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Missouri Supreme Court Allows Rate Cap Initiative to Proceed

On July 31, the Missouri Supreme Court overturned the Circuit Court of Cole County’s April 5th ruling on the validity of the fiscal note and fiscal note summaries for the ballot initiative petition to institute a 36 percent interest rate cap on payday, title, installment and consumer credit loans in the state. The Missouri Supreme Court found that the state auditor has the constitutional authority to prepare fiscal estimates for ballot measures and that the secretary of state’s summary statement and auditor’s fiscal note and summary are “fair and sufficient.” In its ruling, the court found “no bar to including the secretary of state’s summary statements and auditor’s fiscal note summaries in the official ballot titles for the proposed initiatives. No issues presented in these appeals and cross-appeals indicate any impediment to placing the proposed initiatives on the ballot.”

The Missouri secretary of state must determine by August 7 if the required 95,000 valid signatures have been collected to place the measure on the ballot.

The court’s decision does not address an issue raised by initiative opponents related to an even playing ground provision in the Missouri constitution that states, “the rates of interest fixed by law shall be applicable generally and to all lenders without regard to the type or classification of their business.” If the initiative is placed on the November ballot and passes, AFSA believes opponents may still have an opportunity to raise this issue before the court.

AFSA is disappointed in the court’s decision related to Missouri’s traditional installment lenders, particularly in light of the lower court’s finding that the rate cap initiative’s fiscal note and fiscal note summary were “defective” and the Missouri Supreme Court’s admission that it “might have been more informative to have had additional information related to the likely fiscal impact” on installment lenders. However, the Missouri Supreme Court determined the auditor was not required to “look beyond the information he was provided” in performing his investigation. Because of the ruling’s effect on traditional installment lenders, AFSA will offer its support to state groups and associations opposing the initiative in November.

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AFSA Comments on FSOC Hearing Procedures

On July 30, AFSA submitted a comment letter to the Financial Stability Oversight Council (FSOC) on its hearing procedures related to determinations that a nonbank financial company is systemically important and thus subject to enhanced prudential regulation. The Dodd-Frank Wall Street Reform and Consumer Protection Act directs FSOC to determine if a nonbank financial company is systemically important.
The proposed procedures would supplement those rules FSOC previously finalized regarding the designation process. Specifically, the hearing procedures would set the process by which a nonbank financial company that has been proposed to be designated as systemically important can obtain a written hearing and request an oral hearing with FSOC on the proposed designation.
“Designation under Section 113 by FSOC will, without question, have far-reaching impacts on an identified nonbank financial company from a cost, compliance, and operational perspective,” the letter stated. Specifically, “AFSA contends that the Council Hearing Procedures must provide for robust participation by companies that are being considered for potential designation by FSOC under Section 113, and we are concerned that the current procedures unnecessarily limit said participation.”

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AFSA Comments on Texas Proposal Regarding Motor Vehicle Retail Installment Contracts

On July 30, AFSA submitted a comment letter to the Texas Office of the Consumer Credit Commissioner (OCCC) expressing AFSA members’ concerns about its proposed amendments to 7 TAC 84.808, which would preclude  integration clauses in motor vehicle retail installment contracts.
Although the OCCC has decided to delay presentation of the amendments to the Finance Commission, as requested by AFSA, they are still receiving comments from interested stakeholders. AFSA welcomed the commissioner’s decision to delay presentation of the amendments and asked for the opportunity to work with the OCCC, Texas Automobile Dealers associations and other interested parties to fulfill the intent of the proposed changes while avoiding the negative impact.
“We believe the proposed changes will have a material adverse effect on AFSA members by precluding the long-standing industry practice of using integration clauses in motor vehicle retail installment sale contracts to acknowledge it is a fully-integrated record that is a complete and exclusive statement of the terms of the parties’ installment sale agreement,” the letter said.
AFSA recommended the OCCC “undertake a more focused review of the model contract and other documents with a view toward identifying with specificity any provisions that (1) are in the nature of terms of an installment sales agreement subject to the parole evidence rule; and (2) not already addressed in the model contract.”

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Trade Groups Raise Small Business Concerns with CFPB

AFSA and several other trade associations sent a joint letter to the House Committee on Small Business regarding the small business provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The letter highlighted the importance of the provisions and expressed serious concerns about the Consumer Financial Protection Bureau’s (CFPB) implementation of them.
The Dodd-Frank Act contains two important provisions: 1) requiring the CFPB to publicly consider how rules will impact the cost of credit for small firms; and 2) requiring the CFPB to conduct Small Business Advocacy Review (SBAR) panels on rules that will impact small businesses.
“Embracing the small business provisions in Dodd-Frank can allow for the CFPB to draw a careful balance between providing consumers with added protections while at the same time making sure rules are not overly burdensome and do not negatively impact the cost of credit for small businesses,” the letter said. “Unfortunately, we are concerned that the CFPB views SBREFA as a burden rather than as a means of improving their regulations. In some cases, CFPB chooses to skip the process altogether, and in other cases they choose to convene panels on compressed timelines, making it difficult for small companies to prepare and gather industry information.”

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Inside the Beltway
CFPB Offers Details on Consumer Complaints
American Banker (07/30/12) Blackwell, Rob

The Consumer Financial Protection Bureau’s (CFPB) consumer complaint database was a central focus of their semi-annual report, released on June 30. Few details on the Bureau’s enforcement activities were provided in the report. "Further detail about ongoing investigations will not generally be made public by the bureau until a public enforcement action is filed," it stated.
The Bureau reported that since it opened on July 21, 2011, 43 percent of complaints received related to mortgages, 34 percent to credit cards, 15 percent to bank accounts and other services and four percent to student loans. More than half of the mortgage complaints were about problems consumers had when they were unable to make their loan payments. "The complaints indicate that consumer confusion persists around the process and requirements for obtaining loan modifications and refinancing, especially regarding document submission timeframes, payment trial periods, allocation of payments, treatment of income in eligibility calculations, and credit bureau reporting during the evaluation period,” the report stated. Twenty-five percent of the mortgage complaints concerned loan servicing. Billing disputes were the most common type of credit card complaint, followed by interest rates.
The Bureau also reported that 81 percent of the complaints received were sent to companies for their review and response, with the remainder either referred to other regulatory agencies, found to be incomplete, or still pending with the consumer or the CFPB. Of the complaints sent to companies, most (55 percent) were closed by the company with some explanation to the CFPB. Twenty-six percent of the complaints sent were followed with monetary relief for the consumer; and three percent were closed without any monetary relief. The firms’ responses were disputed by consumers in less than half of the cases in which they were given the opportunity.

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U.S. Consumer Financial Agency Hits Lawyer in First Suit
Bloomberg (07/31/12) Schoenberg, Tom

The Consumer Financial Protection Bureau (CFPB) filed its first civil enforcement action in federal court, charging California lawyer Chance Gordon and his firm with falsely promising loan modifications in exchange for upfront fees. The Bureau alleges that Gordon lured clients with advertisements and phone calls claiming an affiliation with government programs or entities, and then did “little or nothing” to help his clients. In the complaint, CFPB enforcement director Kent Markus said, “Rather than helping homeowners modify their mortgage loans or avoid foreclosure, defendants dupe distressed homeowners into paying thousands of dollars based on false promises and misrepresentations.” After securing payment, Gordon advised his clients to stop interacting with their lenders and stop making mortgage payments, resulting in them entering foreclosure or losing their homes.

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FHFA Rejects Treasury Request for Mortgage Debt Writedowns
Bloomberg (07/31/12) Benson, Clea

The Federal Housing Finance Agency (FHFA) decided that Fannie Mae and Freddie Mac would not forgive principal on delinquent mortgages they guarantee, even with an incentive of as much as 63 cents for each dollar of principal reduction offered by the U.S. Treasury Department. “The potential benefit was too small and uncertain relative to unknown costs and risks,” said the agency’s acting director Edward DeMarco.
The decision has garnered criticism from Treasury Secretary Timothy Geithner along with activist groups and congressional Democrats who pushed for the agency to reverse its policy. “I do not believe it is the best decision for the country,” Geithner wrote. “The use of targeted principal reductions by the GSEs would provide much-needed help to a significant number of troubled homeowners.” Investor and banking groups, however, praised DeMarco’s decision, saying that debt writedowns would make lenders more reluctant to provide credit to risky borrowers.
DeMarco released the agency’s detailed analysis, which looked at the costs and benefits of reducing principal on troubled loans in different scenarios and concluded changing its policy would have no clear benefit to taxpayers. While in most scenarios there may be a net benefit to the GSEs, the analysis showed taxpayers would lose money because the program would be funded through the treasury. It would also produce new costs for taxpayer-funded firms by encouraging defaults among underwater homeowners who have continued making payments, DeMarco said.

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National and State News
Now Chicago’s Considering Eminent Domain to Seize Mortgages
American Banker (07/27/12) Berry, Kate

Chicago is the latest city considering using eminent domain to acquire underwater mortgages. The City Council adopted a resolution on July 25 to hold hearings regarding the implementation of such a program, and called for testimony from representatives of the mortgage industry. The resolution states that "the best way to keep troubled homeowners in their homes is by reducing the principal on their mortgages, thus lowering their debt burdens and more closely aligning their mortgages with the true value of their homes."
San Bernardino County and the cities of Fontana and Ontario in Calif. announced last month that they are exploring using eminent domain to buy mortgage loans. San Bernardino is expected to hold a public meeting on Aug. 16 and issue a request for comment on the plan, which would use private funds raised by a venture capital firm to acquire and restructure underwater mortgages. City officials in Berkeley, Calif., have requested meetings to look into options to slow foreclosures, said Isaac Boltansky, a policy analyst at Compass Point Research & Trading. Boltansky expects that more municipalities will announce that they are looking into similar plans, but says that these plans will not succeed.
"Given the size of the foreclosure epidemic in Chicago, the city should explore every possible avenue to keep families in their homes and reduce the number of vacant properties that breed crime and erode the stability of our neighborhoods," said Edward M. Burke, the resolution's co-sponsor.

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Subprime Auto ABS Grows as Lenders Chase Margins: Credit Markets
Bloomberg (07/30/12) Mulholland, Sarah

Bond sales tied to payments on subprime auto loans are increasing at the fastest rate in five years as investors seek riskier assets that generate high returns, drawing them to subprime auto lending. The subprime auto finance industry has seen significant growth over the past two years as new lenders compete to make loans with rates of approximately 17 percent annually, while collecting annual spreads of approximately 12 percent, according to Moody’s Investor Service.
U.S. auto sales for June reached a 14.1 million seasonally adjusted annualized rate as the Federal Reserve holds its benchmark rate near zero. U.S. auto sales have beat analyst estimates, and in the past three years rising used car values have boosted asset-backed securities tied to vehicle debt by increasing recovery rates on defaulted debt and easing losses for bondholders.
Investors have returned to the subprime segment of the asset-backed market since shunning the debt when losses on mortgage bonds linked to subprime borrowers sparked the financial crisis. Many are looking at autos, which have performed better than other parts of the consumer loan market, especially financing for non-prime borrowers, according to Nadim El Gabbani, a principal in the private equity group at New York-based Blackstone.

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NADA President Brady to Step Down, Join Energy Company
Automotive News (07/31/12) Rogers, Christina

The president of the National Automobile Dealers Association (NADA), Phil Brady, announced he is leaving the association to become head of government relations for Phillips 66. Brady has been president of NADA since June 2001. “Phil has had a profound impact on the auto industry, successfully leading our association through tumultuous and virtually unprecedented times,” said NADA Chairman Bill Underriner. “Phil has been particularly effective advancing dealer interests in the legislative arena, responding to the governmental and industry challenges that have increasingly faced the dealers in this country.” Underriner is expected to name Joe Cowden, the association’s COO and CFO, as interim president; he will take over Aug. 13 and serve until Brady’s successor is hired.

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Ford Credit Offers Financial Relief for Tropical Storm Debby Victims
SubPrime Auto Finance News (07/30/12)

Ford Motor Credit has offered Florida customers affected by Tropical Storm Debby, which hit in late June, the option to delay their vehicle payments by one or two months, and resume their regular payment schedule when their situations improve. The offer, which is a part of Ford Motor Credit’s Disaster Relief program, is available to customers with leases or loan financing from Ford Credit, Lincoln Automotive Financial Services, Jaguar Credit, Land Rover Capital, Mazda American Credit, PRIMUS or Volvo Car Finance.

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Ally, Jay Automotive Provide School Supplies to Georgia Military Families
F&I and Showroom (07/31/12)

Ally Financial and Jay Automotive Group teamed up to provide $10,000 worth of backpacks and school supplies to families of active duty and National Guard military personnel in Georgia. The backpacks were delivered to children throughout the state and distributed through an event at Jay Auto Mall. This was the third time Ally has partnered with Operation Homefront to provide essential items to military families. "Our men and women in the armed forces sacrifice so much for us every day," said Doug Timmerman, regional vice president for Ally Financial. "It is a privilege and honor to stand with Jay Automotive Group and contribute to such an outstanding community cause, both financially and through our employee volunteer efforts."

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August 2, 2012

Forward To A Colleague

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

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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.