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AFSA Comments on the CFPB’s Supervision Rules
AFSA submitted a comment letter to the Consumer Financial Protection Bureau (CFPB) on July 24 in response to the Bureau’s procedural rules to establish supervisory authority over certain nonbank covered persons based on risk determination. The proposed rule implements a section of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) that gives the CFPB the authority to supervise a nonbank covered person that the CFPB has reasonably determined is engaging, or has engaged, in conduct that poses risks to consumers related to offering or providing consumer financial products or services. Among other things, the letter asked the CFPB to clarify what is meant by “risk to consumers.” The letter also asked the CFPB to carefully evaluate both the complaints it receives and information from other sources before making a determination.
AFSA/UNC Program Cultivates Future Leaders
Twenty-eight aspiring leaders from AFSA member companies learned valuable business skills at the 2012 AFSA/UNC Leadership Development Program, which was held July 11-18 at the University of North Carolina in Chapel Hill. With challenging case studies and lively discussions, role-playing and team-building exercises, the participants had the opportunity to hone their leadership, strategic thinking and performance skills and think outside the box. This fast-paced program allowed the participants to immerse themselves in innovative principles of management and leadership through class discussions, case analyses, professional presentations, negotiations, experience change simulation and the outdoor team-building exercise. The participants also had an opportunity to network with new acquaintances.
CFPB Pushes Bankruptcy Protection for Student LoansThe Fiscal Times (07/25/12) Pianin, Eric
The Consumer Financial Protection Bureau (CFPB) published a report urging Congress to reconsider allowing distressed borrowers who are unable to keep up with their student loan payments over a four to five year period to discharge their student loans through bankruptcy. The average student loan debt for borrowers under age 30 has risen 56 percent since 2005, according to the Federal Reserve Bank of New York. “Many private student loan borrowers entering the labor market in the wake of the recent recession have faced significant challenges, and many have defaulted on their private student loans,” the CFPB’s report stated. “Bankruptcy discharge may be an essential protection against consumer injury that might otherwise result when a consumer lacks the income or other means to manage debt. However, that benefit generally does not apply to student loans. These loans are virtually immune from discharge in bankruptcy.” The Bureau proposal would extend bankruptcy protection to the seven percent of college loans provided by Sallie Mae and other private institutions, not federal loans.
The push to change the law received strong opposition from conservatives on Capitol Hill, who raised concerns about the hardship bankruptcy protection for student loans would create for private lenders at a July 24 Senate Banking Subcommittee hearing. Sen. Bob Corker (R-TN) said that seeking bankruptcy protection from student loan debt is “one of the most damaging things that a consumer can possibly do.” Sen. Sherrod Brown (D-OH), the chairman of the banking subcommittee, did not back the proposal at the hearing, but said he thought it was a mistake that student loans were discharged differently from everything else. He also later described private student loans as “the riskiest way to pay for college” and said that “unlike federal student loans, [they] are less likely to come with affordable payment plans, loan forgiveness, deferment options or cancellation rights.” Joe Remondi, president and chief operating officer of Sallie Mae, said his organization supports “reasonable reform to bankruptcy laws that would allow borrowers to discharge their education loans – both private and federal – after a good faith period of attempting to repay.”
Four Key Takeaways for Banks from the CFPB’s First Enforcement ActionAmerican Banker (07/23/12) Wack, Kevin
The Consumer Financial Protection Bureau’s (CFPB) first enforcement action, issued on July 18 against Capital One regarding the marketing of credit card add-on products, was a sharp contrast to enforcement actions typically used by federal regulatory agencies. Based on the enforcement action, the CFPB appears to be interested in collecting higher settlement amounts, explaining the violation, and detailing how other companies should act.
The $210 million penalty was much higher than penalties usually paid by banks, an indication that CFPB officials consider past penalties not high enough to deter banks from profiting on unfair and deceptive business practices. In the consent order, Capital One agreed to stop marketing specific products until submitting an approved compliance plan to the Bureau, which much meet very specific requirements, rather than being instructed to rewrite its policies and submit them to the regulators for approval.
Unlike most enforcement actions, in which the violation is inferred from statements on steps the company must take, the Bureau presented their findings about Capital One’s business practices. According to Rick Fischer, a lawyer at Morrison Foerster, the level of detail could be useful to plaintiffs and state attorneys general in other lawsuits. The information could also help the industry understand what the actual problems were and why the CFPB is taking action. The Bureau simultaneously published an industry bulletin outlining the specific expectations it has about the marketing of credit-card add-ons, such as clear guidance regarding the wording of scripts.
While the CFPB’s order attacked the marketing of add-on products, and not the products themselves, CFPB Deputy Director Raj Date said they have yet to determine whether the underlying products are abusive. Other credit card issuers may be vulnerable to inquiries by the Bureau into their marketing practices.
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Online Payday Lenders Seek U.S. Oversight to Avoid State RulesBloomberg Dougherty, Carter
Online payday lenders are ramping up efforts to shed the “payday lender” label, preferring the use of the term “short-term, small-dollar lending” according to talking points drafted by the Online Lenders Alliance. The lenders are also pushing legislation that would transfer oversight from states to the U.S. Office of the Comptroller of the Currency (OCC), by giving the OCC the authority to designate lenders as National Consumer Credit Corporations and require them to treat storefront and online lenders equally.
The bill would also loosen the rules for short-term loans (it would not apply to loans with terms 30-days or less), by exempting loans with terms under a year from the Truth in Lending Act, and allowing lenders to post the dollar cost of a loan as a finance charge, rather than posting the annual percentage rate consumers are paying. According to the lenders, the changes would promote businesses serving underbanked Americans and help them compete against Native American tribes and overseas online lenders, which are not required to follow state laws and for which state regulators have been unsuccessful in gaining oversight of in lawsuits.
The legislation has sparked strong criticism from state and federal regulators. According to John Ryan, head of the Conference of State Bank Supervisors, the bill is designed to dilute oversight of the industry, which is inherently a “local business with very local effects,” and for which “there need to be accountability and oversight.” Grovetta Gardineer, the OCC’s deputy comptroller for compliance policy, stated the OCC “would not support, license, nor charter an institution providing these products and services,” and that the bill would “hurt the very population of consumers it seeks to address.”
Report to Call for More Stringent Protection for Chicago Renters in Foreclosed PropertiesChicago Tribune (07/26/12) Polodmolik, Mary Ellen
On July 25, a group of Chicago alderman proposed an ordinance that would require owners of repossessed apartment buildings, including those owned by Fannie Mae and Freddie Mac, to continue renting apartments to tenants after the property is repossessed. The ordinance, “Keep Chicago Renting,” would extend the rental period for law-abiding, rent-paying tenants until the building is sold, even if there was no written lease in place, and would require additional notifications be sent to occupants. The building owner would not be able to raise the rent unless they petition the court for an increase and tenants had a chance to defend their current rents to a judge. The ordinance is similar to a 2010 Massachusetts law.
A number of federal, state and Chicago laws are aimed at protecting tenants of buildings that are in foreclosure, including providing tenants with certain notices and guaranteeing their tenancy for a specified period of time after a foreclosure action. However, the Lawyers’ Committee for Better Housing, which recommended the ordinance in its study on apartment building foreclosures in Chicago, said the laws do not do enough and are not being followed. "Banks don't want to be landlords,” said Robert Silverman, staff counsel with Business and Professional People for the Public Interest, a group that also worked on the ordinance. “You have a loss of rental units, and families forced to go out and find rental housing in what is an even tighter rental market. You're exacerbating the shortage of affordable housing and exacerbating the vacant-building problem.”
Merchant Opt-Outs Unlikely to Derail Interchange DealAmerican Banker (07/25/12) Finkle, Victoria
Despite objections from retailers including Wal-Mart and Target, and the National Association of Convenience Stores, it is unlikely that the interchange settlement announced earlier this month will be stopped from being finalized, according to KBW analysts Sanjay Sakhrani, Steven Kwok and Tai DiMaio. According to a clause in the settlement, it would be terminated if merchants accounting for 25 percent of credit card volume – which is a significant number of retailers – opt-out. Fifteen out of the 20 individual plaintiffs have already agreed to the settlement. "Even in the worst-case scenario where all of the remaining top 85 retailers (i.e., after deducting the 15 individual plaintiffs) opt-out of a settlement, their representation of volume would amount to roughly 20 percent," the analysts said. Because merchant market share concentration is widely dispersed, “outside of a coordinated and large retailer movement to opt-out, we believe the risks to a settlement are relatively low,” they added.
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Oregon Senator Proposes Refi Plan Funded with Bond SalesDS News (07/25/12) Brocks, Kristen Franks
On July 25, Sen. Jeff Merkley (D-OR) announced a plan to allow underwater homeowners to refinance at lower interest rates. According to CoreLogic data, about 25 percent of homeowners, or 12.1 million, are underwater. The Federal Housing Finance Agency (FHFA) reports that the government’s Home Affordable Refinance Program is making progress despite helping only 1.3 million homeowners since the program’s launch in 2009.
Pointing out that banks will not refinance loans for underwater borrowers because “there is no one who will buy that loan,” Merkley introduced his plan and urged that it be “piloted immediately.” Merkley suggested creating one-time a Rebuilding American Homeownership Trust that would be similar to the Homeownership Loan Corporation created during the Great Depression. Under the plan, banks would refinance underwater homeowners while the trust would purchase the loans from the banks and receive funding from bond sales. The trust would support 15- or 30-year loans at low interest rates and two-part loans consisting of a collateralized and an uncollateralized loan. “The beauty of this arrangement is that not a single tax dollar goes into it,” Merkley said.
The senator’s plan has already received some approval. “America’s economic recovery is held back by $700 billion in negative equity in the housing market,” said Dr. Joseph Stiglitz, economics professor at Columbia University. “If adopted, this proposal would help to stabilize the housing market, create new jobs, and boost our overall economy.”
“Previous attempts to solve this problem have fallen well short,” said Mark Zandi, chief economist at Moody’s Analytics. “Senator Merkley’s plan is an ambitious one and should be carefully considered."
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@example.com 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.