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AFSA Comment Letter Addresses Enhanced Prudential Standards and Early Remediation Requirements
On April 30, AFSA submitted a letter to the Federal Reserve Board (FRB) on enhanced prudential standards and early remediation requirements for covered companies. The letter was in response to a proposed rule implementing two important provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) applicable to the largest bank holding companies and designated nonbank financial companies identified by the Financial Stability Oversight Council (FSOC) for FRB supervision. Specifically, the proposed rule establishes: (1) enhanced prudential standards, including risk-based capital and leverage requirements, liquidity standards, stress test requirements, and debt-to-equity limits; and (2) early remediation requirements.
AFSA wrote that the proposed rule “fails to provide adequate or sufficient standards for nonbank financial companies.” The letter urged that separate standards be established for nonbank financial companies.” Additionally, the letter included a colloquy between Representatives Barney Frank and Mary Jo Kilroy that explicitly confirms it was not Congress’ intent that the Dodd-Frank Act subject nondepository captive finance companies to the strict prudential standards applicable to systemically important depositories.
Joint Trade Letter Expresses Concerns with Lease Accounting Proposal
AFSA joined several organizations representing all sectors of the global economy in a letter to the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) on their Proposed Accounting Standards Update, also known as the lease accounting proposal. The letter stated that although the organizations appreciate the technical difficulties and the differences between the FASB and the IASB, the boards should review and resolve differences on important issues, such as the recognition of expenses. The letter added, “This review and reconsideration of the lease accounting proposal should be undertaken with appropriate due process and public input.” The organizations asked the FASB and the IASB to follow through with their stated intention to fully re-expose the final proposed leasing standard for comprehensive public input and comment. The letter outlined substantive and procedural concerns with the lease accounting standards and additional steps needed before the proposal is finalized. Suggestions included an economic impact study and extensive field testing to create a standard that will meet the tests of the marketplace and fulfill the needs of all stakeholders.
Mobile Payment Trends Discussed at FTC Workshop
On April 26, AFSA staff attended the Federal Trade Commission’s Mobile Payments workshop. The mobile payment industry is rapidly growing as more consumers, particularly the underbanked and younger generations, use their cellphones to pay for online purchases. Participants agreed that consumers do not know much about how this industry works and who to approach for redress. Topics discussed during the workshop included privacy issues, consumer protection, and establishing more regulations. Some of the speakers – comprised of consumer groups, the industry, and regulators – favored new regulation to better define terms and protect consumers. However, other speakers disagreed, arguing that sound federal and state laws are already in place and that it would be best to educate consumers as the industry has fairly consistent practices. The workshop also examined how other countries are regulating this industry and how it operates overseas.
Debit Fees Flow for Smaller BanksThe Wall Street Journal (05/01/12) Randall, Maya Jackson and McGrane, Victoria
The fees on debit-card transactions collected by smaller banks at the end of last year were higher than those collected by larger banks, which had to slash rates in order to comply with the 21 cents per transaction cap set by the Federal Reserve last year, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. According to the Federal Reserve, thus far, the interchange fee cap has benefited banks and credit unions with less than $10 billion in assets, whose average interchange fee per transaction has remained at 43 cents, as they were exempt from the fees. Larger banks’ average fee per transaction was cut almost in half, declining to 24 cents from 43 cents for 2009, resulting in revenue decreases by billions of dollars.
The second part of the Durbin Amendment, which came into effect on April 1, requires U.S. banks and credit unions of all sizes to provide merchants with more choices of companies for processing debit-card transactions. While the Federal Reserve’s data has yet to show the impact of this change, the rule is expected to push interchange fees lower for all banks and credit unions. “Over time, community banks and credit unions will all experience an erosion of interchange revenue as the full effects of the Durbin amendment make their way through the system,” said Trish Wexler, a spokeswoman for the Electronic Payments Coalition, which represents banks, credit unions and payment card networks.
House Republicans Jump Back into Principal Reduction DebateAmerican Banker (05/02/12) Wack, Kevin
After weeks of mounting pressure from congressional Democrats and the Obama administration on the Federal Housing Finance Agency (FHFA) to allow principal reductions on Fannie Mae and Freddie Mac mortgages, House Republicans have re-entered the debate. On May 1, top House Financial Services Committee Republicans sent a letter to the FHFA with a series of questions highlighting possible downsides of allowing the write-downs.
Signing the letter were Financial Services Committee Chairman Spencer Bachus and Vice Chairman Jeb Hensarling, and subcommittee chairs Randy Neugebauer, Judy Biggert, Scott Garrettt, Shelley Moore Capito, Gary Miller and Ron Paul.
The Republicans asked the FHFA for its views on whether the agency has the statutory authority to reduce mortgage principal at Fannie and Freddie. FHFA acting director Edward DeMarco has raised this issue in the past. The letter also requested an estimate on how many borrowers who are current on their mortgages might strategically default to get a principal reduction.
While the letter focused on the potential negative consequences of principal reductions, it did not explicitly express a view on what the FHFA should do. Rather, the Republicans encouraged the agency to conduct “a full and fair examination of the issues" before acting.
House Passes Cybersecurity BillThe Wall Street Journal (04/27/12) Gorman, Siobhan
The U.S. Senate and House of Representatives agree that the security of the country’s computer networks need improvement, but disagree on the role government should play in requiring businesses to strengthen their cybersecurity and what agency should head up the effort. On April 26, the House passed the Cyber Intelligence Sharing and Protection Act by a 248-168 vote with support from both Republicans and Democrats. The House bill would facilitate sharing threat data between private companies and the National Security Agency and other government departments. But the White House prefers a Senate bill that would require companies to increase security for critical infrastructure, such as electrical and water systems, and concentrate cybersecurity efforts in the Department of Homeland Security.
The House bill was criticized by civil-liberties groups for the information-sharing provisions they say could compromise American citizens' privacy, and by sponsors of the leading Senate measure for not including provisions to protect computer systems running critical infrastructure.
Business groups oppose the Senate measure for what they say would be burdensome requirements for them to improve security.
Consumer Bureau Appointee to Promote Financial Industry DiversityThe Los Angeles TImes (04/30/12) Puzzanghera, Jim
Stuart Ishimaru, a past chairman of the Equal Employment Opportunity Commission, has been appointed to lead the Consumer Financial Protection Bureau’s Office of Minority and Women Inclusion, which was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The office is tasked with promoting diversity in the Bureau and in the financial services companies under its supervision and, according to the Bureau’s Director Richard Condray, with developing standards for assessing diversity policies in the industry. The office does not have the authority to write regulations imposing hiring practices on companies, but will try to highlight industry best practices. While industry and some members of Congress have expressed concerns that the office could add to business costs, Ishimaru said that they would “find a way to collect data without imposing an undue regulatory burden,” but emphasized that data is necessary to get an “accurate baseline to assess where we are and where we need to go.”
Texas Cities Take Action to Regulate Payday LendersThe Texas Tribune (05/03/12) Heinrich, Holly
Austin is the latest city government in Texas to pass a zoning ordinance limiting the places that payday lending businesses may be located, joining Dallas, San Antonio, Brownsville, Irving, Mesquite, Sache, Richardson, Garland and Little Elm. According to Barksdale English, a policy aid for City Councilman Bill Spelman, who authored the Austin ordinance, localities are passing these laws because industry lobbying efforts have hindered state laws passed last year.
Texas does not have a cap on the maximum loan amount, and although the Texas Constitution says annual rates of interest of more than 10 percent are illegal, payday lenders can bypass the provision by registering as “credit service organizations.” The Consumer Service Alliance of Texas has filed lawsuits against the cities of Dallas and Austin, both of which remain in litigation, for ordinances adopted last year they say conflict with state law, restrict access to credit and eliminate consumer choice. Dallas’s ordinance required payday and auto title lenders to register with the city and restricted the amount of loans that can be extended and the terms of repayments. Austin’s ordinance capped the maximum loan amount and restricted the number of times a payday loan can be refinanced.
The issue has received attention from several statewide religious organizations, including the Texas Catholic Conference, Texas Baptist Christian Life Commission and Texas Impact, which have spoken out against payday lending, arguing that the “poor and vulnerable in our society” are the ones victimized by the debt resulting from these loans.
Landing a Car Loan is Getting EasierCNNMoney (05/02/12) Valdes-Dapena, Peter
In contrast to the difficulties consumers with good credit ratings faced when trying to obtain a car loan after the financial crisis, consumers across the credit spectrum are finding it easier to obtain a car loan. The market rebound is due to lower interest rates on all types of loans, which has made auto loans less expensive and easier to obtain, said Alec Gutierrez, an industry analyst with Kelley Blue Book. The short supply of used cars is also a contributing factor, he added, as it has raised the worth of quality used cars, which means that if a finance company has to repossess the vehicle they will get a good price on it. This factor has made subprime loans possible to risky consumers who are more likely to default and have their vehicle repossessed. Rather than viewing the simple credit score number as the best indicator of a consumer’s ability to repay, Jesse Toprak, an industry analyst with Truecar.com, says that lenders are now considering other factors, like the reasons for missed payments and a person’s income.
HSBC Credit Card Sale to Capital One Yields $2.5 Billion PremiumBloomberg (05/02/12) Mustoe, Howard
The sale of the U.S. card and consumer services division of Europe’s largest bank, HSBC Holdings Plc, to Capital One Financial Corp. has been completed. The purchase, combined with their acquisition of ING’s U.S. online bank, will allow Capital One to expand despite slowing U.S. growth. While HSBC Finance Corp. will no longer issue credit cards, HSBC Bank U.S.A., which is selling a portion of its credit card business to First Niagara Financial Group Inc., will continue to do so.
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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.