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Agency Weighs in on US Housing Debt Cases
Financial Times (03/28/12) Nasiripour, Shahien

The Consumer Financial Protection Bureau (CFPB) filed an amicus brief with the 10th Circuit Court of Appeals in Rosenfield v. HSBC Bank – a truth in lending case – on March 26, disagreeing with numerous other U.S. federal court decisions. The CFPB argued on behalf of borrowers’  rights to rescind their home mortgage within three years if they did not receive important TILA disclosures, and that borrowers need only to provide written notice to their lenders, as opposed to filing a lawsuit. “The consumer’s right to cancel gives lenders a powerful incentive to provide the disclosures that consumers need to make good financial choices,” said Richard Cordray, the Bureau’s director. “We are committed to making sure that borrowers can exercise their rights to the full extent allowed under this law.”
Experts say that the CFPB’s move would likely result in higher compliance costs for lenders, who would have to respond to borrowers requests within 20 days in order to contest the cancellation. The agency also hopes that its court filing will influence 10 similar cases across the country and has said it plans to play an active role in court cases involving disputes over consumer lending laws.

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AFSA Submits Letter to FTC on Rules of Attorney Discipline

On March 23, AFSA submitted a letter to the Federal Trade Commission (FTC) on the commission’s notice of proposed rulemaking regarding amendments to the rules of attorney discipline. The FTC is requesting comment on its proposed rule amendments, one of which revises the rules on the FTC’s ability to discipline attorneys for behavior it deems to be misconduct. AFSA believes that the proposal goes too far and that the current rule language is sufficient in addressing attorney discipline.

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AFSA Submits Letter on Massachusetts Debt Collection Regulations

On March 23, AFSA submitted a comment letter to the Massachusetts Attorney General’s office regarding their revised debt collection regulations. AFSA members expressed several concerns with the new rules, including the requirement that creditors who collect accounts that they own or originate validate debts with established customers. Creditors, with narrow exception, are not required to provide validation of debt notices under federal and other states’ laws. Such requirements would impose undue burdens on creditors and are unnecessary in ongoing credit relationships. AFSA recommended a full reconsideration of the regulations highlighting the important distinctions between creditors and debt buyers and debt collectors.

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California Supreme Court Grants Review in Arbitration Case

On March 21, the California Supreme Court granted review in Sanchez v. Valencia Holding Co., an arbitration case in which AFSA urged the court to grant review. The case is of very serious concern to the auto finance industry. The standard form California conditional automobile sale contract contains an arbitration provision containing a class-action waiver that bans class-wide arbitration. The form has been upheld against other challenges in Arguelles-Romero v. Superior Court. The Sanchez decision however, allows plaintiffs to avoid arbitration, avoid enforcement of the class-action waiver, and avoid FAA pre-emption under AT&T Mobility LLC v. Concepcion with a simple declaration by the consumer that the consumer did not read the back-side of the contract.

Since Sanchez also involves the issue raised in the Buzenes v. Nuvell case (in which AFSA also submitted an amicus letter urging review), it seems highly probable that the court will grant and hold that case as well. (A grant and hold means that review is granted, but briefing is deferred pending the outcome of a lead case, in this instance, Sanchez.)

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Inside the Beltway
CFPB Web Portal to Answer Consumer Questions
American Banker (03/22/12) Davidson, Kate

The Consumer Financial Protection Bureau’s (CFPB) newest effort to provide consumers with financial information is an interactive, web-based database called “Ask CFPB.” The Bureau’s director Richard Cordray hopes the tool will help the Bureau provide consumers with reliable unbiased information, yet stay clear of any fiduciary relationship with borrowers. The portal allows consumers to enter questions and then generates responses based on more than 350 common questions from consumers. The Bureau is not “giving personal, contextual advice,” but rather “providing general background for people to educate themselves and give them ability to make those choices for themselves.” Cordray said. The database includes plain-language answers in the general categories of definitions, explanations and situations, and allows consumers to browse by a specific topic, such as credit card agreements. The Bureau will create more responses to questions based on user recommendations.

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In Considering Mortgage Rule, CFPB Focused on Access to Credit
American Banker (03/27/12) Davidson, Kate

As the Consumer Financial Protection Bureau (CFPB) finalizes the qualified mortgage rule initially proposed by the Federal Reserve, the Bureau is keeping access to credit in mind, said Raj Date, deputy director of the CFPB. The Bureau’s final rule requiring lenders to assess a borrower’s ability to repay on a mortgage loan unless it falls under the definition of qualified mortgage is expected in June.
Industry has favored the proposal that would provide a total safe harbor from liability and has said that weaker protections such as the “rebuttal presumption” protection proposal preferred by consumer groups could mean tighter standards and fewer mortgages made.
Date would not comment on the proposal the CFPB prefers, but has maintained that the Bureau is committed to preserving access to credit. “In my opinion, the entire point of a private sector, competitive market for consumer credit is that credit is calibrated, risk is calibrated, and priced in an efficient and competitive way,” he said. “You can say many things about the mortgage market during the bubble, but you can't say that. So getting to a place where that does happen is very much in everyone's interest, and certainly in the Bureau’s.”
Date said that the Bureau’s rulemaking priorities are focused on the mortgage market this year, particularly the various rules that are due by January 2013.

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Senate Banking Committee Advances Fed, Other Nominees
The Hill (03/29/12) Schroeder, Peter

At a March 29hearing, the Senate Banking Committee approved several of the president’s nominees to key financial regulatory seats in the Federal Deposit Insurance Corporation (FDIC) and Office of Financial Research. Democratic aids hope this is a sign that the picks will be quickly approved by the full Senate before the two-week recess. The committee unanimously approved Jeremiah Norton to the FDIC, Richard Berner as the director of the Office of Financial Research, and Christy Romero to serve as the government’s official watchdog for the Troubled Asset Relief Program (TARP).
Jeremiah Powell and Jeremy Stein were also approved as governors on the Federal Reserve Board, although Senator Richard Shelby shared objections on behalf of Senators Jim DeMint (R-SC) and David Vitter (R-LA), who were not present at the vote. Their objections could make the path to fill the two empty seats on the Federal Reserve more difficult. With only 10 voting members, the agency is operating at reduced strength. Several other nominees who previously received committee approval are awaiting confirmation from the full Senate, including FDIC nominees Martin Gruenberg and Thomas Hoenig, and comptroller of the currency nominee Thomas Curry.

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Geithner Hedges Bet on Durbin Student Loan Bill
American Banker (03/28/12) Wack, Kevin

The Obama administration has not taken a stance on legislation by Sen. Richard Durbin (D-IL) that would allow borrowers to discharge private student loan debt in bankruptcy. During a March 28 Senate appropriations subcommittee hearing, Treasury Secretary Timothy Geithner was non-committal about the legislation, but seemed to share Durbin's concerns about the private student loan market. However, he noted that the CFPB has authority to examine private student lending.
While private lenders’ role in student lending has diminished, industry groups oppose the proposed changes to bankruptcy law, stating that doing so would add risk to the lending business, restrict the availability of credit to college students, and allow students to discharge their obligations immediately after college by filing for bankruptcy.
In 2005, bankruptcy law was changed to make private student loans generally exempt from discharge in bankruptcy, as only federal student loans were. In July, the interest rate on federal student loans is scheduled to go up. Some members of Congress want to prevent the rate hike, which would provide Durbin an opportunity to pass his bill.
Also during the hearing, Geithner encouraged the Federal Housing Finance Agency (FHFA) to allow principal reductions on some Fannie Mae and Freddie Mac mortgages. FHFA Director Edward DeMarco opposes principal reductions for delinquent borrowers, arguing that they will not be the best way to minimize losses to taxpayers. He has also raised questions about whether the FHFA has the legal authority from Congress to do principal reductions. Taking a new approach, DeMarco recently told the Financial Times that principal reductions would amount to a bailout to the largest banks, because they hold a lot of second-lien debt, and those second liens would become more valuable if first liens were reduced without a simultaneous reduction in second-lien debt. Geithner indicated that officials at Fannie and Freddie are more receptive to principal reductions than the FHFA has been.

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National and State News
Americans Put a Priority on Staying Current on the Car Loan, a Study Finds
Associated Press (03/29/12)

The recession appears to have altered Americans’ bill-paying habits. According to a TransUnion study, Americans are paying off their car loans before their credit card bills and mortgage payments. TransUnion studied the payment patterns of 4 million Americans with at least one car loan, one credit card and a mortgage. The study found that of those who were late on payments last year, 39 percent were delinquent on the mortgage while current in the other two categories, 17 percent were late on credit cards while current on the other two, and 10 percent were late on the car loan while current on the other two. When TransUnion first conducted the study in 2006, mortgage payments were the priority. “Today, most people need a car to get to a job or to look for a job, and that has made cars a priority,” said Ezra Becker, vice president of research and consulting at TransUnion.
In addition to dropping home prices, borrowers have more leeway on their mortgages than car loans. While foreclosure can take two to three years, cars can be repossessed when the borrower is 90 days delinquent.

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Ordinances Could Help Residents Avoid Foreclosures, Stay in Homes
The Valley Breeze (03/28/12) Kavanaugh, Meghan

The Lincoln, R.I., ordinance committee is considering two proposals designed to assist homeowners in avoiding foreclosure. The first ordinance (2012-2) would place requirements on lenders foreclosing on renter-occupied homes, including maintaining utility services and notifying tenants where they should send rent payments. Lenders who do not comply would face fines of at least $1,000. The second ordinance (2012-3) would require lenders to make a “good faith effort” to meet with a homeowner before foreclosing on the property. Both ordinances would require lenders to notify the town clerk of the foreclosure and provide their contact information, which the Town Solicitor says will help if the time comes to enforce foreclosure.
Although these steps may lead to lower foreclosure numbers, many have raised concerns about whether they would be worth the extra costs of labor that may be needed due to the extra paperwork and mediation. Lenders may also reconsider lending in Rhode Island because of various municipalities’ foreclosure requirements – similar ordinances have been enacted in Providence, Cranston, Warwick, Pawtucket and Woonsocket. A bill is also currently proposed in the Rhode Island House (HB 7842), which would take the requirement statewide rather than possibly having different versions in each municipality.

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CNW: Using Home Equity Loans for Vehicle Purchases on the Rise
Auto Remarketing (03/28/12)

Homeowners are once again using home equity loans to make a new vehicle purchase – a key method to buy a vehicle before the recession, said CNW Research. In 2007, before the housing market bust, home equity loans were used for 11.8 percent of all new vehicle acquisitions. In 2010, that number declined to 4.4 percent. In the first two months of 2012, the figure has increased to 4.56 percent and will likely end up closer to 5 percent, reported CNW president Art Spinella. Despite the increase, particularly in states like Calif. and Fla., which had the highest percentage of home equity loans used for new vehicle purchases, these figures are a long way from returning to the industry’s peak at 17 million units, Spinella concluded.

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Regional Management Shares Rise at Initial Public Offering
Dow Jones Newswires (03/28/12) Cowan, Lynn

Shares of consumer finance company Regional Management Corp. rose at its New York Stock Exchange debut, continuing a string of strong IPOs in March, with eight out of 12 offerings pricing within or above range.
The Greenville S.C.-based company offers an array of loans, ranging from small installment loans to $30,000 auto loans, to people with poor credit quality and limited access to traditional lenders – a population that continues to grow as a result of the difficult economic conditions in past years. Unlike payday and title loans, the installment loans companies such as Regional make to subprime borrowers carry longer terms over several months, instead of weeks, and have lower interest rates.
Even though Regional faces a higher level of risk by serving subprime borrowers, the company says it has established conservative underwriting and lending practices. Regional and other lenders serving the subprime market also face regulatory risk as states set limits on interest rates, fees and other rules governing these loans. Subprime lenders also face more federal scrutiny under the Consumer Financial Protection Bureau, which oversees installment lenders and nonbanks.

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Discover Financial Targets Mortgage Market with Home-Loans Unit
Dow Jones Newswires (03/22/12) Johnson, Andrew R.

Discover Home Loans, an online mortgage business, is expected to be launched mid-year, according to Discover Financial Services (DFS). It is the latest move by DFS to diversify its business, which relies heavily on credit-card loans. Discover Home Loans will originate mortgages and sell the loans in the secondary market. Discover plans on cross-marketing mortgages to its existing consumer base as well as the broader market. The company does not plan to service the loans it originates, although it may reconsider in the future based on market conditions, said David Nelms, the company’s chairman and CEO.

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First Niagara Jumps Back into Auto Lending
American Banker (03/28/12) Kline, Alan

First Niagara Financial Group, a $33 billion-asset company, has established a new unit to provide car financing through dealerships across nine states in the Northeast. The company already has signed up more than 400 dealers as partners and plans to expand to 1,500 dealers within the next two years.

Three years ago, First Niagara shut down its indirect automobile lending unit because it lacked scale. Andrew Farnola, a senior vice president at First Niagara, said that the bank has re-entered the auto lending business due to the strong demand for car loans and to fill “a significant gap” in its consumer lending capabilities. He stated that First Niagara would be able to build scale this time because it is now a much larger company and has more sophisticated processes in place to handle demand. In addition, the bank has hired experienced lenders to help build up its auto lending business.

First Niagara is one of several regional banks to ramp up auto lending in response to U.S. auto sales growth. Huntington Bancshares in Columbus, Ohio, recently expanded indirect auto lending into Wisconsin and Minnesota, and TCF Financial in Wayzata, Minn., acquired a nationwide auto lender in late 2011.

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March 29, 2012

Forward To A Colleague

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