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Cordray Launches CFPB Nonbank Program, Brushing Aside Legal Concerns
American Banker (01/05/12) Davidson, Kate

In his first speech as Director of the Consumer Financial Protection Bureau (CFPB), Richard Cordray announced a program to supervise nonbanks. "We will begin dealing face-to-face with payday lenders, mortgage servicers, mortgage originators, private student lenders, and other firms that often compete with banks but have largely escaped any meaningful federal oversight," Cordray said in remarks prepared for delivery at the Brookings Institution.
The Dodd-Frank Wall Street Reform and Consumer Protection Act gave the CFPB the authority to oversee nonbanks of any size, in three markets: mortgage companies, payday lenders and private student lenders. The Bureau also can regulate large nonbanks in other markets, but only after defining them in a final rule. Last summer, the CFPB requested public comment on its larger participant rule in which it identified six markets for potential inclusion: debt collection, consumer reporting, prepaid cards, debt relief services, consumer credit and related activities, and money transmitting, check cashing and related activities. In addition, the CFPB has the authority to supervise any nonbank that it believes poses a risk to consumers. The CFPB plans to propose rules establishing procedures for identifying those companies.
Nonbank examiners will use the same field manual introduced in October and nonbanks will be notified of upcoming exams. The CFPB plans to publish additional exam procedures tailored to the types of consumer products offered by nonbanks. "We will make sure that large banks and nonbanks are held to the same standards," Cordray said. "In the run-up to the financial crisis, many unsupervised firms led a race to the bottom that pushed aside responsible businesses, including community banks and credit unions, and greatly harmed consumers."
AFSA’s statement on Cordray’s appointment can be viewed here.

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AFSA Comments on CFPB Complaint System and Model Forms

AFSA submitted two comment letters to the CFPB on Dec. 23 – one on the CFPB’s complaint system and the other on model forms. AFSA recommended that the CFPB make several changes to its complaint system before expanding the system to products other than credit cards and mortgages. Although AFSA commended the CFPB for trying to remove duplicate complaints, the letter asked that the CFPB, “remove all non-substantive and meritless complaints . . . [which] would include complaints that are really grievances about hardships or difficult circumstances, customers’ requests for information, complaints filed by self-styled credit repairs organizations without proper documentation, or complaints that dispute debts with no basis given for why the debt is disputed.” AFSA also noted that the six options in the form used by the lender to respond to the complaint are insufficient.  
Additionally, AFSA asked that the CFPB remove the questions on the complaint for, “Do you believe the issue involves discrimination?” The letter stated, “There is no reason to call out discrimination for special emphasis. Discrimination made on a prohibited basis is serious, and there is no reason to believe that anyone victimized by such behavior needs to be prompted to complain about it, or would fail to describe it in the box provided for supplying detailed information.”
In the letter on model forms, AFSA encouraged the CFPB to use various research methods, not just focus groups, to develop model forms. AFSA wrote, “We are concerned that the CFPB may duplicate the method the Federal Reserve Board used to test a credit protection product disclosure as part of its Regulation Z revisions in 2010. AFSA believes that the consumer testing underlying the proposed credit protection product disclosure was woefully inadequate and did not fully account for the interests of consumers and lenders.”

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AFSA State Government Affairs Issues Annual Legislative Year in Review/Preview

AFSA’s State Government Affairs Department recently published its year in review and 2012 state legislative preview. The annual white paper provides a comprehensive overview of relevant state (and some federal) legislative activity relating to electronic payment systems, mortgage lending, personal loans, vehicle finance and several key general interest topics such as ancillary products, credit reporting and debt and collections. The preview offers a look at prefiled and recently introduced legislation for the 2012 legislative session. States are continuing to introduce legislation related to vehicle driver/owner liability shifting and interchange fees and are proposing limits on small-sum lending through APR caps and restricting lending at military bases. Debt collection calls to cellphones and the expansion of multistate licensing databases are also likely to be hot issues in 2012.
Members can view the paper here.

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Inside the Beltway
How Politics Shaped Obama's CFPB Decision
American Banker (01/04/12) Wack, Kevin

President Barack Obama's decision to recess appoint Richard Cordray as Director of the Consumer Financial Protection Bureau (CFPB) was all about politics despite the legal risks it poses to the agency. The White House is clearly betting that a confrontation with Republicans will appeal to many voters. "When Congress refuses to act and as a result hurts our economy and puts people at risk, I have an obligation as president to do what I can without them," Obama said during his speech announcing the recess appointment. "I will not stand by while a minority in the Senate puts party ideology ahead of the people they were elected to serve."
The president's move counters the one by Senate Republicans who vowed to block Cordray's nomination – or any potential leader of the Bureau – unless the White House agreed to structural changes to the CFPB.
Rep. Barney Frank, the top Democrat on the House Financial Services Committee, said that the recess appointment is excellent politics for President Obama, although he acknowledged that there may be questions about the constitutionality of the president's action. Rep. Brad Miller said the Republicans' "abuse of constitutional confirmation powers and Senate rules" was unprecedented.
Republicans expressed outrage over Obama’s move. Senate Minority Leader Mitch McConnell stated that the president "arrogantly circumvented the American people." House Speaker John Boehner called the appointment an "extraordinary and entirely unprecedented power grab." Sen. Richard Shelby referred to the CFPB Director as an "unaccountable bureaucrat who will have immense power over the economy." Rep. Scott Garrett accused Obama of "abdicating his oath and duty to preserve, protect and defend the Constitution of the United States by making an unconstitutional recess appointment."
Larry Sabato, director of the University of Virginia's Center for Politics, said that President Obama has begun his re-election campaign against what he will continue to characterize as a do-nothing Congress.

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As Down Payments Rise, Execs Still Fret
American Banker (12/29/11) Berry, Kate

Despite Americans putting down payments of more than 12 percent on average, according to a recent LendingTree survey, the mortgage industry remains wary of regulatory efforts to increase the minimum amount borrowers must put down on their new home. Policymakers are considering several proposals that would raise the minimum down payment for loans backed by Fannie Mae and Freddie Mac, which typically have minimums of five percent, but can be as low as three percent. The industry has made strong objections to the part of the Dodd-Frank and Wall Street Reform and Consumer Protection Act (Dodd-Frank) that would require borrowers of a “qualified residential mortgage” to pay a down payment of 20 percent in order for the loan to be exempt from new regulations. Instead, much of the industry is advocating for a down payment requirement of five percent. Regulators have recommended that 10 percent would be safer. LendingTree chief executive Doug Lebda also advocates for the five percent down payment requirement, pointing out that the survey’s data shows averages.
With mortgage originations near their lowest level in a decade and millions of borrowers essentially shut out of the market for the next few years due to foreclosures, lenders are cautious of plans that would make it more difficult for homebuyers to enter the market. They are also concerned that there are not enough purchases of new and existing homes to counter the high number of distressed homes expected to hit the market. Lenders are worried that Dodd-Frank’s so-called risk retention proposal would put up more barriers for new buyers to enter the market, prolonging the market’s downturn. “Right now you have buyers who can't buy and sellers who can't sell and financing that can't get done, and we just sit here and stagnate,” said Lebda. “We need real action from policymakers to clarify the rules on mortgages and to enable borrowers to refinance and maintain access to keep credit.”

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Amid the Gridlock on Capitol Hill, a Few Chances for Action
American Banker (12/30/11) Wack, Kevin

Partisan gridlock was the theme on Capitol Hill in 2011, with Republican and Democrats attempts to influence how the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was implemented by federal banking agencies as the focus – which will likely remain the same for 2012. Republicans remain focused on cutting back on what they see as regulatory excesses, particularly in Dodd-Frank. Senate Democrats, however, say that Republicans are looking to make the Dodd-Frank Act not work, rather than improve it. Broad reforms in housing, specifically the role of Fannie and Freddie, are unlikely to pass this year due to ideological differences that occur not only between the two parties but also within them.
Dodd-Frank will likely remain the biggest issue in 2012. Republicans in both the House and Senate are trying to shape the law’s impact. Legislation that would require financial regulators to justify proposed rules by performing cost-benefit analyses has been proposed by Sen. Richard Shelby (R-AL), but is unlikely to gain any support from Democrats. Partisan disputes over funding for agencies that are charged with implementing the Dodd-Frank Act will likely continue. Republicans in the House have made it clear that the CFPB will remain an issue. “I think we’ll still be pushing for some kind of congressional oversight over an agency that is going to be, what, $400 million and 1,000 people, and really affects the lives of about every American who has any kind of financial transactions or credit card,” said Rep. Sherry Moore Capito (R-WV) in a recent interview. However, the corrections that Republicans view as small changes to the legislation are considered significant changes to Democrats, causing even GOP supporters of the bill to acknowledge that passing any legislation will be unlikely.

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National and State News
Auto Lenders Speeding Past Mortgage Woes
The Wall Street Journal (01/05/12) Simon, Ruth

Auto lenders are now looking at borrowers who may have experienced a mortgage delinquency or experienced a foreclosure to determine who might be a good credit risk. Many are focusing on the “near prime” category, which includes people with a single black mark, such as a mortgage delinquency, on their credit record, said H. Adem Yilmaz, a senior director of Fair Isaac Corp. Fair Isaac estimates that as many as 30 percent of borrowers who defaulted on their mortgage stay current on their other obligations. Lenders "are coming to the table and saying: 'How do we work with the new economy and consumers being late on their mortgages?'" said Experian Vice President Michele Raneri. "They know they need to grow…and they know they have to be flexible."
Other types of lenders are also relaxing their criteria. The number of credit cards issued to these borrowers rose roughly 36 percent between 2007 and 2011, Experian estimates. Car loans have held up relatively well during the economic downturn, which is one reason why auto lenders are leading the way. In 2009, the portion of auto loans at least 30 days past due peaked at 5.89 percent, far below the peak of 8.79 percent for mortgage delinquencies, according to Equifax and Moody’s Analytics.

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A Big Year for Used Cars Seen
MSNBC (01/03/12) Eisenstein, Paul A.

Despite the economy and new car market beginning to recover, the number of used vehicles bought in 2011 rose 5.2 percent from last year, according to CNW Marketing. Amounting to more than three times the number of new cars, the shift to used cars reflects the emphasis on value, higher prices for new cars and limited credit availability. Consumer-to-consumer used car sales surged, particularly at the end of the year. Despite the economy and the new market beginning to recover from the beginning of the recession, consumers are still opting for previously used products. According to CNW Chief Art Spinella, a lot of buyers who would normally purchase new cars are buying used cars they plan to keep only until their financial situation improves. However, the number of “nearly new” vehicles – which these customers typically opt for ­– has decreased significantly because most lenders have cut down on leases or have halted leasing entirely in the past few years. Prices for used cars rose sharply due to the demand threatening to surpass supply. Spinella predicts the high used car prices will continue through 2012, but noted that lenders are beginning to loosen up credit again for used car customers.

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TFS Teams Up with Auction Partners to Surprise Boys & Girls Clubs with Holiday Donation
Auto Remarketing (01/03/11)

Over the holidays, Toyota Financial Services and two of its auction partners, ADESA and Norwalk Auto Auctions, surprised 17 Boys & Girls Clubs in the cities that the three companies operate with a donation of $302,620. To raise the funds, Toyota pledged $50 and the auction houses pledged an additional $15 to $25 for every vehicle purchased from Nov. 25 thru Dec. 19. “I'm incredibly proud to work for an organization that recognizes the need to assist youth, especially those in under-served communities. At Toyota Financial Services, we've partnered with the Boys and Girls Clubs on a local and national level for many years, and we've seen the great impact they have in their communities,” said Mike Reid, Toyota Financial Service’s national remarketing manager. “We know the money raised through this promotion with our auction partners, ADESA and Norwalk Auto Auctions, will absolutely help make a significant and positive difference for thousands of kids,” he added.

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January 5, 2012

Forward To A Colleague

ParaData Financial
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GoldPoint Systems
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AFSA Newsbriefs

AFSA Newsbriefs is a weekly executive summary of AFSA initiatives and consumer credit articles. AFSA Newsbriefs is free for members. Send an email to newsbriefs@afsamail.org 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.