot make their payments, DeMarco maintained that a policy of cutting loan balances would cost taxpayers more than relying on the existing tools the agency is using to prevent defaults, such as reducing the interest rate, extending the term of the loan, or offering principal forbearance. DeMarco also cited Fannie Mae’s data on loan modifications, which showed lowering monthly payments prevents defaults more effectively than cutting principal.
U.S. Consumer Website Helps Factor College CostsReuters (04/11/12) Clarke, Dave
On April 11, the Consumer Financial Protection Bureau (CFPB) launched a new online tool, enabling students to compare tuition costs at more than 7,500 colleges. The tool helps students determine the cost of monthly payments on student loans for four-year and two-year degree programs, assuming a 10-year repayment period that starts after graduation. The database also includes a “debt burden” section, which allows students to compare monthly loan payments to the average salary of someone with a bachelor’s degree. “Our Financial Aid Comparison Shopper helps students make apples to apples comparisons of their offers and pick the one that works best for their financial future,” CFPB Director Richard Cordray said in a statement.
Joe Smith Lays Out a Path Forward for Mortgage SettlementAmerican Banker (04/09/12) Wack, Kevin
Joseph A. Smith, the former North Carolina banking commissioner who is responsible for ensuring that the five banks involved in the $25 billion multi-state mortgage servicing settlement comply, said he is focused on the independence of banks' internal groups, which will issue quarterly reports on compliance, from the banks' mortgage servicing units.
"I have had some conversations with the banks, and will have more, about what steps they take to assure the independence of those groups," Smith said in one of his first interviews he's given since taking the job. "I hope that these groups are properly staffed and properly independent, because the alternative will be that the report that they make will not be credible."
Regarding his workload, Smith said he intends to keep a small staff small while relying heavily on contractors. Independence from the banks and a firm's capacity and expertise are key criteria for determining which firm he hires. However, finding such a firm could be difficult as many large U.S. law and accounting firms have long-standing client relationships with the banks. In addition, many of these firms have been hired by banks as part of a separate foreclosure review process run by federal banking regulators.
Smith has already established the nonprofit Office of Mortgage Settlement Oversight, which that will be funded by assessments on the five banks included in the settlement. The office’s website www.mortgageoversight.com soon will accept complaints from homeowners and consumer advocates about particular servicers. The office will not investigate those complaints, but rather provide homeowners with information about how to get help from other organizations, and use the data collected as a way to monitor compliance with the settlement.
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Vacant Building Fees to be Paid ‘Under Protest’Chicago Tribune (04/11/12) Podmolik, Mary Ellen
As of May 1, mortgage servicers with Fannie Mae-backed vacant properties must note in writing, when registering the properties with the City of Chicago, that the payment of the required $500 registration fee is being made “under protest” because “the Federal Housing Finance Agency determined that the registration fee does not apply to Fannie Mae,” Fannie Mae announced on April 11. However, servicers will not be reimbursed for any fines and expenses they incurred from not complying with the ordinance, Fannie Mae warned.
The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae, is currently battling the city in court over the ordinance requiring mortgagors to register a vacant building and pay a one-time $500 fee to the city 30 days after it becomes vacant or 60 days after the mortgage goes into default, whichever is later. The FHFA is arguing that Fannie Mae and Freddie Mac-backed properties are exempt from the ordinance’s requirements because the FHFA is the sole regulator and supervisor. In recent hearings, the FHFA has stated that it is unlikely there will be a compromise settlement.
Calif. Lawmaker Introduces Vehicle History BillF&I and Showroom (04/10/12)
On April 9, Calif. state Sen. Juan Vargas (D-San Diego) introduced legislation to amend a new law that will require dealers to provide consumers with vehicle history reports starting on July 1. Senate Bill 990 would change the requirement that dealers provide a National Motor Vehicle Titling Information System (NMVTIS) report to consumers who purchase a used car by allowing them to provide vehicle history reports from companies like Carfax instead.
Citing a study conducted by auto industry experts, Vargas said the NMVTIS does not track detailed information such as air bag deployment, open recalls and structural or frame damage. “My legislation is an important fix to better ensure that Californians have the opportunity to receive the best and most accurate information possible when purchasing a used vehicle,” Vargas said. “SB 990 will simply provide Californians with an option to obtain more information about a car’s vehicle history before making a purchase.”
AFSA Newsbriefs is a weekly executive summary of AFSA initiatives and consumer credit articles. AFSA Newsbriefs is free for members. Send an email to [email protected] 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.