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Banks Fear Becoming Collateral Damage in CFPB-Car Dealer Proxy Fight
American Banker (06/11/12) Horwitz, Jeff

The Consumer Financial Protection Bureau (CFPB) is looking into indirect auto lending, with a focus on dealer participation or “dealer markup.” According to insiders, the CFPB appears to be leaning toward enforcement action rather than a rule-making approach. But some argue that rules prohibiting banks from paying more for loans with "marked up" interest rates would be more effective than enforcement actions in preventing misconduct. "The only way to fix this is a simple rule that applies to all auto creditors," said a financial industry attorney who wished to remain anonymous. However, such a rule would put the CFPB into direct conflict with auto dealers, over who it has no authority.

The Federal Trade Commission, which is also looking at auto lending, requested data on auto lending during last year’s roundtables, but received very little. Dealers do not collect data on the races of their customers or disclose the size of markups. This lack of data necessitates extensive research by the CFPB, which reportedly has requested a mass of documents from major indirect auto lenders. Bankers reportedly are concerned with the CFPB’s approach, which is a sharp contrast to the collaborative approach it took in studying overdraft fees when banks were asked to fill in questionnaires with specific data.

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AFSA Commends CFPB for Proposed Rule on Credit Card Fees

Regulation Z, which implements the Truth in Lending Act (TILA), generally limits the total amount of fees that a credit card issuer may require a consumer to pay on an account, limiting fees to 25 percent of the credit limit in effect when the account is opened. Regulation Z currently states that this limitation applies prior to account opening and during the first year after account opening. AFSA submitted a letter on June 8 supporting the CFPB’s proposed rule that would amend Regulation Z to apply the limitation only during the first year after account opening. “The Proposed Rule clearly implements the language of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act),” the letter stated. “We commend the CFPB for changing Regulation Z to clearly reflect the statutory language. We appreciate that the CFPB has recognized that the current limitations were more stringent than allowed for in the CARD Act and we encourage the CFPB to continue to look for opportunities to streamline regulations by eliminating unnecessary provisions.”

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Trade Associations Ask CFPB to Conduct SBAR Panel on “Ability to Repay” Rule

AFSA joined several other trade associations in a June 13 letter to Consumer Financial Protection Bureau (CFPB) Director Richard Cordray applauding the director’s decision to solicit additional comments on the “ability to repay” rulemaking and requesting that the CFPB use the extra time afforded in the rulemaking to conduct a Small Business Advocacy Review (SBAR) panel. The letter asked that the CFBP publish the recommendations of the SBAR panel in conjunction with issuing the final rule.
The letter stated, “The publication of SBAR panel recommendations prior to CFPB’s issuance of a proposed rule is a way for CFPB to understand how its regulations may impact small business. The SBAR panels ensure CFPB rulemakings are informed by that impact in a transparent manner, and they provide the public-at-large the opportunity to comment on SBAR recommendations during the broader notice and comment process.”

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SGA White Paper Examines Debt Collection

On June 9, AFSA published a white paper reviewing emerging trends and legislative and regulatory developments related to debt collection practices. The paper examines state and federal proposals limiting the ways consumers are contacted about a debt, such as the use of auto-dialers and social media. So far in the 2011-2012 session, legislation relating to debt collection has been introduced in every state except Alaska. Legislation relating to motor vehicle collections and repossessions, such as the use of global positioning system (GPS) and starter interrupt devices, has been considered in 34 states.

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NICCM Concludes Chapter with Robust Attendance

Enrollment for the 62nd Annual National Institute on Consumer Credit Management (NICCM) was the highest in several years, with 67 promising leaders attending from 18 AFSA member companies. Held June 4-8 at Marquette University, NICCM provides high-quality management training classes for the consumer finance industry.

The industry’s top executives shared their personal formulas to be successful in a fast-paced and ever-changing environment. Several AFSA representatives volunteered their time as instructors and serve on the NICCM Board of Governors. AFSA member company executives Steve Schmelzer, Mark Roland, Stephanie D’Amico, Sharon Moore, Kelly Malson and Andrew Morrison taught various courses along with AFSA President & CEO Chris Stinebert, who conducted a session on the competitive environment for the consumer finance industry. John Noone, president, Ford Motor Credit Company, wrapped up the week by discussing qualities of leadership.
The NICCM Board of Governors recognized NICCM director Dr. William Hunter for his support of the consumer finance industry and valuable leadership for the past 18 years. Dr. Hunter recently retired from his post as Associate Professor of Finance at Marquette University. With a new director, NICCM will undergo some changes. The retooled management program will become THE EDGE.

Class I selected Holly Kendrick-Munoz, Brundage Management/Sun Loan Co., to be its class representative, while Class II chose David Balcom of Mariner Finance for this honor. The two class representatives will participate in THE EDGE board meeting in October to provide insights into the program and help ensure it continues to meet expectations.

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Inside the Beltway
GSEs Will Continue Reporting Credit Losses: FHFA
DS News (06/13/12) Cho, Esther

Fannie Mae and Freddie Mac were labeled as critical supervisory concerns in the Federal Housing Finance Agency’s (FHFA) annual report to Congress. In 2011, Fannie and Freddie borrowed $33.6 billion from Treasury, up from $28 billion the year prior. As of the end of 2011, the GSEs have drawn $187.5 billion from Treasury. The GSEs’ current and projected losses are from loans originated from 2005 to 2007.
New single-family guarantees in 2011 reportedly had high credit quality, and higher-risk mortgages essentially have been eliminated. The GSEs guaranteed approximately three out of every four mortgages in 2011, equaling about $100 billion per month in new mortgages. The average FICO scores for mortgages guaranteed in 2011 were in the mid-700s, which was up 35 to 45 points than in pre-conservatorship days. The average loan-to-value ratio for the year was at or below 70 percent, about 5 percentage points below pre-conservatorship lows.
According to the FHFA, the conservatorships and Treasury’s financial support have stabilized the GSEs’ financial condition, although they are not restored to a “sound financial condition.” Key challenges Fannie and Freddie face include stress in the housing market, the economic environment, and the GSEs’ uncertain future.

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Private Student Loans often Confuse and Frustrate Borrowers: CFPB
Los Angeles Times (06/13/12) Faughnder, Ryan

The Consumer Financial Protection Bureau (CFPB) published nearly 2,000 comments and complaints on June 13 from borrowers, advocacy organizations and other agencies about student loans. The Bureau removed names and other identifying information from the comments, which were submitted through the CFPB’s student loan complaint system. Many of the complaints centered around the clarity of terms and conditions, such as those regarding loan consolidation. “Not surprisingly, we heard a lot about the challenges borrowers have faced in periods of unemployment and financial hardship,” said Rohit Chopra, the CFPB’s student loan ombudsman.
The CFPB has asked state governments, schools and advocacy groups to enter the student loan conversation and is urging agencies to share borrower inquiries and complaints.

According to a recent report by the U.S. Department of Education, the average cost of a four-year university education increased 15 percent from 2008 to 2010. The growing cost has led to increased usage of private loans, often to supplement government loans.

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National and State News
New York Demands Lower Force-Placed Insurance Rates
American Banker (06/12/12) Horwitz, Jeff

The New York governor and Department of Financial Services (DFS) superintendent ordered force-placed insurers operating in the state to lower premiums by July 6. A similar mandate was made by California's insurance commissioner a few months ago.
"Our hearings suggest a lack of competition, high prices, and low loss ratios, all of which hurt homeowners," said New York Financial Services superintendent Benjamin Lawsky. "Based on what we learned at the hearings, it is now appropriate for insurers to propose new rates along with justifications for those new rates." The DFS has been investigating the relationship between banks and force-placed insurers for several months. At a May hearing, the department shared many of its preliminary conclusions, such as insurers paying much less in claims than they forecast. DFS staff and consumer advocates recommended during the hearing that insurers' targeted payouts be as high as 80%. Insurers stated that such a high rate would not be feasible, particularly as they anticipate paying higher claims due to banks working through their backlog of foreclosures.

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U.S. Foreclosure Filings Fall 4% as Lenders Increase Short Sales
Bloomberg (06/14/12) Levy, Dan

An increase in short sales helped lower the amount of foreclosure filings in the U.S., which were down four percent in May from a year earlier, according to a RealtyTrac Inc. report. For the 20th consecutive time, the number of foreclosures declined on a year-over-year basis. Although initial notices of foreclosure increased, seizures dropped 18 percent from a year earlier, indicating that lenders are seeking alternatives to repossessions.
According to RealtyTrac, properties sold in short sales in the first quarter garnered $27,000 more than bank-owned homes. “More banks are now recognizing that treating the problem of delinquent mortgages with short sales rather than bank repossessions can help them minimize their losses,” said RealtyTrac chief executive officer Brandon Moore. A higher percentage of foreclosure starts are likely to end up as short sales as lenders realize the economic advantage, Moore said.

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Fed Survey: Recession Shrank Card Debt, Crushed Household Wealth
Credit Cards.com (06/13/12) Dilworth, Kelly

The Federal Reserve’s 2010 Survey of Consumer Finances, released June 11, found that the majority of consumers responded to the recession by eliminating cards and paying off their credit card debt. The survey is one of the most widely accepted accurate snapshots of Americans' finances. Released every three years, the 2010 survey is the first in-depth look at how Americans used credit since the beginning of the recession in mid-2007.
Between 2007 and 2010, the number of families carrying a credit card balance dropped substantially. In answering the survey, 39.4 percent of families said they had at least one credit card with a balance, a 6.7 percent decrease from 2007. "The decreased prevalence of credit card debt outstanding was widespread and noticeable across most of the demographic groups," said the Federal Reserve. Two of the groups that relied more on credit cards after the recession were families headed by someone aged 75 or older and families headed by someone without a high school diploma.
According to the survey, American households’ median net worth dropped 38.8 percent between 2007 and 2010. At the same time, the median incomes of most consumers fell, with the steepest declines in highly educated families, families headed by someone younger than 55 and families living in the South and the West. 

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June 14, 2012

Forward To A Colleague

Life of the South
Wells Fargo Preferred Capital
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Black Book
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AFSA Newsbriefs

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