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Consumer Bureau Shines Spotlight on Debt Collectors, Reporting Agencies
The Hill (02/16/12) Schroeder, Peter

On Feb. 16, the Consumer Financial Protection Bureau (CFPB) proposed a new rule that would subject large debt collectors and consumer reporting agencies to federal scrutiny for the first time. CFPB Director Richard Cordray said that the CFPB is beginning the effort with debt collectors and credit reporting agencies because of their growing importance in the lives of average Americans, who have spent more time dealing with debt collectors since the financial crisis hit and “have their life dictated as much as it can be” by the reporting agencies, now that employers have begun to use the information to evaluate job seekers in addition to those seeking loans. According to Cordray, these industries “have gone unsupervised for too long.”
Under the proposed rule, “the CFPB would gain ‘complete access’ to the books and information of large companies” to ensure they are following consumer protection laws. Debt collectors that bring in more than $10 million a year and credit reporting agencies with more than $7 million in receipts would be defined as “larger participants” and qualify for CFPB oversight. According to the Bureau, they control approximately 63 percent and 94 percent of their respective industries. Smaller companies in these industries are still required to follow consumer protection laws and could be subject to CFPB enforcement.
The proposed rule is the largest foray into these sections of the consumer financial marketplace and is the first of a series of proposals aimed at determining what other nonbanks will be directly under the CFPB’s purview. The CFPB gained the ability to exert its influence over nonbanks when Cordray became director. The public has 60 days to comment on the proposed rule. The CFPB will then use the input to finalize the rule, which must be issued by July 21, 2012, in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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FCC Adopts TCPA Rules and Regulations

AFSA staff attended a Feb. 15 meeting at the Federal Communications Commission (FCC) during which the commissioners voted to adopt a Report and Order regarding rules and regulations implementing the Telephone Consumer Protection Act (TCPA). The Report and Order, according to the meeting agenda, “protects consumers from unwanted autodialed or prerecorded calls (robocalls) by adopting rules that ensure consumers have given prior express consent before receiving robocalls, can easily opt out of further robocalls, and will experience ‘abandoned’ telemarketing calls only in strictly limited instances.”
The Notice of Proposed Rulemaking (NPR) on this issue was issued in January 2010. The NPR attempted to conform the FCC’s rules to the Federal Trade Commission’s (FTC) Telemarketing Sales Rule (TSR) by prohibiting the use of prerecorded messages in telemarketing sales calls unless the seller or telemarketer has obtained the consumer’s prior express written consent. However, unlike the FTC’s rule, the FCC’s NPR would regulate all types of telephone calls and not just those with a sales purpose. AFSA’s comment letter to the FCC stated that the NPR was “inappropriately overbroad” and that the FCC “should limit its rulemaking to apply exclusively to telemarketers and sellers and their practices in making calls to induce the purchase of goods or services.” AFSA also met with the FCC on this issue.
When explaining the Report and Order, FCC staff said that the “burden on industry will be minimal.” Staff also said that the Report and Order would not impede consumers from receiving informational calls that they wish to receive nor affect informational calls like bank fraud notifications. Commissioner McDowell said that the Report and Order was narrow in scope and limited to telemarketing. Commissioner Clyburn said that the rule was a “win for industry” and was as consistent as possible with the FTC’s rule.

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AFSA Signs Joint Trade Letter on Mortgage Disclosure Prototypes

On Feb. 15, AFSA joined other trade associations in submitting a letter to the CFPB on Rounds 7 and 8 of the “Know before You Owe” prototype integrated mortgage disclosure forms. The trade associations also submitted additional comments on the new Honeylocust Loan Estimate. The letter expressed the trade associations’ long support of the mortgage disclosure process and stated their belief that American consumers and the industry will benefit from clearer and more understandable disclosures.

The letter asked that “given the benefits of an iterative process, the complexity of the issues, and the short statutory deadline for such an ambitions integration proposal,” the CFPB act very soon to solicit input on the issues to be addressed in the accompanying regulations. The letter added that although the trade associations “recognize that the CFPB may not yet be prepared to publish a full proposed rule . . . any guidance and dialogue about the regulations would be most welcome.” The letter also urged the CFPB “to test the latest forms across the full range of product types through varying lenders and settlement service providers in different areas of the country.”

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AFSA Law Committee Elects New Leadership

Recently, new officers were elected to the AFSA Law Committee. Jim Sheeran, General Counsel for Tidewater Finance Company, will serve as Chair, and Jeff Ledbetter, Associate General Counsel of Springleaf Financial Services, will serve as Vice Chair.
Sheeran has been an active member of the Law Committee since 2004 and served as Vice Chair for the last two years. Sheeran has more than 30 years experience in the consumer finance industry, representing both businesses and consumers. Some of the cases he has litigated resulted in opinions that are frequently cited in bankruptcy case books.
Ledbetter has been on the Law Committee for several years and has served as the Chair of the Mortgage Lending Subcommittee for the past five years. He began his career with Manufacturers Hanover Consumer Services, Inc. (which was later purchased by what is now known as Springleaf Financial Services) as an attorney in 1987.
Additionally, Jenny Wilkie, with Discover Financial Services, assumed the chairmanship of the Payment Card Subcommittee, and April Park, with OneMain Financial, assumed the chairmanship of the Mortgage Lending Subcommittee.

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Inside the Beltway
Consumer Watchdog Plans 26% Increase in its Budget
Los Angeles Times (02/15/12) Puzzanhera, Jim

Consumer Financial Protection Bureau (CFPB) director Richard Cordray defended the Bureau’s budget before the House Financial Services Committee on Feb. 15. The CFPB plans to increase its budget by 26 percent next year, to $448 million, as it ramps up to full operation. Part of the Bureau’s budget increase is due to the increase of its full-time staff by 44 percent. “Our budget is a means to an important end: to make life better for American consumers,” Cordray said.

During the hearing, Rep. Randy Neugebauer (R-TX) said the CFPB initially provided 12 pages on its 2013 budget on its website, which pales in comparison to the lengthy booklets provided by agencies that seek appropriations from Congress. “It appears to me that you all could use a little beefing up in your budget plan,” Neugebauer said. Cordray responded that the budget documents were increased to 25 pages and that the Bureau posts quarterly spending reports on its website. He also noted the CFPB is audited twice a year, and last year’s audit found no problems. However, he promised to include more details in coming years.

Rep. Bill Posey (R-FL) questioned some salaries at the bureau, citing information from Judicial Watch that one intern was earning $42,000 and an associate director for consumer education was earning $251,000. Cordray said that Congress sets the CFPB’s salary levels, which are comparable to other banking agencies. According to Cordray, the Bureau’s average salary is four percent below the average salary at the Federal Reserve.

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Prototype of Standardized Monthly Mortgage Statement is Released
Los Angeles Times (02/14/12) Puzzanghera, Jim

On Feb. 13, the Consumer Financial Protection Bureau (CFPB) released a model standardized monthly servicer statement, designed to make it easier for consumers to understand their loans. The prototype is the latest paperwork the bureau is trying to simplify in order to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act’s new mortgage servicer rules, which include specific requirements for mortgage statements.
The prototype provides a breakdown of the monthly payment, including how much went to principal, interest and escrow, and details the outstanding principal, maturity date, prepayment penalty and, for adjustable-rate mortgages, the time when the interest could change. Many servicers already provide this information on their monthly statements, but there are no industry-wide standards, the CFPB stated. “This information will help consumers stay on top of their mortgage costs and hold their mortgage servicers accountable for fixing errors that crop up,” said CFPB Director Richard Cordray. The CFPB is seeking input on the working draft from the public and industry on their website. A version of the form will be formally proposed this summer.

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National and State News
State Senator Proposes 'Compromise' Payday Reform
Word & Way (02/15/12) Brown, Vicki

Missouri’s possible November ballot initiative to reform laws governing unsecured, short-term consumer loans could kill the industry in the state and take away the lending options Missourians need, according to Sen. John Lamping (R-St. Louis County). He argued that many individuals have poor credit ratings and no access to credit cards and cannot qualify for traditional loans. “There is clearly a demand to borrow...on a short-term basis,” Sen. Lamping said, noting that 94 percent of those loans are paid back in Missouri.
Missourians for Responsible Lending, a group of reform advocates that filed the proposed ballot initiative, are pushing for a 36 percent cap on interest rates and a 90-day payback period. Rep. Mary Still (D-Columbia) and several other legislators are sponsoring House Bill 1294, which would cap the effective APR for several forms of short-term lending, including short-term installment loans, at 36 percent.
Lamping is sponsoring legislation, Senate Bill 476, that he says would be an effective compromise – reforming payday lending, but not eliminating all short-term lending in the state. The bill would limit borrowers to taking out one loan at a time and cap APR at 75 percent on the amount financed for up to 90 days. It would also call for the state’s finance division to develop a system for payday lenders to record transactions, which Lamping says will help borrowers and lenders comply with the single loan requirement.

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Retail Sales Rebound as Consumers Step up Spending
The Associated Press (02/14/12) Rugaber, Christopher S.

Retail sales climbed in January, growing a seasonally adjusted 0.4 percent last month, the Commerce Department reported on Feb. 14. The increase is an indicator that hiring gains have encouraged more people to spend, which will likely lead to stronger growth. Figures also showed that auto sales declined in January, even though automakers had reported higher sales. This suggests that sales may had been higher in recent months due to dealer discounts, low interest rates, better loan availability and new car models. Despite economists’ concerns that consumers might pull back spending this year because wages did not keep pace with inflation, the report suggests that consumer retail sales are rising at the same pace as they did last year. Since hitting a recession low, retail sales have risen about 21 percent and are almost six percent above their pre-recession high. Consumers are taking on more debt after cutting back spending since the recession. Consumer borrowing, including credit cards, auto loans and student loans, saw some of the biggest monthly gains in a decade at the end of 2011.

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Chrysler Finance Arm Would Buoy Expanding Sales
Automotive News (02/15/12)

Chrysler Group is the only Detroit automaker that does not have a dedicated financing arm, but it is reportedly looking to change that in the hopes of bolstering already strong sales. According to reports, Chrysler is in talks with banks to create a financing joint venture, which would be similar to the arrangement Chrysler's majority owner, Fiat S.p.A., has with Credit Agricole SA. Chrysler reportedly is aiming to form a partnership by April 20, one year before its preferred-lender arrangement with Ally Financial Inc. is set to expire.

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February 16, 2012

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