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Should States be able to Seize Gift Cards?
Wall Street Journal (08/16/12) Zibel, Alan

On Aug. 16, the Consumer Financial Protection Bureau (CFPB) announced that it would determine whether the unclaimed property laws in Maine and Tennessee relating to unused gift cards are inconsistent with and preempted by federal law on gift card expiration dates. The Bureau is conducting the inquiry at the request of payment card industry representatives and Maine’s state treasurer. Federal law bans the sale of gift cards that expire in less than five years. Maine and Tennessee’s laws deem unused gift cards “abandoned” property after two years and “release businesses from the obligation to honor the gift cards during a time period when, pursuant to federal law, consumers should be able to use the cards.” Businesses are then required to transfer unclaimed gift card money to the state. Consumers can apply to the state to get their money back, which the Bureau states is likely to be difficult for consumers because they may not know in which state the gift card was purchased.

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AFSA White Paper Discusses Ancillary Products

AFSA’s State Government Affairs department published a white paper on vehicle-specific ancillary products. Primarily reporting on legislation in the current session, the paper also reviews the Consumer Financial Protection Bureau’s (CFPB) mandate to regulate ancillary products and scrutiny from state attorneys general on the products. The paper covers guaranteed asset protection (GAP), debt cancellation, warranties and service contracts, vehicle protection products, motor clubs, title insurance, and credit insurance and debt suspension warranties and service contracts. It also reports on other ancillary products such as credit card payment protection and lender-placed insurance.
The white paper can be viewed here.

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Inside the Beltway
Consumer Bureau Lays Out New Mortgage Lending Standards
The Hill (08/17/12) Schroeder, Peter

On Aug. 17, the Consumer Financial Protection Bureau (CFPB) proposed new rules for fees associated with mortgages and restrictions on mortgage loan originators. The proposal would require mortgage lenders to offer potential homeowners certain benefits in exchange for paying up-front fees or “points” when they borrow to buy a home. “Consumers have a hard time comparing loans when they are dealing with a bewildering array of points and fees,” said CFPB Director Richard Cordray. “We want to provide consumers with clearer options and enable them to choose the loan that they believe is right for them.” The rules would also require lenders to provide borrowers with an option of a “plain vanilla” loan without points or fees attached, unless the consumer is unlikely to qualify for such a loan.
Parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) that prohibit “steering incentives” for mortgage loan originators and place restrictions on mandatory arbitration clauses in loan documents and increasing loan amounts to cover the financing of credit insurance would also be implemented. Mortgage loan originators would also have to meet certain qualification and screening standards, such as training, character and fitness requirements, and would be subject to a criminal background check.

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Feds Try Facebook Approach to Financial Rules
SmartMoney (08/21/12) Salisbury, Ian

The Consumer Financial Protection Bureau (CFPB) is experimenting with a tool to elicit consumer feedback on its proposed rules. Hoping for input from the general public, the CFPB is utilizing Regulation Room, an Internet chat room run by Cornell University where the public can post comments, ask questions and “endorse” or “share” content.
By law, most federal regulations must provide an opportunity for public comment, but the majority of input comes from corporations and trade groups. In contrast to the typical process, where lawyers submit lengthy letters, the chat room is designed to generate conversations and will feature a moderator to pose follow-up questions. Regulation Room will supplement the regular comment process. When a comment period closes, Regulation Room will summarize the conversations into a memo for formal submission. Organizers say the chat-room comments will be treated the same as traditional letters, but the real test will come when the rules are written.

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National and State News
Missouri Judge to Hear Lawsuits over Ballot Measures
Associated Press (08/21/12)

Cole County Circuit Court Judge John Beetham has agreed to consider whether the initiative imposing a 36 percent interest rate cap on certain loans will qualify for the November ballot. Although the court date has yet to be finalized, it is likely Judge Beetham will consider the case Sept. 5-7. Lawsuits were filed by supporters and opponents of the initiative after the ruling by election officials that the supporters did not collect enough signatures to be on the ballot. Officials reported that the measure was 270 signatures short in the 1st Congressional District. Supporters had to submit signatures by early May equal to five percent of the votes cast in the 2008 governor’s election in six of the nine Missouri congressional districts, amounting to between 91,818-99,600 signatures. The lawsuit filed by opponents of the ballot measure contends that the measure also did not have enough signatures in the 3rd Congressional District because 1,530 signatures counted from that District were invalid. They also contest officials examining of signatures based on the current nine congressional distorts, rather than dropping to eight due to the new map based on the 2010 census. Proponents of the measure have counter-sued saying that some valid signatures were not counted.

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CNW: Subprime Loan-to-Value Ratios Move Above 70 Percent
SubPrime Auto Finance News (08/22/12)

CNW Research’s newest loan-to-value (LTV) ratio data shows across the board improvement for the first half of 2012, particularly for subprime borrowers, whose LTV ratio climbed to 72.9 percent; last year’s level was 66.2 percent. According to the firm, this is “another sign of financial institutions slowly cranking open the lending spigot,” particularly for auto loans due to low repossession and delinquency rates. “In the heyday of subprime lending, those with the lowest acceptable FICO score had LTV ratios in the near-100 percent range,” the firm’s president Art Spinella said.
Throughout the recession, banks began requiring larger down payments for both prime and subprime borrowers, who could expect upwards of 20 percent to 40 percent down for an auto loan. While LTV ratios have not quite reached pre-recession levels, CNW says the trend is important because “the auto industry, to reach any historically reasonable sale levels, must have customers from all but the lowest FICO pools.” Americans are also postponing new vehicle purchases because vehicles continue to improve and consumers have more products to choose from. CNW pointed out that delays caused by the recession are shrinking for would-be buyers. The pool of people in the pent-up demand category in July was nearly half what it was in the same month a year ago. Subprime loan approvals also saw a huge jump, rising 48 percent from a year ago.

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Will Short Sales Hit Home Prices?
MarketWatch (08/22/12) Andriotis, AnnaMaria

The Federal Housing Finance Agency (FHFA) has announced new guidelines, to take effect Nov. 1, aimed at making it easier for homeowners to sell properties in a short sale. The guidelines would allow a homeowner with a Fannie Mae or Freddie Mac mortgage to sell their home in a short sale, even if they are current on their mortgage, if they have experienced a hardship such as a job loss or divorce.
While the changes will help some underwater homeowners, they could negatively impact prices in neighborhoods that get an influx of new short sales. An increase in short sales will cause “downward pressure on home prices until we clear out the majority of these distressed properties,” said Jack McCabe, an independent housing analyst. Home prices have been rising over the past few months. Median home prices rose eight percent in June from a year prior, the longest back-to-back monthly increase in home prices since 2006, according to the National Association of Realtors (NAR). The increase can be attributed to the limited inventory and smaller number of distressed properties on the market. Inventory went down 24 percent and distressed sales 30 percent from the prior year.
The FHFA says they expect short sales to settle at market prices, and that they will help prevent foreclosures and long vacancy periods, which result in a decline in home values. According to Brad Hunter, chief economist at Metrostudy, while homeowners may have lower values for their properties in the short term, benefits could be bigger in the long term. “It’s a better idea to clear out the backlog of distressed homes rather than delay the process in the name of supporting [home] values,” he said.

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Banks Deal More Prepaid Cards in Upshift for Down-Market Plastic
Wall Street Journal (08/20/12) Passy, Charles

Several major financial institutions have begun offering prepaid cards targeted at a more financially secure market, rather than the “unbanked” or “underbanked” consumers that traditionally rely on these products. The market for prepaid cards reached $483 billion in 2011 and is expected to hit $594 billion in 2013, according to the Mercator Advisory Group. This growth is not just fueled by low-wage earners. A report from research firm Aite Group found that 33 percent of prepaid users have incomes over $45,000, 15 percent earned more than $70,000, and more than a third have college degrees. Experts attribute the broadening appeal to issuers’ more competitive pricing; the inability to “max out” credit, which is attractive to consumers looking to reduce debt; and the cost-effectiveness of a card with a small monthly fee compared to a checking account with fees and required minimum balances. This checking-free prepaid approach can work well for those with simpler financial needs, such as those in the college-age market. Prepaid cards are also viable moneymaking strategy for banks, because they are not always subject to limits from the Durbin amendment, enabling them to have higher interchange fees than debit cards.

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Top CFPB Rulemaker Decamps for Law Firm
American Banker (08/22/12) Horwitz, Jeff

Leonard Chanin, the Consumer Financial Protection Bureau’s (CFPB) assistant director of regulations, will be rejoining law firm Morrison & Foerster LLP in September. Chanin spent a year and a half heading up the 40 attorneys in the Bureau’s rulemaking division. "During his time at the Bureau, Leonard built an effective rule-writing team that has developed proposals to implement key consumer financial protections that will benefit all Americans," said CFPB Director Richard Cordray.
"He's going to be a hard person to replace," says Alan Kaplinsky, an attorney for Ballard Spahr. "There was a level of comfort the banking industry had with Leonard, because they dealt with him for many years during his tenure at the Fed… I think this would be a setback for the CFPB because they're right in the midst of an avalanche of mortgage lending regulations." Chanin is the second prominent official to depart the CFPB in recent months. Earlier this year, Deepak Gupta, the CFPB's former senior enforcement counsel, left to start a consumer advocacy law firm.

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August 23, 2012

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