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Cordray, Consumer Bureau Target Discriminatory Lending
US News & World Report (04/18/12) Handley, Meg

The Consumer Financial Protection Bureau (CFPB) announced on April 18 that it will monitor financial institutions for potential fair lending violations in all consumer products, including auto loans, mortgages, and credit cards, with a goal of eliminating discriminatory practices that could adversely affect consumers’ access to credit. CFPB Director Richard Cordray said that discrimination does not have to be intentional to be harmful. The CFPB will be enforcing consumers’ rights under the Equal Credit Opportunity Act (ECOA), which prohibits lenders from making credit decisions based on race, color, religion, sex, or marital status, among other things.
Additionally, the CFPB will be watching for “disparate impact” in lending, which is when a lender’s practices or policies are not discriminatory in and of themselves, but when they have a discriminatory effect. "This subtle but powerful form of discrimination creates damages that are no less direct than the kind of overt and blatant discrimination that, we hope and assume, is increasingly a relic of a bygone era," Cordray said.
In order to help consumers identify discriminatory lending practices, the CFPB has posted an entry in its blog and issued a bulletin to help educate consumers about their rights under the ECOA. "Whether they are applying for an auto loan, student loan, or home loan, consumers need to know their rights and they need to know what red flags to look for that may indicate their rights are being violated," Cordray said. "We want consumers to be able to recognize when they may be victims of discrimination."

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AFSA Submits Letter on Larger Participants

On April 17, AFSA submitted a letter to the Consumer Financial Protection Bureau (CFPB) on its proposed rule defining larger nondepository participants in certain consumer financial product and service markets. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) grants the CFPB the authority to supervise nonbank covered persons of all sizes in the residential mortgage, private education lending, and payday lending markets. In addition, the CFPB has the authority to supervise nonbank “larger participant[s]” in markets for other consumer financial products or services. In the proposed rule, the CFPB defines larger participants only in the consumer debt collection and consumer reporting markets. The CFPB specifies that the proposed rule and subsequent initial rule will be followed by a series of rulemakings defining larger participants in additional markets for consumer financial products and services.
AFSA’s comment letter expressed concern with the breadth of the definition of “consumer debt collection,” and the inconsistency of the proposed definition of “debt collector” as exclusions to the definition of “debt collector” contained in the in the Fair Debt Collection Practices Act were not incorporated into the CFPB’s proposed rule. AFSA’s letter stated, “This broad definition could include (i) entities whose principal business is not the collection of debt, that service and collect their own debts and those of affiliated entities; and  (ii) entities that originate their own debts, assign the debts to a third party, but retain servicing and collection of the debts. AFSA does not believe that the proposed rule intends to capture these categories of creditors.” The letter also expressed concern with the tests and thresholds used to define larger participants, as well as the manner in which the CFPB determines a nonbank’s status as a larger participant and the CFPB’s procedure to dispute classification as a larger participant.

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AFSA Works to Secure Supervisory Privilege for Banks, Nonbanks

On April 16, AFSA submitted a comment letter on the Consumer Financial Protection Bureau’s Notice of Proposed Rulemaking on the Confidential Treatment of Privileged Information.
AFSA supports the Bureau’s efforts to ensure the confidentiality of nonpublic, proprietary information provided by financial institutions in the course of the supervisory process. AFSA’s letter focused on how the Bureau should seek parity in the treatment of all entities under supervision, especially where nondepository companies do not fall entirely under the jurisdiction of state bank supervisors. By AFSA’s count, there are at least 15 states where an agency other than the state bank supervisor oversees nonbanks doing business in that state.
Current federal law related to privilege does not contemplate the existence of the Bureau, nor does it contemplate the prospect of the Bureau sharing information with state agencies. AFSA called upon Congress to enact legislation to clarify that no privilege is waived when entities submit information or documents in the course of supervision. AFSA further urged Congress to ensure that information shared by the Bureau with any and all state agencies is protected by the same degree of confidentiality as the Bureau would maintain for itself.
AFSA also submitted a separate comment in conjunction with other trade associations. The joint comment stressed the need for a statutory amendment that would expressly clarify the protection of privileged information provided to and shared by the Bureau, consistent with the existing statutory protection over information submitted to the federal banking agencies. The comment also asked the Bureau to reaffirm its policy limiting the sharing of privileged information with nonsupervisory agencies.

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AFSA Joins Other Trades on Mortgage Disclosure Letters

AFSA joined other trade associations in signing an April 16 letter to the Consumer Financial Protection Bureau (CFPB) on the rulemaking accompanying the Know Before You Owe mortgage loan initiative. The letter was in response to the CFPB’s memorandum dated February 21, 2012, entitled “Outline of Proposals under Consideration and Alternatives Considered.” In the letter, the trades commended the CFPB for issuing the broad outline setting the regulatory context for the delivery of the reformed mortgage disclosures. “The CFPB’s iterative approach to developing the prototype disclosures has been a sound one, and we encourage the CFPB to use the same approach to developing the underlying rules because the underlying issues are significant, and deserve at least the same attention as the forms,” the letter said.
 In addition to general comments about the Know Before You Owe initiative, the letter included specific comments on the revisions to mortgage disclosures and the rules described in the memorandum and a recommendation for disclosure timing requirements, with particular attention to resolving the current problem of frequently revised Good Faith Estimates (GFEs) and minimizing unnecessary waiting periods for consumers needing to close their loans in a timely manner.
AFSA also signed on to a joint letter to CFPB Director Richard Cordray asking CFPB to “get this as right as they can” on combining RESPA/TILA disclosures. This letter was sent in response to an interview that Cordray had with Kate Davidson in the March 26, 2012, issue of the American Banker, in which he stated, “We want to make sure we get that as right as we can, so we're trying to be careful.” The signatories expressed their gratitude to Cordray for this approach and offered to help the CFPB “get it right” on all the mortgage-related rulemakings, especially the Know Before You Owe project to integrate, streamline, and simplify mortgage disclosures.

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AFSA among 33 Trades Supporting Broad QM Standards

On April 12, a diverse group of 33 trade associations and consumer groups sent a letter to Consumer Financial Protection Bureau (CFPB) Director Richard Cordray urging the Bureau to issue broadly-defined Qualified Mortgage (QM) standards as part of the forthcoming Ability to Repay regulation.
According to the groups, defining QM too narrowly would put many of today’s loans and borrowers outside of the market. Making these loans would lead to increased risk for lenders and investors, meaning that they will be more costly for consumers.
The groups believe that too narrow of a QM definition would undermine the chances of a housing recovery and “threaten the redevelopment of a sound mortgage market.” On the other hand, crafting a broadly-defined QM using clear standards would help the economy while ensuring that the largest number of creditworthy borrowers have access to safe, quality loan products for all housing types.
“Rather than narrowing the QM market, we believe the CFPB should work to ensure that the QM market becomes the market. Creating a broad QM, which includes sound underwriting requirements, excludes risky loan features, and gives lenders and investors reasonable protection against undue litigation risk, will help ensure revival of the home lending market,” the letter said.

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Inside the Beltway
Fitch Says Rules CFPB Is Considering Will Cause Servicers to Pay Up
DSNews (04/15/12) Cho, Esther

The mortgage servicing rules that the Consumer Financial Protection Bureau (CFPB) has said it plans to propose this summer will likely cause servicers to incur increased “operational, compliance, and reporting expenses,” Fitch Ratings said in a statement. The CFPB recently released an outline of the rules.
Fitch went on to say, “it is unclear what impact the agency’s new rules would have on future mortgage performance as a function of a more informed borrower. For example, if mortgage holders were given notice of increased payment amounts, they could begin budgeting for the additional cost sooner or shift to alternative products. Of course, if the borrower is already experiencing financial hardship any advance notice or better disclosure could be deemed irrelevant.”
Additionally, Fitch noted that the rules may not be relevant, since the “latest round of regulation appears focused on improving processes with respect to existing mortgages characterized by aggressive underwriting and exotic mortgage products tied to overvalued homes."

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CFPB Warns U.S. Financial Firms about Contractors
Reuters (04/13/12)

The Consumer Financial Protection Bureau (CFPB) issued a bulletin on April 13 stating that financial companies must thoroughly vet and monitor their service providers, and can be held responsible for their service providers’ legal violations. In a statement, CFPB Director Richard Cordray said, “Consumers are at a real disadvantage because they do not get to choose the service providers they deal with ­­-- the financial institution does.”
The bulletin detailed what financial companies should do to ensure that their arrangements with service providers protect the interests of consumers and avoid consumer harm. To do that, financial services companies should check that the service provider understands and can comply with relevant laws, request and review the service provider’s internal controls and training materials, and take prompt action to address any problems identified during the monitoring process.

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Senate GOP Will Join Legal Challenge against Obama's Recess Appointments
The Hill (04/17/12) Bolton, Alexander

Senate Republicans are drafting an amicus brief in the Noel Canning v. NLRB case in Washington state. The lawsuit challenges the constitutionality of President Obama’s recess appointments to the National Labor Relations Board (NLRB) and the Consumer Financial Protection Bureau (CFPB). Canning sued the NLRB over an order to engage in collective bargaining.
Canning believes that the order is unlawful because President Obama said he was appointing members of the NLRB during a recess, but the Senate had scheduled frequent pro-forma sessions to block such actions.

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Geithner Asks Dodd-Frank Be Kept Intact
Dow Jones Newswires (04/18/12)

On Tuesday, Treasury Secretary Tim Geithner sent a letter to Reps. Spencer Bachus (R-AL) and Barney Frank (D-MA) urging representatives to oppose upcoming bills that would roll back parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
“Congress enacted Dodd-Frank in response to the worst financial crisis this country has experienced since the Great Depression, the impact of which continues to affect our economic recovery,” Geithner said in the letter. “The act provides essential financial reforms that should not be weakened or repealed.”
Members of the House GOP have proposed several bills that would weaken or repeal key parts of the law, most of which will likely not pass the Democratic-controlled Senate.
On April 18, the House Financial Services Committee held a mark-up on legislation that would remove the authority for the government to wind down large financial firms and would subject the Consumer Financial Protection Bureau (CFPB) to the appropriations process.

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National and State News
Fort Bragg Commander Withdraws Opposition to NC Consumer Finance Bill

On April 17, Fort Bragg Garrison Commander Col. Stephen Sicinski, with the support of his fellow commanders, wrote a letter to North Carolina lawmakers withdrawing his opposition to North Carolina House Bill 810, a consumer finance bill that would change the state’s rate structure to permit a safe alternative to payday lending. According to industry, this rate has not changed in more than 25 years, leading to the reduction in the availability of small dollar traditional installment loans in North Carolina. This has led to consumers turning to higher cost loans through unregulated lenders such as those on the internet.
In May 2011, Col. Sicinski criticized the bill when he appeared before the Senate Banking Committee, telling lawmakers that the measure would harm young soldiers and their financial and military readiness. In his April 17 letter, Sicinski recognized the consumer finance industry’s efforts, stating that that it has “worked diligently to emplace protective measure to better protect our young soldiers with these loan vehicles.” Sicinski also praised amendments made to the bill, which he said “work to ensure Soldiers who take advantage of these loan vehicles will do so with a richer understanding of the requirements and consequences of obtaining such a loan.” It is likely that North Carolina lawmakers will once again consider the bill, as their previous opposition was largely due to that of the military.

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Hawaii Files Suit Against 7 Credit Card Companies
The Associated Press (04/17/12) Shapiro, Treena

Hawaii filed lawsuits against seven banks and credit card companies for allegedly charging customers for payment protection programs that they are not qualified to receive benefits from or do not want. Attorney General David Louie warned that cardholders may not realize they are in the protection plan because the monthly fee might be small enough to go unnoticed.
The state will be represented by a Honolulu attorney Rick Fried, in association with outside firms based in Philadelphia and Dallas that have experience suing the banks and companies named in Hawaii’s lawsuit. “The potential claim here is in the millions of dollars because the penalty is based on our statute, or the Unfair and Deceptive Trade Practices Act, which provides penalties from $500 to $10,000 per violation,” Fried said.
Of note is the fact that because the lawsuit is not a class action, any penalties collected will go to attorney’s fees and the state’s general funds, although a favorable judgment may help consumers recover some of their payments.

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April 19, 2012

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