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E-Contracting for Retail Installment Sales Contracts Brought to Nevada
After outreach from AFSA and its members, Nevada’s Financial Institutions Division adopted changes to the form retail installment sales contract at their May 22 hearing, bringing e-contracting to the state. Nevada was the only state that did not acknowledge e-contracting for retail installment sales contracts because the prescribed form did not contemplate the possibility of producing the contract electronically. AFSA Senior Vice President Danielle Fagre Arlowe testified at the hearing in support of the e-contracting modifications to the form. AFSA also submitted a letter to the Division’s Commissioner George Burns in early May confirming the legal authority permitting e-contracting under Nevada law, outlining how other states have successfully implemented e-contracting through statute and applicable regulation, and demonstrating the benefits of e-contracting to consumers. The changes will become effective October 1, 2012.
The adopted form contract can be viewed here. (The final version of the contract will be slightly changed to note the total number of pages and a new effective date.)
Supreme Court Rejects CFPB and HUD Arguments in RESPA Case
In an opinion released May 24, the Supreme Court unanimously affirmed the appellate court’s decision in Freeman v. Quicken Loans. The question presented in the case was whether Section 8(b) of the Real Estate Settlement Procedures Act (RESPA) prohibits a real estate settlement services provider from charging an unearned fee only if the fee is divided between two or more parties. The Supreme Court’s opinion stated, “In order to establish a violation of §2607(b), a plaintiff must demonstrate that a charge for settlement services was divided between two or more persons.” AFSA joined with several other trade associations in submitting an amicus brief urging the Supreme Court to affirm the appellate court’s decision.
In affirming the lower court’s decision, the Supreme Court rejected the arguments made in the Consumer Financial Protection Bureau’s (CFPB) amicus brief, which asked the Court to reverse the ruling. The opinion rejects the Department of Housing and Urban Development’s (HUD) interpretation of section 8(b) of RESPA, which was adopted by the CFPB, making a statement that administrative agencies should more closely adhere to consumer protection statutes.
GAO Urges CFPB to Improve Internal Financial ControlsAmerican Banker (05/21/12) Davidson, Kate
The Government Accountability Office (GAO) issued a report recommending the Consumer Financial Protection Bureau (CFPB) make several changes to their internal controls. According to the report, the recommendations would “minimize the risk of misappropriation of assets, misstatements in CFPB’s accounts and financial statements and unidentified vulnerabilities over the security of its data.” Among the recommendations were that the agency finalize its accounting processes; enhance its internal review procedures; upgrade its security system; and employ procedures to ensure the recording of contract information is accurate.
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Customers May See More Limits on Mandatory ArbitrationBloomberg Businessweek (05/21/12) Dougherty, Carter
The Consumer Financial Protection Bureau (CFPB) and the Securities Exchange Commission (SEC) are looking into limiting or banning mandatory arbitration clauses from financial contracts with consumers, which could present new litigation risks and costs for financial services providers. The use of mandatory arbitration was supported by a 2011 Supreme Court decision in AT&T Mobility v. Concepcion. While regulators have sanctioned the use of arbitration in consumer and broker disputes, they have prevented its mandatory use by shareholders. Earlier this year, the SEC required the Carlyle Group LP to remove a mandatory arbitration clause for new shareholders from its proposed initial public offering. However, because the SEC’s decision is based on longstanding practice rather than a regulation or law, they could be vulnerable to a court challenge, according to Brian Fitzpatrick, a professor of law at Vanderbilt Law School.
The SEC was directed by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to study and regulate mandatory arbitration due to “concerns over the past several years that mandatory pre-dispute arbitration is unfair to the investors.” The CFPB began its study of the practice by calling for public comment on how it should conduct the research on April 24. Consumer groups have criticized the use of these clauses as limiting redress, particularly in cases that have a minimal damage to the individual, but a large collective cost. Companies use it as a tool to avoid frivolous, but costly-to-defend class action lawsuits. The study is being led by Will Wade-Gery, an official in the division of research, markets and regulations, and former lawyer with Morrison Foerster LLC who has advocated in favor of arbitration. CFPB Director Richard Cordray spoke out against the practice when he was attorney general of Ohio. A spokeswoman for the bureau maintains that it is doing the study without prejudice, basing its analysis on facts and data.
Consumer Protections Considered for Prepaid Debit CardsUSA Today (05/23/12) Malcolm, Hadley
On May 23, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray said he plans to bring more “safety and transparency” to the prepaid debit card industry. The CFPB will seek public comment on how the cards’ fees are disclosed and consumers’ protection from unauthorized transactions. “We have a duty to make sure these products are safe for consumers and that prepaid card managers do not make money by relying on tricks and traps,” Cordray said.
In 2011, 13 percent of consumers used prepaid cards, up two percent from 2010. Mercator Advisory Group expects the industry to increase by more than 40 percent in the next two years. The cards are popular among the unbanked and underbanked, and consumers obtain them more often at retailers, which are less regulated than banks. According to Javelin Strategy and Research, the underbanked shop at stores such as Walmart for prepaid cards 37 percent of the time versus 27 percent of the time at banks.
Senators Seek to Expand Housing Assistance for Military MembersDS News (05/23/12) Cho, Esther
The Servicemember Housing Protection Act of 2012 (S. 3179), has been introduced in the Senate to expand the protections in the Servicemembers Civil Relief Act. The bill would redefine what constitutes “military orders” from active-duty members trying to claim deployment-related financial and credit protections, such as the ability to terminate residential leases early and without penalty due to a permanent change of station order or deployment, or postpone civil obligations like credit card debt. S. 3179, which is sponsored by Democratic Senators Jack Reed (RI), Sheldon Whitehouse (RI), and Mark Begich (AK), and supported by Delaware Attorney General Beau Biden, also expands protections against foreclosure to include surviving spouses. It is currently pending in the Senate Committee on Veterans’ Affairs.
CNW: Captives’ Consumer Loyalty Remains StrongSubPrime Auto Finance News (05/21/12) Zulovich, Nick
Captive finance companies hold a strong loyalty position with consumers, helping automakers keep consumers driving their vehicles even after the contract concludes, according to CNW Research’s latest findings. Captive lease programs generate the most loyalty with a 55 percent return rate, compared to financing from a non-captive, which is less than 25 percent. CNW attributes this loyalty to a set time to return the vehicle, giving the dealer the chance to lease another vehicle to the same customer, and manufacturers’ direct-to-lessee incentives that can be timed to the end of the contract. Customer loyalty is also high with conventional financing from captives. Nearly 42 percent return to the brand at the end of term, compared to barely a quarter who finance through a non-captive. The reason for this gap is that the automaker has a direct line to the buyer via the monthly payment, CNW found. They also have a more narrowed focus than banks, which may also promote home equity loans to the consumer.
Stay-At-Home Moms Fight Credit Card BiasUS News & World Report (05/23/12)
A provision of the CARD Act of 2009 that requires credit card companies to consider only individual income data, rather than household, when a person takes out a credit card is being criticized by consumers and lawmakers for being unfair to stay-at-home parents, military spouses and victims of abusive relationships. While non-working spouses are able to have access to credit by having joint cards with their spouses or becoming an authorized user on their spouse’ cards, as the Federal Reserve first announced, they are finding difficulties qualifying for their own credit card because they do not earn their own income. In response to this rule, the Consumer Financial Protection Bureau (CFPB) has been asked by more than two dozen members of Congress to look into the rule and its unintended consequences. According to the lawmakers’ letter, the negative impact of the rule on women is already evident by issuers’ data showing a steep drop in approval rates for women age 62 and older, who are mostly likely to rely on a spouse’s income, and the decline in the size of credit lines for women as opposed to men. The CFPB has announced that it will explore the issue and is seeking comments from consumers.
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