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Military Lending Discussed as Congress Considers New Restrictions

On June 26, the U.S. Senate Banking Committee held a hearing on “Empowering and Protecting Servicemembers, Veterans and their Families in the Consumer Financial Marketplace.”
The hearing focused on the 2006 Military Lending Act (MLA), which capped the APR for payday, vehicle title and tax refund anticipation loans at 36 percent and imposed other limitations on some forms of consumer credit to active-duty servicemembers and their dependents. Congress is currently considering amendments that would expand the scope of the act by capping the rate that may be charged on additional forms of credit to military households.
AFSA submitted a statement urging policymakers to consider the consequences of regulating useful, desirable forms of consumer credit out of existence for the military community. “The inadvertent risk of restricting the availability of legitimate and appropriate credit products to deserving servicemembers and their families would be far more devastating than most people recognize,” AFSA wrote.
Assessing existing regulations under the MLA, Pentagon official Col. Paul Kantwill stated, “We have achieved much, but there is much work left to do.” Kantwill revealed that the Department of Defense is conducting a review of the regulations. AFSA will recommend that Congress defer action on any amendments to the MLA until the Department’s review is complete.

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AFSA Vehicle Finance Executives Meet with NADA Leadership

For the third consecutive year, AFSA and the National Automobile Dealers Association (NADA) co-sponsored a Vehicle Finance Executive Forum near Washington, D.C. Held at NADA’s headquarters on June 20, the event brought together CEOs and other top executives from virtually every major finance company and bank in the nation engaged in indirect auto finance as well as the leaders of the nation’s franchised automobile dealers. 
Co-chaired by Andrew Stuart, chairman of AFSA’s Vehicle Finance Division and president & CEO of VW Credit, and Bill Underriner, NADA chairman, the meeting’s primary focus was the challenging legislative and regulatory environment for finance sources and dealers. Educational initiatives and technology innovations were also discussed.

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AFSA Submits Letter on CFPB Arbitration Study

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) directs the Consumer Financial Protection Bureau (CFPB) to conduct a study of the use of pre-dispute arbitration agreements. On June 22, AFSA submitted a comment letter to the CFPB in response to the Bureau’s request for suggestions from the public to help identify the appropriate scope of the study, sources of data for the study, as well as appropriate methods of study. “The study should focus on: (1) the content of pre-dispute arbitration agreements, (2) rules and procedures used in pre-dispute arbitrations, (3) a comparison between pre-dispute arbitrations and litigation, and (4) the broader context of pre-dispute arbitration agreements on financial services,” AFSA wrote. To execute the study, AFSA recommended that the CFPB use existing reports and studies, collect data from arbitration providers, survey consumers in a fair and unbiased manner where appropriate, and gather input from a panel of industry experts where appropriate. AFSA also suggested that the CFPB subject the study to a “peer review” process before publishing it and seek comments on the completed study.
The Dodd-Frank Act also establishes a new legal standard for arbitration, allowing the CFPB to prohibit, or impose conditions or limitations, on the use of pre-dispute arbitration agreements if the CFPB finds that such prohibitions, conditions, or limitations are in the “public interest and for the protection of consumers.” AFSA’s letter asked “that the CFPB carefully consider whether further regulation of pre-dispute arbitration agreements is necessary, especially since there are very few complaints about pre-dispute arbitration agreements in the CFPB’s published results of its complaint database.”

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New Member Welcome

AFSA welcomes new Active Members Bank of America, N.A. and Santander Consumer USA Inc.
Bank of America, N.A serves individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. Through its Dealer Financial Services unit, Bank of America provides retail loan financing and a full range of commercial banking services to dealers in the automobile, recreational vehicle, and marine industries. website
Headquartered in Dallas, Santander Consumer USA Inc. is a leading company in the automotive finance sector, whose core business is indirect, direct and third-party origination and servicing of auto loans. website

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Inside the Beltway
Formerly Unchallenged Bill on Consumer Bureau Data Confidentiality Stalls
CQ Today (06/28/12) Weyl, Ben

A bill clarifying that privileged information sent by financial institutions to the Consumer Financial Protection Bureau (CFPB) is protected as confidential and not subject to third-party subpoenas continues to be stalled in the Senate. The bill, H.R. 4014, passed the House in March and had bipartisan support in the Senate, but was held up by Sen. Bob Corker (R-TN), who hoped to include additional changes to the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Non-bank lenders have been asking Congress to ensure the protection of privileged information. “We believe the same policy must apply to all consumer creditors to ensure an effective and equitable examination and investigatory process,” wrote a collection of groups representing non-depository institutions — including the American Financial Services Association, Mortgage Bankers Association, and the National Association of Mortgage Brokers — in a letter to Congress.
It is unclear when the legislation may pass. “Banking Committee chairman Tim Johnson (D-SD) supports the bill as drafted and hopes that its bipartisan support will be enough for passage by unanimous consent. Rep. Bill Huizenga (R-MI), the sponsor of the House-passed bill, has indicated he would consider changes if necessary.

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Consumer Watchdog Boosts Scrutiny of Reverse Mortgages
Reuters (06/28/12) Stephenson, Emily

The Consumer Financial Protection Bureau (CFPB) announced it will increase oversight of reverse mortgages, according to a report released on June 28. While only two to three percent of eligible homeowners have a reverse mortgage, the CFPB said the loans could become more popular as more baby-boomers retire. Mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the report found that nearly half of reverse mortgage borrowers in 2011 were younger than 70 and that more than 70 percent of consumers withdrew all the available funds in a lump sum rather than receiving regular payments or using them as a line of credit. The CFPB warned that these trends increase the likelihood that borrowers will run out of money or face foreclosure later in life.
“Because reverse mortgages can help older homeowners ease the strain of retirement, this product can be beneficial if seniors choose it based on a solid understanding of how it works,” said CFPB director Richard Cordray. “But in some situations, the product can be misused in ways that harm borrowers.” Misleading advertising and inadequate counseling for potential borrowers could lead consumers to unknowingly enter into risky loans, the Bureau reported. “In order to protect people against the misuse of reverse mortgages, we need to educate and inform not only older Americans but also the caretaker generation,” Cordray said.
The CFPB added an interactive tool to its website to answer questions about reverse mortgages. According to the report, the Bureau will look into further regulations and enforcement actions to prevent deceptive marketing and other problems. In 2010, the Federal Reserve proposed rules that would have regulated advertising and improved disclosures consumers receive for reverse mortgages, but the Dodd-Frank Act shifted responsibility for regulating reverse mortgages to the CFPB in July 2011.

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National and State News
Evidence Suggests Anti-Foreclosure Laws May Backfire
Reuters (06/27/12) Reid, Tim

Federal and state laws, such as the proposed California Homeowner Bill of Rights, that are designed to protect homeowners from eviction may be prolonging the problems with the housing market, according to economists and industry experts. Laws stretching out the foreclosure process by requiring a judicial review of foreclosure have no measurable long-term benefits and often prolong problems with the housing market, according to a recent Federal Reserve study that compared the foreclosure processes and outcomes for borrowers in the 20 judicial and 30 nonjudicial states.
Potential buyers were scared off because prolonging the process raised doubts about how clean the title to a property was, stated Lauren Lambie-Hanson, an economist with the Federal Reserve. Stretching out the period for legitimate foreclosure also had a negative effect on neighborhoods. An overhang of properties that banks want to foreclose holds back a sustainable recovery in housing prices and may encourage blight because the defaulted borrower has less incentive to maintain the property. The Federal Reserve also found that delinquent borrowers in nonjudicial states were more likely to make good on their arrears than in judicial states.
The National Conference of State Legislatures found that most of the 400 foreclosure laws that were enacted in the U.S. in 2011 slowed down the foreclosure process. For example, a law was adopted in Nevada that imposes criminal penalties on lenders that try to foreclose without the correct paperwork. While the law has led to a dramatic drop in foreclosures, it has also killed the real estate market because of the lack of inventory, according to state realtors.

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Federal Judge in Springfield Weighs Bankers’ Attempt to Block City Foreclosure Ordinances
The Republican (06/27/12) Barry, Stephanie

U.S. District Judge Michael A. Ponsor is currently deciding whether the city of Springfield, Mass. can enforce two anti-foreclosure ordinances it passed last summer. The first ordinance requires lenders to give the city a $10,000 bond to secure and maintain foreclosed, vacant properties in the city. The second would require lenders to engage in city-approved mediation with homeowners facing foreclosure. Ponsor is expected to rule on the bank’s motion in short order. The city will not enforce the ordinances while the lawsuit is pending.
In the lawsuit, banks contend that the city overstepped its powers and that the ordinances conflict with state foreclosure laws. Tani Sapirstein, the banks’ lawyer, questioned the city’s possible plans to use the bonds the ordinances dictate it collect on bank-owned foreclosed homes and contended that the bond was an illegal tax. The ordinance states that a portion of the bond money will go to the city as an administrative fee and could contribute to a fund for all foreclosed, abandoned properties. Thomas Moore, a lawyer for the city, stated that the ordinance does not strictly conflict with state laws and is aimed at absentee landlords that do not maintain their properties. Judge Ponsor questioned the estimated amount of the fees because the mandate is not specific. Moore stated that the fees are expected to total between $200-$500 depending on the needs of the property.
According to former City Councilor Amaad Rivera, the lead author of the ordinances, if the ruling is in the city’s favor, it will be among the strongest municipality enforced anti-foreclosure policies in the country. “I’ve gotten calls from Chicago, Los Angeles and Baltimore. Everyone’s asking: how do we do this?” Rivera said.

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Modified Borrowers Less Risky than Non-Modified: TransUnion
DS News (06/22/12) Cho, Esther

Consumers with a modified mortgage were better at maintaining payments on loans opened after their initial delinquency than borrowers who defaulted but did not get modified, according to a TransUnion study. The study looked into how consumers performed on other loans opened following serious mortgage delinquency and the effect of mortgage modifications on their performance. Modified borrowers that took out a car loan after the initial delinquency had a 60-plus delinquency rate of 6.06 percent, compared to non-modified borrowers with a rate of 11.4 percent, TransUnion found. Modified borrowers had a 60-plus delinquency rate of 13.63 percent for credit cards, compared to non-modified borrowers who had a 17.13 percent rate.
TransUnion also compared modified borrowers who were only delinquent on their mortgage (MO defaulters) to multiple-delinquency defaulters (MD defaulters), and found that MO defaulters significantly outperformed MD defaulters. “After 12 months, MO defaulters had an average 45 percent lower delinquency rate on new auto loans opened following a mortgage mod, and an average 63 percent lower delinquency rate on new bankcards, ” stated Charlie Wise, director of research and consulting in TransUnion’s financial services business unit.

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Most Financial Institutions Do Not Provide Small-Dollar Loans
American Banker (06/25/12) Stewart, Jackie

Small-dollar or direct deposit loans are only offered at approximately 25 percent of financial institutions, according to a RateWatch survey. Conducted in May, the survey included responses from 259 financial institutions. The survey found that nearly 13 percent of the companies not offering the loans plan to explore doing so within the next year. More than a third of the companies without plans to offer the loans responded that there was not demand for this type of product, while 34 percent said that they would not be profitable for them. According to the RateWatch survey, credit unions made up 60 percent of the market, while only about 12 percent of banks provided this type of financing. Of the financial institutions offering small-dollar loans, more than half had been doing so for more than five years while only 4.5 percent started offering them within the last year.

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June 28, 2012

Forward To A Colleague

Black Book
Allied Solutions
GoldPoint Systems
Counselor Library
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Wells Fargo Preferred Capital
Carleton, Inc.
ParaData Financial
AFSA Newsbriefs

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