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Risk Assessments Will Guide Nonbank Supervision: CFPBs Twohig
American Banker (01/06/12) Davidson, Kate

With a director in place, the Consumer Financial Protection Bureau's (CFPB) nonbank supervision team is preparing for oversight of the sector. The CFPB is evaluating which companies in the mortgage, payday and student loan markets they should examine first, as the Dodd-Frank Wall Street Reform and Consumer Protection Act gave the Bureau the authority to oversee any company in these three markets. CFPB officials have made the mortgage market a top priority.
The CFPB is working on finalizing a rule that will define what other markets will be subject to their oversight. Due to the size of the nonbank sector, the CFPB intends to use risk assessments to direct the focus of its resources. First, the CFPB must figure out how many companies fall into its jurisdiction. “One of our tasks will be to learn, to collect information and to over time understand the market and the players well enough so that we can do more calibrated risk assessments,” said Peggy Twohig, the Bureau's associate director for nonbank supervision.
Providing consistent oversight for banks and nonbanks is the goal of the CFPB's supervision programs. Examiners will use the same field manual for bank and nonbank examinations, and the staff will conduct exams on both types of institutions. Although acknowledging that banks and nonbanks have different organizational structures, operations and levels of compliance, Twohig said that the goal is for examiners to view each institution through the same lens, regardless of their charter. “That's something we will just have to learn about as we go,” Twohig said. “Our examiners will be gathering the information, evaluating it and will be responding accordingly. So it will be kind of adjusted to the particular entity.”

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AFSA Files Amicus Briefs with Other Financial Trades before U.S. Supreme Court

AFSA joined other trade associations in filing a brief on Jan. 10 as amici curiae before the U.S. Supreme Court in Freeman v. Quicken Loans, Inc.,and in filing another brief on Dec. 29, also as amici curiae, in Magner v. Gallagher.
The Freeman case deals with whether Section 8(b) of the Real Estate Settlement Procedures Act (RESPA) prohibits a real estate settlement services provider from charging an unearned fee only if the fee is divided between two or more parties. The brief filed by AFSA and the other trade associations stated that “Congress struck a careful balance in enacting RESPA: it sought to ensure that borrowers possessed sufficient information to make informed borrowing decisions, without restricting the choices available to consumers or undermining the ability of lenders, and market conditions, to appropriately price credit. Consistent with the fact that Congress did not intend for [Section 8(b)] to dictate the cost of credit, [Section 8(b)] – by its express terms – does not permit after-the-fact challenges to fees and costs charged and retained by lenders solely on the ground that they are ‘unearned’ or too high. Instead, it prohibits only divided charges for which no service is provided.”
In the Magner case, the Supreme Court will consider whether a lawsuit can be brought for a violation of the Fair Housing Act (FHA) based on a practice that is not discriminatory on its own, but has a discriminatory effect; and, if so, how courts should determine whether a practice has a discriminatory effect and violates the FHA.

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AFSA Discusses CFPB at Meeting of Banking Lawyers

On Jan. 7 – 10, the American Bar Association held its Consumer Financial Services Committee Winter Meeting in Park City, Utah. AFSA’s Executive Vice President Bill Himpler served as a panelist in the session “CFPB: The New Regulator on the Beat,” along with Don Lampe, Managing Member of Dykema’s Charlotte, NC office. Peggy Twohig, Assistant Director of Nonbank Supervision at the Consumer Financial Protection Bureau (CFPB), was scheduled to be a panelist, but was unable to attend.
During the panel, Himpler expressed concern over how the agency will define “larger participants,” how much weight it will give consumer complaints and how the agency will assess risk to consumers. He noted the importance of CFPB’s examiners – many who have been hired from other agencies – understanding the differences between banks and nonbanks. “We're not banks, we're not federally-insured; we're market-funded, not deposit-driven, and it's a different business model and needs to be treated as such,” Himpler said. Lampe raised concerns with the CFPB’s use of informal methods like bulletins, guidance, blogs, videos and press releases to inform regulated companies. “Some fairly material industry-changing initiatives that ordinarily are handled through regulatory processes are being done informally. It does pose due process concerns for old timers who are used to due process in regulatory procedures.”
Other topics discussed at the meeting included the use of Small Business Regulatory Enforcement Fairness Act (SBREFA) panels in the CFPB’s rulemaking process, Fair Credit Reporting Act, impact of the ruling In re Penrod and its potential effect on the financing of negative equity, updates on the Office of the Comptroller of the Currency’s consent decrees for major mortgage servicers and related entities, state attorneys general’s efforts to resolve servicing issues and the implementation of the Dodd-Frank Act.

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Inside the Beltway
Justice Dept: Cordray Recess Appointment Was Legal
American Banker (01/12/12) Blackwell, Rob

A legal opinion issued by the U.S. Justice Dept. on Jan. 12 stated that President Obama is allowed to make recess appointments despite pro-forma Senate sessions in which no business is conducted. While the opinion effectively validates the appointment of Richard Cordray as Director of the Consumer Financial Protection Bureau, it also said that a legal challenge was likely and the outcome was uncertain due to little judicial precedence. "Due to this limited judicial authority, we cannot predict with certainty how courts will react to challenges of appointments made during intrasession recesses, particularly short ones," the opinion says.
The Senate had adjourned in mid-December, but continued to hold "pro-forma" sessions every three days in which no business was conducted. In its legal opinion, the Justice Dept. said that both Republican and Democrat administrations had concluded such sessions do not count. "The Senate could remove the basis for the President's exercise of his recess appointment authority by remaining continuously in session and being available to receive and act on nominations, but it cannot do so by providing for pro forma sessions at which no business is to be conducted," the opinion says.
The opinion conceded that legal uncertainty surrounds the issue, which rarely has been decided before a court of law. However, when such decisions have been made, courts have sided with the president.

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Opinion: Democrats and Executive Overreach
The Wall Street Journal (01/10/12) McConnell, Michael

President Obama’s recess appointments of Richard Cordray as the chief of the Consumer Financial Protection Bureau (CFPB) and the three new members to the National Labor Relations Board, along with other aggressive executive and likely unconstitutional actions “demonstrates he lacks a proper respect for constitutional checks and balances,” writes Mitchell McConnell, a former federal judge and a professor of law and director of the Constitutional Law Center at Stanford Law School, in this opinion piece. McConnell argues that the administration likely understood that the constitutionality of these appointments was shaky, as it has yet to offer a considered legal defense and it appears that they had not sought legal opinion in advance.
While the president has the power to make appointments when the Senate is in recess, the Senate has been holding pro forma sessions every three days during the holidays since 2007 in order to prevent recess appointments by President George W. Bush during intrasession adjournments. McConnell notes that the Senate’s enactment of the payroll tax holiday session on Dec. 23 dissolves the argument by some administration supporters that the Senate has been in recess since Dec. 17. Additionally, in order for the Senate to adjourn for more than three days, the Constitution requires concurrence of the other house, and the House never agreed to any adjournment. The president is also unable to make recess appointments during any adjournment, including the days between pro forma sessions; otherwise, the president would have the ability to avoid a major structural feature of the Constitution – senatorial advice and consent.
The administration has used executive orders when its policies have not prevailed through legislative channels. For example, the administration used an aggressive interpretation of its waiver authority to substitute policies it favored for the No Child Left Behind law adopted by Congress, rather than working with them to make changes. McConnell warns Democrats that are willing to look the other way when it comes to certain Constitutional provisions that precedents set by the administration can be used by the next.

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National and State News
DOJ: Feds Must Take Active Role in Foreclosure Mediation
HousingWire (01/10/12) Prior, Jon

On Jan.10, the Department of Justice issued a report on foreclosure mediation programs. The report, which resulted from the findings of a panel of foreclosure mediation experts at a March 2011 workshop, concluded that the federal government needs to take an active role in the funding and standardization of these initiatives. According to the report, despite programs being created in at least 25 states, “only a few jurisdictions have engaged in an in-depth study of program outcomes, and to date there has been no comprehensive study comparing outcomes for homeowners in mediation to similarly situated homeowners who have not had the benefit of mediation.” The effectiveness of these programs has differed significantly among the states. The program in Philadelphia has seen success ­– reaching 80 to 85 percent of foreclosure cases, with 85 percent of those cases resolved in two meetings or less. But other states, like Florida, have ended their programs due to inefficiency and failure ­– reportedly, roughly 64 percent of borrowers left mediation without a deal with their lender. “The success of mediation programs comes down to accountability,” the report stated. “Mediators find it extremely difficult to move things forward when a servicer is non-compliant. The escalation process is not working because there is no real threat of federal intervention.”

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California Legislators Seek New Rules for BHPH
F&I and Showroom (01/10/12)

New rules intended to “rein in abusive practices” of buy here, pay here dealers have been proposed in California. State Assembly Member Mike Feuer’s (D-Los Angeles) proposal – AB 1447 – would prohibit dealers from installing payment assurance devices such as GPS tracking and starter interrupt devices. In addition, the proposal would require dealers to display the vehicle’s price on the vehicle and prohibit dealers from requiring consumers to make payments in person. State Sen. Ted W. Lieu (D-Torrance) proposed SB 956, which would require dealer financiers to obtain a California Finance Lender’s license, set mandatory grace periods for repossessions and cap interest rates for auto loans at 17.25 percent. Industry has condemned the bills. “They’re looking to regulate BHPH and disallow payment devices,” said Kenneth Shilson, founder of the National Alliance of Buy Here, Pay Here dealers. “That runs to the perception that the transaction is abusive and the device is an invasion of the consumer’s privacy. It’s not. Lenders have the right to protect their collateral.”

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Supreme Court Upholds Credit Card Arbitration Case
Reuters (01/12/12) Vicini, James

The U.S. Supreme Court ruled 8-1 on Jan. 10 that credit card claims by consumers under the Credit Repair Organizations Act (CROA) must be handled in arbitration, not in court. The Supreme Court overturned a ruling by a U.S. appeals court in San Francisco that the language in the CROA was intended to bar arbitration of claims.
CompuCredit and Synovus appealed to the Supreme Court over a lawsuit claiming that the companies marketed and issued a low-rate Visa card to borrowers with low credit ratings. The plaintiffs claimed they were promised $300 in available credit, but were assessed $257 in fees in the first year they had the card. The companies sought to force arbitration of the dispute because of the binding arbitration clause contained in the agreement that the customers signed to receive the card.
Writing for the majority, Justice Antonin Scalia concluded that the law does not preclude enforcement of an arbitration agreement. “Had Congress meant to prohibit these very common provisions, it would have done so in a manner much more direct” than what the plaintiffs suggest, he said in summarizing the opinion from the bench. Scalia said another federal law requiring courts to enforce arbitration agreements can only be overridden by clear congressional command and that the Credit Repair Organizations Act contains no such override.

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Car Loans May be Easier to Land in 2012
Detroit Free Press (01/12/12) Tompor, Susan

Obtaining a car loan likely will be easier in 2012, particularly for people who have good credit and money for a down payment. Rates for car loans are at all-time lows. The average rate for a five-year loan on a new vehicle is 5.3 percent, roughly a full percentage point lower than it was a year ago, according to Bankrate.com. Consumers who are currently having trouble finding a car loan will likely find it easier in six to eight months as credit conditions continue to improve and the availability of credit continues to grow. Although car loans may be easier for consumers to get, they may also include extra costs for products such as maintenance programs, said Michael Moebs, economist and CEO of Moebs $ervices. Moebs also expects low rates to continue to boost car sales, as the Federal Reserve plans to keep rates extremely low at least through the middle of 2013. Incentives, however, have continued to drop, hitting the lowest levels in November for the month since 2002. The amount the auto industry spent on incentives in December was down 8.8 percent from December 2010, Edmunds.com reported. Consumers with challenged credit should be able to get loans with rates ranging from 12 to 15 percent. The availability of car loans for those with subprime credit remains more difficult than before the “Great Recession” and will likely require a higher down payment.

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January 12, 2012

Forward To A Colleague

ParaData Financial
Balboa Insurance
GoldPoint Systems
Wells Fargo Preferred Capital
Allied Solutions
Counselor Library
Life of the South
Carleton, Inc.
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