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AFSA Submits Amicus in Class Action Certification Case
On Aug. 17, AFSA filed an amicus brief in the Cullen v. State Farm case with the Ohio Supreme Court. The case involves the standard for class action certification in Ohio. The Eighth District Court of Appeals in Ohio affirmed an order certifying a class action, adopting the same standard for class certification that it employed in the Ford Motor Credit v. Agrawal case, in which AFSA also filed an amicus brief.
Although it initially declined jurisdiction in Agrawal, the Ohio Supreme Court reconsidered and granted jurisdiction in Agrawal, but is holding that case pending its decision in Cullen. AFSA hopes that the Ohio Supreme Court will follow the Wal-Mart v. Dukes decision in adopting stiffer standards for class certification, requiring consideration of merits issues that are necessary to decide class issues. The case also raises a number of other interesting issues regarding class certification.
The standard for class certification in any state is of concern to finance companies operating in that state. The standard in Ohio is of particular concern since that state’s statutes of limitation are usually long. Prior to 2005, Ohio had no borrowing statute, so claims are often brought there on behalf of putative nationwide or multi-state classes when class members can no longer sue in their home states due to those states’ shorter limitations periods. The Cullen class goes back 20 years and the Agrawal class 15.
ID Theft & Fraud Control Committee Elects New Chair
On Aug. 23, AFSA’s ID Theft & Fraud Control Committee elected Thomas Annis, Director, Compliance and Financial Services Knowledge Center, John Deere Financial, as the new committee chair. Annis replaces Brian Parks of Wells Fargo, who stepped down due to a promotion and new responsibilities. The new chair will lead an effort to update the committee’s “Guidelines for Safeguarding Data in Financial Services” manual with a focus on vendor management, cloud computing and the effects of the Federal Financial Institutions Examination Council’s Standards for Safety and Soundness on member audits.
Paperwork May Squeeze Banks Out of Mortgage LendingWashington Business Journal (08/24/12) Haber, Gary
The Consumer Financial Protection Bureau’s (CFPB) new rules on mortgages could drive up banks’ costs, forcing some out of the home loan business entirely. The Bureau’s revamp of the forms used to inform borrowers of mortgage-related fees, which is expected to go into effect next year, has sparked concerns among lenders. Particularly because of the increase in costs that would result from implementing the changes, which would require lenders to draft and print new mortgage disclosure forms to comply with the rules and train employees on how to use them.
Consumer advocates argue that the changes are necessary to simplify the process and ensure borrowers know in advance the cost of their mortgages, which is a very complex transaction. Bankers, however, say the regulations are burdensome and will hit smaller community banks especially hard. Tom Turner, who heads the mortgage lending operations for Farmers and Merchants Bank, has said they already have added two employees to what was a three-person mortgage department. He estimates the existing regulations have added around $500 to the cost of underwriting and processing a mortgage – a cost that is then passed on to borrowers. “It’s not about the quality of the loans,” Turner said. “It’s about the quality of the paperwork.”
Op-Ed: Repealing Dodd-Frank is not a Realistic OptionThe Hill (08/29/12) James, John Alan
A repeal of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) would not be a feasible approach to financial reform, says John Alan James, executive director of the Center for Global Governance, Reporting and Regulation at Pace University’s Lubin School of Business, in this op-ed. Rather, James says Mitt Romney, if elected president, should meet with the Financial Stability Board and institute a hiatus from issuing new rules and regulations. The time could be used for discussing long-term goals for the regulation process and developing benchmarks for the present, what is left to be done and how the progress and impact will be measured. Since enactment of the Dodd-Frank Act, several hundreds of rules have been finalized and are now law.
A repeal or revision of these regulations would entail dealing individually with several hundred rules, now law, requiring extensive cooperation between decision-making powers. This long, drawn-out process could take years and create more uncertainty, says James. The process would be even worse if the entire law was repealed, which would add more complex questions to the legal and regulatory environment.
California Anti-Blight Bill Signed into LawDSNews (08/27/12) Barringer, Tory
On Aug. 27, Calif. Governor Jerry Brown signed into law Assembly Bill 2314, indefinitely extending existing provisions requiring owners to maintain foreclosed properties. Property owners have a grace period of up to 60 days to correct code violations before incurring penalties. “We need solutions to the problem of blight which threatens the health and safety of California communities hit hardest by the mortgage crisis,” said the bill’s author Assemblymember Wilmer Carter, D-Rialto. “AB 2314 will ensure that local jurisdictions continue to have the tools to prevent and fight neighborhood blight due to foreclosures.”
The law is part of Attorney General Kamala Harris’ Homeowner Bill of Rights, a package of bills extending reforms contained in the national mortgage settlement. Two bills in the package were signed into law in July and another bill granting protections to tenants in foreclosed homes is currently awaiting action by the governor. Other components of the package, including provisions enhancing law enforcement responses to mortgage foreclosure fraud and granting Harris the ability to convene a multi-jurisdictional grant jury, remain pending in the legislature.
Fitch: US Subprime Auto ABS Expansion to ContinueSubPrime Auto Finance News (08/29/12)
The trends that led to a rise in the issuance of subprime auto asset-backed securities (ABS) will likely continue through the rest of 2012, according to Fitch Ratings. Vehicle sales continue to increase, with this year’s new-vehicle sales projected to land between 13.5 and 14.5 million units, reflecting pent up consumer demand after weak sales in 2009 and 2010. Loan origination has expanded to meet the demand, and new subprime ABS issuance is bolstered by increased loan origination, Fitch said. Credit continues to increase to consumers with FICO scores below 600, who make up 23 to 25 percent of all nationwide FICO scores. The subprime auto ABS sector has also drawn investors because of the spread levels and relatively short duration available. “Additionally, as investors stay on the short end of the yield curve, auto ABS is seen as way to pick up yield without extending duration,” said analysts. Subprime performance remains robust – in July, the firm’s subprime annualized net loss and 60-plus days delinquency index remained lower than the peak levels recorded in 2009. However, analysts also projected that these metrics will likely increase slightly because of seasonal patterns in fall and winter months.
S&P Experian: July Auto Loan Defaults Sink to Lowest Point in Eight YearsSubPrime Auto Finance News (08/24/12)
Auto loan defaults in July dropped to 1.01 percent, the lowest point in eight years, according to the S&P/Experian Consumer Credit Default Indices. Default rates in July decreased for most loan types, with four of the five posting their lowest rates since the end of the 2007/2009 recession. Only second mortgage defaults rose, increasing from a historic low of 0.73 percent in June to 0.75 percent. The first mortgage default rate, which had six consecutive months of decline, saw no change from the rate of 1.41 percent in June. The bank card default rate had the largest drop, falling from 3.97 in June to 3.83 percent, the lowest rate it has been since August 2007. “While continuing to show decreasing default rates, most of the changes in July were small compared to the magnitude of decline we had seen in the first six months of the year,” said David Blitzer, managing director and chairman of the Index Committee for S&P Dow Jones Indices. “Looking at the rate of new defaults in mortgages or auto loans, the consumers' credit position has recovered from the financial crisis,” Blitzer said. “However, other data show that previously defaulted mortgages remain an issue and many consumers still face an overhang from old debts.”
St. Louis County Council Sends Foreclosure Mediation Measure to DooleySt. Louis Beacon (08/28/12) Rosenbaum, Jason
A St. Louis County, Mo., ordinance that forces banks to offer mediation before foreclosing on a property was given final passage by the County Council by a 5-2 margin on Aug. 28. The ordinance is awaiting approval by County Executive Charlie Dooley, who has said he supports the ordinance. The revised version of the ordinance passed by the Council requires lenders and servicers to pay $100 for the mediation, gives a homeowner 20 days to opt into the program, and imposes penalties on lenders if they do not participate.
Proponents of the ordinance, including housing and religious organizations, hope that the ordinance will slow down the foreclosure process and prevent mistakes. Missouri is a non-judicial state, meaning it does not require court action to foreclose.
Critics of the proposal, including lender and realtor representatives, argue it could harm potential homeowners. They also have questioned whether the county can legally enact the ordinance, arguing the state legislature has authority over banking regulations. Councilmember Greg Quinn voted against the measure, stating the program would hurt more people than it would help. “It’s going to go ahead and increase the costs of the lenders to go through this mediation process. And those costs have to be passed along. And what it’s likely to do is to make mortgages less available for people. And that’s going to hurt the very people it was intended to help,” said Quinn. “Right now, credit is very hard to get, and I think it’s going to make it harder to get because of the increased cost of lending.”
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.