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Consumer Bureau Probes Arbitration Clauses in Financial Products
The Los Angeles Times (04/24/12) Puzzanghera, Jim

The Consumer Financial Protection Bureau (CFPB) has launched an inquiry into the use of arbitration clauses in consumer finance contracts. The Supreme Court has supported the use of arbitration clauses in contracts over a consumers’ right to go to trial, but some have argued that say that many consumers do not realize they have waived that right when signing these agreements.
The Bureau was directed by Congress, through the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), to study the use of pre-dispute arbitration clauses in consumer financial contracts and issue regulations limiting or prohibiting the practice if it is in the public interest. “Arbitration clauses are found in many contracts for consumer financial products,” said Richard Cordray, the director of the CFPB. “We want to learn how arbitration clauses affect consumers, and how effective arbitration is in resolving consumers’ issues. This inquiry will help the bureau assess whether rules are needed to protect consumers.” The Bureau is seeking public comment to provide answers to their questions about the prevalence of arbitration clauses for consumer financial products, what types of claims consumers bring in arbitration cases, and how consumer and companies are affected by arbitration clauses and actual arbitrations. Comments must be submitted by June 23, 2012.

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New Independents Chair Installed at AFSA Conference

At the conclusion of AFSA’s 29th Annual Independents Conference & Exposition, Ginger Herring, president, 1st Franklin Financial Corporation, was installed as the 2012-2013 chairman of the Independents Section Advisory Board.

The Advisory Board’s members oversee all activities and programs for the association’s section for independently owned and operated consumer finance companies. As part of her one-year term, Herring will serve as a voting, ex-officio member of the AFSA Executive Committee. She currently serves on the AFSA Education Foundation Board of Directors.

In addition to her roles at AFSA, Herring serves on the board of the Stephens County High School Work-Based Learning Committee, belongs to the Young Presidents Organization and Disadvantaged Kids Network, and chairs the Northeast Georgia CASA. Herring holds a B.S. from the University of Georgia.

In addition, Tom Fortin, CEO, Regional Management Corporation, will serve as chair-elect, and Steve Schmelzer, president & CEO, Personal Finance Company, will serve as vice chair and PAC chair. Also joining the Independents Section Advisory Board are Billy Fuller, general manager, Tidewater Finance Company, and Grover Todd, president & CEO, Credit Central Inc. In addition, Mark Roland, president & CEO, World Acceptance Corporation, was elected to rejoin the board for another three-year term.

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Nathan Benson Receives Outstanding Independent Award

Nathan Benson, chief executive officer of Tidewater Finance Company in Virginia Beach, received AFSA’s Outstanding Independent Award on April 19 during the opening session of the Independents Conference & Exposition in San Diego.

The Outstanding Independent Award is given to an individual who has contributed significantly to the success of the financial services industry and the AFSA Independents Section through active involvement and participation in the community and the association.

A member of AFSA since 1996, Benson has held various leadership positions in the association. He currently serves as a member of the AFSA Board of Directors, Executive Committee, and Vehicle Finance Board, and recently spearheaded the formation of the Independent Auto Finance Executives Group. In addition, Benson has previously served as chairman of the Independents Section Advisory Board. Benson was the recipient of AFSA’s Distinguished Service Award in 2007.

Benson is also involved in charity work, serving as chairman of an annual golf tournament in honor of Sam and Reba Sandler that has raised more than $1,000,000 to fund a summer camp for autistic children, and the Holocaust Commission of Tidewater.

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MoneySKILL Mania Challenges S.C. High School Students on Financial Literacy

Thirty students from 16 high schools across South Carolina put their financial literacy knowledge to the test in the MoneySKILL Mania competition held April 26 as part of the Tenth Annual South Carolina Virtual Enterprise Network Trade Show in Columbia. Based on the AFSA Education Foundation’s MoneySKILL® curriculum, MoneySKILL Mania tested the students’ knowledge of personal finance concepts on credit, investing, insurance and current events. To be eligible for the contest, students were required to have completed MoneySKILL.
The three students with the highest score were awarded monetary prizes. Tyler Ashwood from Greer High School in Greer won first place. Peter Barnett, also from Greer High School, took second place, and Nick Hoyt from Byrnes High School in Spartanburg took third place. The contest was sponsored by Regional Management Corporation, Security Finance Corporation of Spartanburg, and World Acceptance Corporation.

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Inside the Beltway
What Should New Dodd-Frank Mortgage Rules Say?
The Wall Street Journal (04/23/12) Zibel, Alan

How much the “qualified mortgage” rule, which resulted from the Dodd-Frank Wall Street Reform and Consumer Protection Act, should limit the amount of debt consumers can take on and the protections it will give lenders against lawsuits for loans that meet certain standards, are central to the debate about the rule.
While the Dodd-Frank Act mandates that the rule exclude certain types of loans, such as “option” adjustable rate mortgages, it is unclear about the limits the mortgage rule should place on the amount of debt consumers can take on. In a joint proposal submitted by industry groups and three consumer organizations, qualified mortgages would automatically include loans made to borrowers who are spending no more than 43 percent of their pretax income on all debt; and loans would be allowed up to a 50 percent debt-to-income ratio if the borrower’s housing costs only comprise 31 percent of income or if the borrower demonstrates stable income or cash reserves. Industry also wants legal protections for loans that meet certain guidelines, because without which them lending will become more conservative.
The Bureau has given some insight into its considerations for the final rule. “We want to ensure that consumers are not sold mortgages they do not understand and cannot afford. We want to minimize compliance burden where possible, in part through the careful definition of those lower-risk ‘qualified mortgages.’ We want to ensure that, as the market stabilizes over time, every segment of prudent loans has the benefit of sufficient investor appetite and a competitive market,” said Raj Date, the Bureau’s deputy director in a recent speech. Regarding the industry’s top priority – legal protections for loans that meet certain guidelines – the Bureau’s director Richard Cordray has told lawmakers that reducing litigation is one of the Bureau’s goals, but that the protections sought by industry will not necessarily stop lawsuits.

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National and State News
U.S. Auto Lease Volume Growing, New Report Finds
F&I and Showroom (04/24/12)

The volume of auto leases is rapidly expanding and is projected to increase around 50 percent by the end of 2017, according to new data from CreditForecast.com. Compared to a year ago, the increase in total U.S. auto lease balances was more than double that in auto loan balances, rising 9 percent and 4.2 percent, respectively. CreditForecast.com predicts auto lease balances will grow at an average annual rate of 8 percent through 2017, and auto loan balances between 2 and 3 percent annually.
Auto finance company-originated lease balances rose 11 percent in March compared to a year ago. “Auto finance companies have ramped up the number of leases they are providing to well-qualified borrowers with higher credit scores,” said Amy Crews-Cutts, chief economist of Equifax. Dr. Cristian de Ritis, director of Consumer Credit Economics at Moody’s Analytics, expects “growth in originations by auto finance companies will drive further expansion in lease balances over the next five years.” According to de Ritis, auto finance companies are more likely to grow their auto lending originations faster than banks because they are more sensitive to growth in the U.S. economy.

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AG Coakley Says Homecorps Program Will Help Repair Damage Caused by the Foreclosure Process
The Boston Globe (04/25/12) Woolhouse, Megan

On April 25, Massachusetts Attorney General Martha Coakley unveiled HomeCorps, a new foreclosure-prevention program that will offer $16 million in counseling and grants to homeowners and $10 million in grants to individuals and communities combating blight caused by foreclosures. The program marks one of the first using proceeds from the $25 billion settlement with the five major U.S. banks to assist homeowners. In addition to directly benefiting homeowners, funding will also be used to hire a program director and a team of loan modification specialists and pay the expenses of attorneys and nonprofits assisting borrowers facing foreclosure. An additional $5.4 million has been turned over to the state’s general fund from the bank for foreclosure-related civil penalties and legal expenses.

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Now on Sale at Costco: Mortgages
CNN Money (04/26/12) Christie, Les

Warehouse retailer Costco recently introduced a full-service mortgage lending program on its website in partnership with 11 lenders, led by New Jersey-based community bank First Choice Bank. So far under the new program, Costco's partners have issued more than 10,000 mortgages. Costco manager of financial services Lauren Kutschka expects that number to rapidly increase as the retailer begins to more aggressively market the program to its millions of members.
Costco first began offering mortgages a few years ago, but scrapped the program because the service provider it was using did not share enough information about how it was dealing with Costco's members. In the new mortgage lending portal built with First Choice Bank quotes are gathered from various lenders. A borrower's identity is not revealed until they officially select the lender. First Choice is tasked with monitoring the other lenders to ensure they comply with Costco's policies, which include providing accurate rates and terms and following up promptly on questions and requests. While Costco takes no profit on the lending, it is paid to market the service.
In addition to mortgages, Costco offers health and auto insurance and stock brokerage services. "We've always known that our members wanted more financial services," Kutschka said. "Right now, we offer recreational vehicle and boat loans and we're going to add auto loans to that. We're also looking to offer student loans."

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Chrysler, Ally to Part Ways in '13
Detroit Free Press (04/26/12) Snavely, Brent

Chrysler notified Ally Financial that it does not intend to renew its relationship with the auto financing lender after it expires on April 30, 2013. The existing agreement requires the automaker to notify the lender one year in advance of terminating the relationship.
Chrysler has been working with Ally Financial, formerly GMAC, since it was formed in 2009. Chrysler's decision follows reports that the U.S. Treasury Department, which holds a 74 percent stake in Ally, is pressing for the company to break up and sell its assets.
Ally provides wholesale financing to Chrysler's dealer network and auto loans to Chrysler's customers in the U.S. and Canada. Dealers can continue to use Ally for floor-plan financing and auto loans. "Chrysler and Ally will continue to work together under the existing agreement until it expires," said Chrysler spokesman Ralph Kisiel. "Ally has been a valued business partner since the inception of the relationship in 2009." According to Kisiel, Chrysler is exploring its lending options with Ally and a number of other lenders.

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April 26, 2012

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