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Joint Comment Letter Critiques CFPB Strategic Plan
On Oct. 25, the American Financial Services Association, the Consumer Mortgage Coalition and the Mortgage Bankers Association sent a joint letter to the Consumer Financial Protection Bureau (CFPB) on its draft strategic plan for 2013 - 2018. The joint trade's comments were directed to improving the goals and the attendant performance indicators currently contained in the plan, as well as suggesting additional goals that the plan should include.
The letter suggested that the CFPB establish as one of its subgoals or outcomes the provision of clear, comprehensive guidance to the industry. The letter also asked the CFPB to establish a subgoal or outcome to require it to analyze on an ongoing basis the cumulative impact of multiple rulemakings as well as the impacts of individual rules on the availability and price of consumer financial services. Finally, the letter suggested that the CFPB establish as a strategic goal implementing and revising future consumer protection rules in a planned, coordinated, efficient manner that does not create unintended marketplace disruptions.
AFSAEF Brochure Explains APR
Building on previous brochures in its Personal Loans 101 series, the latest American Financial Services Association Education Foundation (AFSAEF) brochure focuses on explaining the purpose of annual percentage rate and how it is only one factor that consumers should consider when seeking a loan. Understanding APR explains how the annual percentage rate, or APR, can be misleading and confusing if viewed alone or used to compare different types of loans with different terms and fees.
The brochure, which is available for members to print or post on their websites, follows Understanding Personal Loans and Understanding Credit Risk. Individually and collectively, the brochures explain the advantages of traditional installment loans that are fully amortized, underwritten and repaid in regular installments made up of both principal and interest.
AFSAEF Responds to CFPB Request for Comment on Effective Financial Education
On Oct. 31, the AFSA Education Foundation (AFSAEF) submitted a comment letter to the Consumer Financial Protection Bureau (CFPB) on effective financial education approaches. The letter highlighted the need for personal finance to be a required course with credit hours prior to high school graduation in all 50 states and U.S. territories. The foundation highlighted its MoneySKILL course as an excellent tool for educating young and old consumers about income, expenses, saving and investing, credit and insurance. The foundation also recommended that the Bureau “work with groups that have a good track record and established programs” such as AFSAEF and the Jump$tart Coalition.
CFPB Report Details Trends from Recent ExamsAmerican Banker (10/31/12) Davidson, Kate
On Oct. 31, the Consumer Financial Protection Bureau (CFPB) released its first Supervisory Highlights report, which provides insight on findings from the Bureau’s exams from July 21, 2011, through Sept. 30, 2012; it does not refer to specific institutions. According to the Bureau, the document “signals to all institutions the kinds of activities that should be carefully scrutinized for compliance with the law,” and “will help providers of financial products and services better understand the CFPB’s supervisory expectations so that they can take action to comply with Federal consumer financial laws and serve their customers in a fair and transparent way.” Among the Bureau’s findings in the report were inaccurate good-faith estimates in mortgage disclosures, inaccurate disclosures of interest rates, payment options and payment schedules, credit limits raised for those under age 21 without full consent of co-applicants, and bank employees with insufficient training on complying with fair credit reporting standards.
A bulletin on procedures for financial institutions to appeal supervisory findings by the Bureau and an updated CFPB supervision and examination manual was also released. Appeals will be handled by a committee that includes management at CFPB headquarters and representatives of regional offices not involved in the matter under review.
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Banking Regulators Fight Back against Agency Review BillAmerican Banker (10/29/12) Finkle, Victoria
Top financial regulators expressed concerns over a bipartisan bill that would give the president authority to require rigorous analyses of proposed rules. Under the legislation introduced in August by Sen. Robert Portman (R-OH) and co-sponsored by Sens. Mark Warner (D-VA) and Susan Collins (R-ME), the president could require all independent agencies to take up to 13 additional steps before proposing a rule.
The regulators detailed their concerns in a letter sent on Oct. 26 to Senate Homeland Security and Governmental Affairs Committee chairman Joseph Lieberman (I-CT) and ranking member Collins. "This would give any President unprecedented authority to influence the policy and rulemaking functions of independent regulatory agencies and would constitute a fundamental change in the role of independent regulatory agencies," said the letter signed by the heads of the Federal Reserve Board, Securities and Exchange Commission, Comptroller of the Currency, Federal Deposit Insurance Corp., Consumer Financial Protection Bureau and National Credit Union Administration. "The bill also would interfere with our ability to promulgate rules critical to our missions in a timely manner and would likely result in unnecessary and unwarranted litigation in connection with our rules."
Consumer groups expressed concerns about the bill in September. But supporters argue that the new requirements will help standardize the rulemaking process across independent and executive agencies and put an emphasis on rules’ cost considerations. "This bill would close the loophole for independent agencies by authorizing the president to bring them within the same regulatory review framework that applies to other agencies,” Portman said. Despite bipartisan support, the bill's future is uncertain. The concerns raised by regulators are likely to give Democrats pause.
Consumer Groups Want Fair Lending Data Added to Mortgage SettlementAmerican Banker (10/30/12) Berry, Kate
Members of the Foreclosure Working Group of Americans for Financial Reform are urging Joseph A. Smith, the independent monitor of the national settlement with the five largest mortgage servicers, to include data on race, ethnicity and geography when determining whether the servicers are providing relief to communities struggling with foreclosures. While Smith said he had “helpful discussions” with consumer advocates about using Home Mortgage Disclosure Act-type data to test for anti-discriminatory policies and procedures, the settlement language does not give him the authority to create an “outcomes-based metric” regarding discrimination, which would involve sampling of loan level data against a proposed benchmark.
In response, the working group proposed a “process-based” fair lending metric they say would allow Smith to comply with the settlement’s language. The metric would require providing principal reductions to communities with high foreclosure rates. Servicers would then be asked if they have policies in place that provide outreach to borrowers who speak languages other than English, and if the policies include maintaining and reviewing data regarding race, gender, nationality and ZIP code. Smith stated he would review his options for creating additional metrics and will look at it and other issues when examining banks’ compliance with the servicing standards. Smith must apply 29 metrics to measure whether the servicers are following the new standards. He also has the authority to create up to three new metrics and even more if he sees banks are violating standards that fall outside the scope of the existing metrics.
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TransUnion Study: Consumers Who Actively Monitor their Own Credit Open Far More New Auto LoansSubPrime Auto Finance News (10/29/12)
Consumers who monitor their own credit files open considerably more new auto loans and credit cards, and perform almost as well on those loans as consumers who do not monitor their own credit, according to a new TransUnion study. The study found that nearly 3.4 percent of consumers who monitored their credit opened a new auto loan, while only 1.9 of consumers who did not monitor their credit opened new auto loans. This trend was also seen with general-purpose credit cards. Almost 6.3 percent of the credit-monitoring population opened new credit cards, compared to 4.3 percent of non-monitoring consumers. "This finding was a key insight, as consumers who monitor their credit appear to be more receptive to new credit offers and are actively looking to open new accounts at far greater rates than non-monitoring consumers," said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit.
The study also found the delinquency rate on loans for the credit-monitoring population was only slightly higher than the non-monitoring population when controlling the credit score. The 60-day or worse delinquency rate was two percent on new auto loans opened by the credit-monitoring population and 1.5 percent for the non-monitoring population, and the 90-day or worse delinquency rate on new credit cards was 2.5 percent for those self-monitoring, compared to 1.9 percent for the non-monitoring population. This indicates that “while adverse selection is present to a certain extent, it is less of a risk to lenders,” stated Becker. “While there is an increase of risk among self-monitoring consumers, that risk is generally on the same order of magnitude as that of the non-monitoring population. As well, the incremental risk appears to be more than offset by the increase in credit demand.”
Change Afoot in Leasing, Fleet MarketsAuto Remarketing (10/29/12) Rubenoff, Sarah
According to a number of industry analysts, leasing sales volumes are up by double digits in 2012 and appear on track to continue climbing into 2013. Through the second quarter of 2012, consumer leases reached approximately 1.1 million, said Melinda Zabritski, director of automotive credit for Experian Automotive. The 2012 numbers show an 11.3 percent increase compared to the same period last year, when leases were just shy of 1 million. Through September, J.D. Power’s Power Information Network recorded 1.77 million lease sales, up from 1.55 million during the same period of 2011. Analysts from ALG found similar numbers.
With both fleet and lease numbers up and an expected rise in consumer demand, Thomas King, senior director from J.D. Power’s Power Information Network, said the two market segments will continue to rise. “As a percentage of total financing, leasing has increased slightly year-over-year. While we may see an increase in 2013, we should see volumes increase as we continue to experience a rebound in the automotive market,” Zabritski said.
“ALG is forecasting a slight dip in leasing for 2013 before picking up over the long term,” said Eric Lyman, vice president of residual value solutions for ALG. “Our forecast shows a steady increase in lease penetration, reaching near-decade highs by 2017.”
Completed Foreclosures Down 31% from Year Ago, but Remain HighDSNews.com (10/31/12) Esther, Cho
Completed foreclosures fell to 57,000 homes in September, declining 31 percent from a year ago and 22 percent from the beginning of the year, according to CoreLogic. While these numbers remain much higher than pre-recession levels, when completed foreclosures averaged 21,000 per month, “the trend is in the right direction as short sales, up 27 percent year over year in August, continue to gain popularity,” said CoreLogic’s Chief Economist Mark Fleming. The number of homes in foreclosure inventory also fell in September to 1.4 million, or 3.3 percent of all homes with a mortgage, compared to a year ago, when approximately 1.5 million homes were in foreclosure inventory. Over the 12-month period ending Sept. 2012, California had the highest number of foreclosures at 108,000, and Florida had the highest percentage of foreclosure inventory at 11.5 percent of all mortgaged homes. “The continuing downward trend in foreclosures along with a gradual clearing of the shadow inventory are signs of stabilization and improvement in the housing market,” said Anand Nallathambi, president and CEO of CoreLogic. “Increasingly improving market conditions and industry and government policy are allowing distressed homeowners to pursue refinancing, loan modifications or short sales rather than foreclosures.”
AFSA Newsbriefs is a weekly executive summary of AFSA initiatives and consumer credit articles. AFSA Newsbriefs is free for members. Send an email to [email protected] to subscribe.
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.