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CFPB Ramping Up Consumer Outreach Through Complaint System
American Banker (03/05/12) Davidson, Kate

The Consumer Financial Protection Bureau (CFPB) is now accepting complaints regarding deposit accounts and student loans, adding to the complaints it has already been taking on credit cards and mortgage loans. The CFPB has notified more than 6,000 universities about the expansion of the complaint system to student loans – which is currently the largest source of unsecured consumer debt. “The CFPB is now the one-stop federal agency where all private student loan borrowers can ask questions, get information, and file a complaint about this important market,” said the Bureau’s director Richard Cordray in a press release.
Although there was no public announcement, the Bureau has also begun taking complaints on auto loans and other consumer installment loans. However, the Bureau is currently only accepting vehicle loan and consumer loan complaints for banks. Nonbank complaints are currently being referred to the Federal Trade Commission’s Consumer Sentinel Network. Bureau officials have emphasized that the complaint portal is an important way for them to show they intend to rely on research to make their policies and rulemaking agenda.
However, how the Bureau intends to use the information gathered from the complaint process, including how it will be shared with the public and the role it will have during the rulemaking process remains unclear, according to Barbara Mishkin, a lawyer with Ballard Spahr. No other banking agencies have used this type of complaint process, and it is not the typical data used in rulemaking, Mishkin added. So far, the complaint portal has aligned with the Bureau’s policy priorities. Don Lampe, a partner with Dykema, expects that payday loans and other unsecured installment loans, especially from nonbank lenders, will be the next complaints taken by the Bureau. The Bureau has yet to initiate a public outreach campaign about the portal, but many expect a broader rollout of the program sometime this year.

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AFSA Offers Suggestions for Streamlining Regulations

On March 5, AFSA commented on the Consumer Financial Protection Bureau’s (CFPB) request for suggestions for streamlining regulations that the CFPB inherited from other federal agencies. AFSA agreed with the CFPB that there are opportunities to streamline inherited regulations by updating, modifying, or eliminating outdated, unduly burdensome, or unnecessary provisions. AFSA also expressed appreciation that the CFPB recognized that some provisions of the regulations may have become overly complex and unnecessarily difficult to understand and comply with, be less necessary or no longer needed, inhibit innovation, unnecessarily restrict consumer choice, or be more stringent than necessary.

AFSA’s comments emphasized that the CFPB “should review each of the inherited regulations, one at a time, allowing plenty of time for opportunity to comment on each one.” The letter offered several suggestions for changes to the inherited regulations and proposed some modifications for disclosures and suggestions for testing disclosures. The letter also urged the CFPB to carefully examine the previously undertaken efforts and to update prior studies before launching pilots, field tests, or demonstrations to assess benefits and costs of potential revisions to regulations. Additionally, the letter asked that the CFPB give the industry sufficient time to comply with, or ask questions about, new regulations or programs.

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State-Federal Relationships Focus of NAAG Meeting

AFSA staff attended the National Association of Attorney General (NAAG) 2012 Spring Meeting in Washington, D.C., March 5-7. Several federal agency representatives, including CFPB Director Richard Cordray, spoke at the meeting, under the theme “Opportunities and Challenges in State-Federal Relationships.” Cordray announced a memorandum of understanding that was to be issued shortly to the AGs establishing a general framework to share data on consumer financial protection issues. He also mentioned that debt collectors are on top of the Bureau’s list of industries to be supervised. FTC Commissioner Julie Britt and U.S. Attorney General Eric Holder also spoke at the conference. Other issues covered at the meeting included social media and consumer protection.

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AFSA Comments on Treasury Fee Assessment

On March 5, AFSA submitted a comment letter in response to the Department of Treasury’s proposed assessment of fees on large bank holding companies (BHCs) and nonbank financial companies designated by the Financial Stability Oversight Council (FSOC) for supervision by the Federal Reserve Board (FRB). Under the Dodd-Frank Act, Treasury is charged with establishing the assessments as a means of permanently funding the expenses of the Office of Financial Research (OFR) and the Financial Research Fund.
Before issuing a final rule on the assessments, AFSA said that Treasury should: (1) provide detail and transparency for the process used to determine expenses of the respective regulators and offices that are subject to industry assessment; (2) explicitly define total assessable assets to exclude non-U.S. assets and those assets that are not financial in nature; (3) take into consideration the statutory factors related to the complexity and risk associated with a given BHC or nonbank financial company, other than total consolidated assets; and (4) establish a workable process for rebutting an assessment determination that includes sufficient time to establish and fund deposit accounts to pay the assessment.

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Amicus Brief Filed in Arbitration Case

AFSA joined other trade associations in filing an amicus brief asking the U.S. Supreme Court to review the Ninth Circuit’s decision in Cape Flattery Ltd. v. Titan Maritime, LLC.
The decision by the Ninth Circuit frustrates the objective of predictable judicial policies regarding the enforcement of arbitration clauses, conflicts with the court’s jurisprudence, and extends a lingering split between the circuits. This case presents an opportunity for the court to resolve a matter of great concern to the consumer and commercial finance industries and to provide a uniform national standard regarding the claims that are subject to arbitration provisions. A decision from the court would provide guidance to industry on their legal rights under standard arbitration agreements.

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Inside the Beltway
CFPB to Crack Down on Force-Placed Insurance, Simplify ARM Disclosures
American Banker (03/06/12) Davidson, Kate

Among the mortgage servicing rules that the Consumer Financial Protection Bureau (CFPB) plans to issue this year are new limits on force-placed insurance and additional disclosure requirements for adjustable rate mortgages, announced CFPB Director Richard Cordray at the National Association of Attorneys General meeting on March 6.
Cordray said that the CFPB will propose a regulation that would prevent servicers from charging for forced-place insurance products unless there is a “reasonable basis to believe that borrowers have failed to maintain their own insurance.” Officials have said that the multistate mortgage settlement with 49 state attorneys general will include restrictions on these products, although the final agreement has yet to be released. Ira Rheingold, the executive director of the National Association of Consumer Advocates, said that the CFPB’s rules should require servicers to give homeowners the opportunity to purchase their own insurance as well as restrict the cost of the insurance offered by the servicers and the relationships that they have with insurance providers. Other consumer advocates want to require servicers to continue making payments on the homeowner’s policy whether or not there is an escrow account – a move that could stop the need for pricier forced-place insurance.
Cordray also said the bureau will issue new rules regarding adjustable-rate mortgages, which will include requiring servicers to give borrowers more advance notice of their first interest rate adjustment. The rule will also require servicers to provide additional disclosures, such as the amount of the borrower’s new monthly payments and the other options to stop a higher rate that are available to them, such as refinancing and renegotiation of loan terms.

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The CFPB Must Seek Advice, Though it Won’t Have to Take it
Washington Post (03/02/12) Khimm, Suzy

With the concerns that have been raised about the oversight and accountability of the Consumer Financial Protection Bureau (CFPB), the Bureau has taken an important step by beginning to take nominations for its required advisory council. The membership of the 16-member council could help the Bureau reaffirm its outreach efforts to garner feedback from outside groups. It must meet a minimum of twice per year and is tasked with advising and consulting with the Bureau, and providing information on “emerging trends” in consumer finance; Its decisions are not binding. Six of the members must be nominated by regional Federal Reserve Banks, but all must be appointed by director Richard Cordray.
When explaining the structure and nomination process of the board, the notice in the Federal Register stated, “The director shall seek to assemble experts in consumer protection, financial services, community development, fair lending and civil rights, and consumer financial products or services and representatives of depository institutions that primarily serve underserved communities, and representatives of communities that have been significantly impacted by higher-priced mortgage loans.” How the advisory board decides to use its new role remains to be seen, particularly whether the council will assert views contrary to the Bureau’s decisions. The council’s lack of binding authority, however, will probably not ease the concerns of Republicans that the Bureau lacks appropriate oversight and accountability.

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National and State News
Equifax, Moody’s Predict Growth in Auto Finance Market
F&I and Showroom (03/06/12)

The U.S. will see a rebounding consumer environment and recovering auto and home markets in 2012, predicts CreditForecast.com, a joint product of Equifax and Moody’s Analytics. Auto, bankcard and consumer finance delinquency rates are back to pre-recession levels, indicating that there will be steady economic growth in major sectors, particularly within the consumer spending and auto finance sector, said Equifax chief economist Amy Crews Cutts. However, she cautioned that “the housing market continues to see incremental progress toward gaining traction in the coming months.” The growth in auto bank and auto finance originations continues to trend upward, with auto loan inquiries up 27 percent, which, according to CreditForecast.com data, is largely driven by the increase in auto sales.
Consumer debt is continuing to drop, and consumer balances are down $187.8 billion from totals in early 2009. CreditForecast.com reports that credit more appropriately matches consumer wealth and income levels. Credit card inquiries have risen by 41 percent since the recession low, and the number of new bank credit card accounts hit 10 million for the first time since 2008, which they report could be caused by consumer optimism.
Mortgages continue to see the highest rates of delinquencies, although outstanding balances of home mortgages are dropping. Mortgage originations have not responded to the all-time low mortgage rates and high refinance shares. Loans made to the prime risk segment now comprises more than 80 percent of all new mortgage originations, reflecting tighter lending guidelines.

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Mo. Court Backs Payday Loan Arbitration Agreements
St. Louis Post Dispatch (03/06/12)

On March 6, the Missouri Supreme Court ruled in two decisions that payday lenders can require customers to use arbitration, instead of class-action lawsuits, to settle disputes. In one case, involving a title lender, the court ruled 4-3 that the class-action waiver was allowable, but sent the case back to the lower court to decide how the arbitration agreement as a whole should be enforced under Missouri law. In the court’s majority opinion, Chief Justice Richard Teitelman said the arbitration agreement as a whole was “extremely one-sided,” particularly the agreement’s requirement that customers pay their own legal expenses for the proceedings. Teitleman also criticized a provision in the agreement that allowed the title company to go to court to repossess the plaintiff’s car, but only permitted the plaintiff to use arbitration.

In the second case, the Missouri Supreme Court ruled 7-0 to reverse a lower court decision against an arbitration clause’s requirement that customers waive their right to file a class-action lawsuit. The court said a trial court should have determined the enforceability of the agreement under state law.

Both decisions follow a 2011 ruling by the U.S. Supreme Court in AT&T Mobility LLC v. Concepcion that federal law allowing companies to require arbitration preempted state unconscionability laws.

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Fed Study of Student Debt Outlines a Growing Burden
New York Times (03/05/12) Martin, Andrew and Lieber, Ron

Twenty-seven percent of the 37 million student borrowers have past-due balances of 30 days or more, according to a March 5 report by the Federal Reserve Bank of New York. The report was created from an analysis of Equifax credit reports. The report stated that the average outstanding debt of the 40 percent of people under 30 that have outstanding student loans is $23,300. Ten percent of borrowers owe more than $54,000, and three percent owe more than $100,000.
The analysis was an attempt to provide more accurate accounting of delinquency data as existing figures on student loans are “spotty and largely anecdotal,” the Fed said. The report’s delinquency figures were found by excluding from their calculation those who were still students or were granted permission to postpone payments because of approved reasons, such as financial hardship and graduate school, which represents about 47 percent of all borrowers. If the group were not excluded, the percentage of borrowers who were 30 days late on payments would be 14 percent.

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GM and Wells Fargo Roll out Financing Partnership for Western US Franchised Dealers
Auto Remarketing 3/2/2012

General Motors and Wells Fargo & Co. have formed a long-term partnership to offer competitive financing to Chevrolet, Buick, GMC and Cadillac Dealers as well as retail customers in the contiguous states including GM’s Western marketing region. “This partnership represents another step forward in our strategy to ensure our dealers and customers have consistently available, transparent and competitive financing,” said GM senior vice president and chief financial officer Dan Ammann.

In addition to their core offering of retail subvention, Wells Fargo will offer GM dealers non-subvented retail loans and financing solutions, such as wholesale floor plan and other financing, treasury services and insurance, officials explained. GM currently has captive offerings through GM Financial and Ally, and a leasing program with U.S Bank. Tom Wolfe, head of Wells Fargo Consumer Credit Solutions, said, “Our new relationship with General Motors will help expand our significant footprint in the West through improved access to GM’s large dealer and customer network. It will fuel growth in our auto finance business, an area in which we are looking to expand.”

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March 8, 2012

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AFSA Newsbriefs

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