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AFSA Letter Notes Unnecessary Burdens of Proposed Massachusetts Rule Amendments
On Dec. 6, AFSA submitted a comment letter to the Massachusetts Division of Banks raising concerns with its proposed amendments to 209 CMR 18.00: Conduct of the Business of Debt Collectors and Loan Servicers. AFSA asked for greater clarity and noted the unnecessary burden many of the amendments would impose on third-party loan servicers. AFSA asked whether sections that outline necessary practices, licensing requirements, and the duty to obtain approval before opening a branch location apply to third-party loan servicers in addition to debt collectors. AFSA also wants greater clarity in the section stating a third-party loan servicer is in violation if they misrepresent or omit any material information in connection with servicing the loan. This requirement would be an unnecessary and onerous burden, because it could be interpreted to mean a third-party loan servicer must provide – in every verbal or written communication with the borrower related to the servicing of the loan – information such as what fees may be due, terms of the underlying contract, and conditions of the servicing agreement. The requirement is also in unclear about what is considered “material information” in the context of a business agreement between commercial parties and which terms and conditions would be material when servicing a loan.
AFSA also requested inclusion of the term “mortgage” in the section that appears to be solely related to third-party loan servicers that service mortgages related to real property, and removal of the indication that an entity servicing retail installment sales contracts is a third-party loan servicer even though such contracts are not loans. Including this language could lead a court to hold that a retail installment sales contract is in the nature of a mortgage and therefore impose some of the requirements in this new section.
AFSA Staff Attends NCSL Fall Forum
AFSA staff attended the National Conference of State Legislatures’ (NCSL) Fall Forum, held Dec. 5-7 in Washington, D.C. During the forum, the Communications, Financial Services and Interstate Commerce Committee held two sessions – “Dodd Frank: The Implementation Continues” and “Payday Lending in the States.” In the Dodd-Frank session, panelist Mary Pfaff, senior director of policy for the Conference of State Bank Supervisors, discussed the relationship between state banking regulators and the Consumer Financial Protection Bureau (CFPB). She also highlighted the expansion of states’ use of the Nationwide Multistate Licensing System (NMLS) to other industries, particularly money transmitters. Panelist Ken Markison, associate vice president and regulatory counsel of the Mortgage Bankers Association, discussed the negative impact several CFPB rulemakings would have on industry, particularly small banks. Panelists in the session on payday lending included regulators from Delaware, Kentucky and Maryland state banking departments, and representatives of the Community Financial Services Association and Online Lenders Association. The regulators discussed their state’s payday lending laws and noted concerns they have with the industry, especially with online and tribal payday lending.
CFPB Outlines Plans to Share Complaint Data with State-Level AgenciesSubPrime Auto Finance News (12/11/12)
When consumers submit complaints to the Consumer Financial Protection Bureau (CFPB) about an auto dealer or auto finance company, data about the complaint likely will be shared with state regulatory agencies. The CFPB will begin by sharing consumer complaints through a secure channel aimed at protecting the confidentiality of personally identifiable information. The Bureau also is planning to accept complaints and information from state officials and make the data available to other federal agencies, state attorneys general, local agencies, congressional offices, and other governmental organizations.
"By providing real-time access to our growing database of consumer complaints, state government agencies will have a more complete picture of the markets for consumer financial product or services and be able to help more consumers in their state," wrote Scott Pluta, assistant director for the CFPB’s Office of Consumer Response. In addition, “multiple government agencies can work on the consumer's behalf without them having to file complaints with multiple agencies at different levels of government,” he stated.
CFPB and Justice Department Team up on Fair Lending EnforcementInsideARM (12/07/12)
On Dec. 7, the Department of Justice (DOJ) and the Consumer Financial Protection Bureau (CFPB) signed a Memorandum of Understanding (MOU) to bolster their coordination on fair lending enforcement and avoid duplicating enforcement efforts. The MOU outlines a general framework for sharing and preserving the confidentiality of information, joint investigations, coordination, referrals and notifications.
The Dodd-Frank Wall Street Reform and Consumer Protection Act authorized the CFPB to conduct joint investigations related to fair lending with DOJ. Both entities have authority under the Equal Credit Opportunity Act (ECOA) to protect consumers against discriminatory lending. The DOJ has authority to bring federal lawsuits to enforce ECOA, while the CFPB has authority to bring public enforcement actions for ECOA violations against anyone under its supervisory or enforcement authority.
“Discrimination undermines equal access to credit,” said Richard Cordray, director of the CFPB. “[The] agreement is a critical step to better protecting consumers from illegal and discriminatory lending practices.”
The CFPB also published a Fair Lending Report highlighting its accomplishments in fair lending.
U.S. Consumer Agency Faults Credit Bureaus on Process for Correcting MistakesDow Jones (12/13/12) Zibel, Alan
The Consumer Financial Protection Bureau (CFPB) published a report about the way that the three major credit reporting firms handle disputes in credit reports. According to the report, many consumers who provide documentation about errors in their files to credit reporting firms are not getting a chance to correct those errors.
Equifax Inc., TransUnion and Experian "generally do not forward documentation that consumers submit with mailed disputes or provide a mechanism for consumers to forward supporting documents when filing disputes online or via phone," the report said. Instead, the industry describes the complaint through a computerized coding system. While noting that the federal law governing credit reporting requires firms to send suppliers of consumer data "all relevant information" provided by the consumer, the report did not make any conclusions about compliance.
The report found that credit reporting firms resolve 15 percent of complaints and pass along 85 percent to data furnishers, and less than one in five consumers obtain copies of their credit report each year.
CFPB Should Leave Enforcement Lawyers Out of Bank ExamsAmerican Banker (12/12/12) Petrasic, Kevin
The Consumer Financial Protection Bureau (CFPB) Ombudsman has identified an obstacle to the free flow of examination information from regulated institutions to the agency – the presence of CFPB enforcement attorneys during supervisory examinations. After reviewing the practice and discussing its strengths and weaknesses with CFPB executives, bank officials, attorneys and consultants, the Ombudsman recommended the CFPB review and clarify the enforcement attorney's role during supervisory examinations.
While apparently intended to increase efficiencies, the presence of enforcement attorneys at examinations may make financial institutions reluctant to freely share information with the Bureau, the Ombudsman suggested. “The practice clearly has a chilling effect on the main objective of the supervisory examination process,” wrote Kevin Petrasic, a partner in the Global Banking and Payments Systems practice of Paul Hastings, in this opinion piece.
Petrasic observed that the CFPB can resolve the issue by ending or modifying the practice, and that the Bureau’s response to the Ombudsman's concerns will demonstrate the Ombudsman's influence and effectiveness. “More importantly, the response may tell us even more about the culture and willingness of the CFPB to listen, respond to and effect policy change that requires the agency to recalibrate and balance its regulatory approach and enforcement interests to optimize the effectiveness of its supervision,” he concluded.
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Report Examines Abusive Practices, Offers Reform IdeasThe M Report (12/12/12) Barringer, Tory
In a new report on the State of Lending in America and its Impact on U.S. Households, the Center for Responsible Lending (CRL) suggests that poor consumer protection and predatory lending practices have made the achievement of homeownership a problem for many households, and that the damage to family wealth from the spillover cost of foreclosures has yet to be addressed. CRL’s report, which will be the first in a series of three examining lending in America, incorporates research from the Federal Reserve, Pew Research Center, and the Consumer Financial Protection Bureau (CFPB). In response to their findings, CRL recommends: (1) policymakers not weaken or undermine the Dodd-Frank Act Wall Street Reform and Consumer Protection Act’s mortgage reforms, because it could result in future abusive lending and possibly a new foreclosure process; (2) servicers and policymakers promote reasonable foreclosure alternatives, such as full and fair consideration of loan modifications, and (3) mortgage reforms keep a balance between borrower protection and broad market access.
TransUnion Sees Further Declines in Mortgage Delinquency RateMortgage News Daily (12/12/12) Swanson, Jann
TransUnion forecasted that mortgage delinquency rates will continue declining through 2013, while credit card delinquencies will increase slightly. TransUnion projects that the ratio of borrowers 60 or more days delinquent on their mortgages will drop from an estimated 5.32 percent at the end of 2012 to 5.06 percent by the end of 2013.
Mortgage delinquencies peaked at 6.89 percent in the fourth quarter of 2009, marking 12 consecutive quarters of increases. The return to normal levels has been slower. "The slow improvement pace we are experiencing right now seems to be less about new borrowers not being able to make their payments and more about existing borrowers who have been delinquent for a very long time," said Tim Martin, TransUnion’ group vice president of U.S. Housing. "While we are encouraged by the direction of the forecast, we would have hoped for a projection that called for a more substantive drop in delinquencies. If the pace of improvement does not pick up, it will take a very long time to get back to 'normal' delinquency rates."
TransUnion expects the ratio of credit card holders 90 or more days delinquent on one or more cards to stay relatively low throughout 2013. The company expects credit card debt per borrower to increase from $4,996 in the third quarter of 2012 to $5,050 in the fourth quarter and to $5,446 at the end of 2013. Average credit card debt per borrower peaked at $5,776 in the first quarter 2009.
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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.