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Car Lenders Ease Credit Standards and Terms to Spur Loans
Reuters (05/29/12) Henry, David

In the first quarter of 2012, vehicle lenders relaxed credit terms, increased lending to subprime customers, dropped interest rates and increased the time to repay, according to Experian Automotive. The changes are likely due to an increase in lender competition for vehicle loans, which proved to be safer than mortgage and credit card loans during the recession. "This thawing of the credit pipeline has been good for everyone, from consumers to lenders to automotive retailers," said Melinda Zabritski, director of automotive credit for Experian.
The average credit score for borrowers purchasing new cars dropped six points to 760 and dropped four points to 659 for used cars. The average size of the loans rose by an average of $589 for new cars and $411 for used cars. However, the average monthly payments only increased by $3 or less because borrowers were granted an average of one more month to repay and charged lower interest rates. Rates of late payments and repossessions by lenders also declined.

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New Member Welcome

AFSA welcomes new Active Members CarMax Auto Finance and Huntington National Bank, and new Business Partners Scordo, Gurrentz & Associates, Inc. and Sheppard, Mullin, Richter & Hampton LLP.
Headquartered outside of Atlanta, CarMax Auto Finance serves more than 300,000 customers, with a portfolio size of more than $4 billion. website
The Huntington National Bank, founded in 1866 and headquartered in Columbus, Ohio, provides full-service commercial, small business and consumer banking services. Through automobile dealership relationships, Huntington also provides commercial banking services to dealers and retail automobile financing for dealer customers. website
Scordo, Gurrentz & Associates is a Denver-based consulting firm specializing in structuring deals, identifying and facilitating new types of business alliances, and generating capital from traditional as well as non-traditional sources. website

Founded in 1927, Sheppard, Mullin, Richter & Hampton LLP is an AmLaw 100 firm with more than 550 attorneys practicing in 14 offices located in the U.S., Asia and Europe. website

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Inside the Beltway
QM Rule Won’t Be Issued until after the November Elections
National Mortgage News (05/31/12) Collins, Brian

The Consumer Financial Protection Bureau (CFPB) is delaying issuance of a final qualified mortgage (QM) rule until after the Nov. 6 elections. The CFPB was expected to issue the rule by the end of the summer. The delay in establishing underwriting standards for lenders to determine if a borrower has the ability to repay a mortgage will push back the timetable for other regulators to draft the qualified residential mortgage (QRM) rule establishing risk retention exemptions for securitized single-family mortgages. Mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the QM and QRM rules must be finalized by Jan. 21, 2013.
Among the issues the CFPB must sort out in the final QM rule is whether to provide a “safe harbor” to help shield lenders from litigation risk or set a “rebuttable presumption” legal threshold to give borrowers more leverage in court challenges. A source reported that CFPB officials view the safe harbor issue as “too political,” resulting in the delay until after the November elections.

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Regulators Could Add Push to Falling Prepaid Fees
American Banker (05/30/12) Finkle, Victoria

Although both prepaid card industry executives and consumer advocates have acknowledged the fall in fees over the past few years, the industry should expect to see additional streamlining and reform as fees continue to be criticized for being “confusing, poorly-disclosed and predatory.” The Consumer Financial Protection Bureau (CFPB) has announced its plans to issue a rule regulating the general-purpose, reloadable prepaid card industry, which has a large variation in fee models. Currently, the CFPB is soliciting input on industry practices and issues such as how providers disclose fees and how consumers can comparison shop.
Consumer advocates that continue to push for better disclosures and protections have acknowledged the cut in fees. “For the most part monthly fees are dropping…[and] in some cases activation fees have disappeared,” said Michelle Jun, a senior attorney with the Consumers Union, and author of several annual reports comparing more than a dozen prepaid cards. A portion of the decline has been attributed to Wal-Mart’s decision to lower its prepaid fees, deeming it a “price-setting moment” for the industry, according to Ben Jackson, a senior analyst at Mercator Advisory Group. With more companies entering the prepaid card market, including several large banks, market pressure on prices is likely to grow, resulting in several providers issuing cards with competitive rates. These fees are likely to decline even more as more consumers turn to prepaid cards as an alternative to bank accounts.

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Small Biz ‘Fairness’ Law Revolutionizing Consumer Regulatory Landscape
American Banker (05/25/12) Davidson, Kate

Small businesses are given the opportunity to meet with the Consumer Financial Protection Bureau (CFPB) to provide early input prior to the proposal of a rule that would significantly impact them. The early input requirement is a result of the extension of the Small Business Regulatory Enforcement Fairness Act (SBREFA) to the CFPB by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). So far, three different groups of small businesses have met on the proposal to merge the disclosures under the Truth in Lending Act and Real Estate Settlement Procedures Act, mortgage servicing rules, and mortgage loan originator compensation. After each meeting, which is held in question and answer format, the panel consisting of representatives from the CFPB, Small Business Administration and Office of Management and Budget prepares a report outlining feedback that is published as part of the final rule. While some have raised concerns that the Bureau is rushing the process, it has received largely positive feedback.
The Bureau’s approach has received some criticism from industry. Small business participants are notified only a few weeks in advance, making it difficult for them to participate. Nor does the Bureau release the names of participants to other participants or the trade groups that recommend them, making it more difficult to have an interactive process. Also, unlike the Environmental Protection Agency (EPA), which prepares two to eight months before a meeting and puts out its initial thinking on a proposal to get feedback from participants, the CFPB panel only gets materials prepared by the Bureau. The Bureau said the timing depends on statutory requirements it faces in implementing rules. “What we're providing is as much time as we can for this pre-proposal input for small financial services providers panel, consistent with meeting that goal,” said Dan Sokolov, the CFPB's deputy associate director for research, markets and regulation. “It's important to remember that after we issue the proposal, there's a whole other round of input … through formal comments on the record.”

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National and State News
Judge: Car Dealers Must Tell Buyers Why Loan Interest Rates are Raised
Detroit Free Press (05/25/12) Gardner, Greg

U.S. District Judge Ellen Huvelle ruled on May 22 that auto dealers must disclose to consumers with lower credit scores the reason they must pay higher interest rates, including instances where a dealer makes a loan then immediately assigns it to a third party, such as a bank or finance company. Judge Huvelle upheld the Federal Trade Commission's (FTC) determination that dealers must comply with a provision in the Fair Credit Reporting Act that requires lenders to notify the consumer and provide instructions on how they can obtain a copy of their credit history report, and if necessary, dispute or correct any false or incomplete data.
The National Automobile Dealers Association (NADA) challenged the FTC’s interpretation, arguing that dealers should be exempt from providing this notice because they do not physically obtain the credit report. In its ruling, the court agreed with the FTC’s position that dealers must provide the notice because even though they do not physically obtain the credit report, they use it. “This ruling will make it easier for consumers to learn about unfavorable information in their credit reports,” said Stuart Delery, acting assistant attorney general for the civil division. “The auto dealer is in the best position to provide this information because the dealer interacts directly with the consumer.” NADA plans to appeal the decision to the D.C. Circuit Court of Appeals.

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More Americans Rely on Credit Cards for Basics like Food and Gas
TIME (05/30/12) White, Martha C.

Despite a decline in the average credit card debt among low-and middle-income households, 40 percent  remain dependent on credit cards to pay for basic expenses, such as rent or mortgage payments, groceries, utilities, or insurance, according to a survey conducted by nonprofit group Demos. Only a third of respondents relied on credit for everyday expenses in 2005. The average credit card debt among low- to middle-income indebted households was down to $7,145 from $9,887 in 2008. Revolving credit also dropped to $798.6 billion from $965.5 billion in 2009.
Demos said the decline in debt creates a deceptively positive picture, because while it is in part due to people paying down balances, it can also be attributed to the reduction in access to credit. Since 2009, 39 percent of households have had credit lines cut or reduced or have been turned down for new credit, resulting in a 48 percent cut in spending. This trend could lead to consumers spending more when they get access to more credit and not having enough resources to pay it off. Demos found that 39 percent of respondents have more debt than they did in 2009, largely due to unemployment and medical bills. The 86 percent of people who now have credit card debt also have fewer avenues to pay it off due to the state of the housing market and rate of unemployment.

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Booming Short Sales Poised to Overtake Foreclosures
The Christian Science Monitor (05/31/12) Belsie, Laurent

Short sales are becoming lenders’ preferred method of dealing with foreclosed homes. Banks’ asking prices for homes with delinquent loans have dropped to their lowest level in seven years. The number of residential properties lenders sold through short sales rose 25 percent from the same period a year ago, according to a report by RealtyTrac. Foreclosure sales dropped 15 percent from a year ago. The increase in risk for conventional foreclosures is one reason short sales are up, according to Daren Blomquist, vice president at RealtyTrac. Foreclosing on a property has become more a costly and lengthy process for lenders, particularly with the increased scrutiny by regulators. A short sale allows lenders to dispose of delinquent mortgages more quickly because they can forgive part of the loan upfront, a loss that is also incurred by lenders in foreclosure. In short sales, homeowners also have less damage to their credit rating. However, the complexity of the negotiation process for short sales is likely the reason for the 10 percent decline in the average price lenders are willing to take on a short sale from 2011.

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Toyota Starts Financial Services Business in India
The Wall Street Journal (05/30/12) Gulati, Nikhil

Toyota Financial Services Corp., the vehicle financing arm of Toyota Motor Corp., is expanding its operations to India, becoming the 34th country with the financial services business. The company plans to expand in a phased manner, according to Kazuki Ogura, CEO of the Indian financial services business. Lending operations will begin from dealerships in Bangalore, followed by New Delhi.

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May 31, 2012

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