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DOJ Fires Back in Case against CFPB, Dodd-Frank
American Banker (11/21/12) Blackwell, Rob

The Department of Justice (DOJ) called for the dismissal of the lawsuit challenging the constitutionality of the Consumer Financial Protection Bureau (CFPB) and Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which was filed in June by State National Bank of Big Spring, Competitive Enterprise Institute, 60 Plus Association. Later, the attorneys general from South Carolina, Michigan and Oklahoma joined the suit regarding the Financial Stability Oversight Council’s authority to designate large nonbank financial institutions as systemically important.
The bank claims that the CFPB and Richard Cordray’s recess appointment as director are unconstitutional. Attempting to demonstrate harm that will give it legal standing, State National Bank argues it was harmed by the Bureau’s pending mortgage and remittance regulations, which forced it to leave those businesses. "Despite the roving allegations of unconstitutionality set forth in the amended complaint, not one of the statutorily authorized actions that plaintiffs speculate might someday cause them harm has yet occurred," said the Justice Department. The DOJ also noted that the CFPB does not have enforcement authority for banks with less than $10 billion assets (State National Bank has $285 million in assets).
In response to the state AGs claims that their state pensions could be hurt in a wind-down of a systematically important firm by the Federal Deposit Insurance Corp., the Justice Department said no such failure has occurred or is likely to occur. "None of the plaintiffs has been injured by a Bureau regulation, Bureau enforcement action, Council designation, or Title II liquidation, and their subjective and unfounded fears that they might someday be affected by such actions are not enough to invoke this court's jurisdiction.”

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Georgia Tax Law Disadvantages Vehicle Leasing

AFSA sent a letter to the Georgia Department of Revenue Office of Tax Policy raising significant concerns about a law that requires finance companies that provide vehicle leases to pay an initial Title Ad Valorem Tax (TAVT) in addition to the monthly sales taxes on the lease payments. AFSA was approached by a couple other trade associations representing the leasing industry about the issue. AFSA sought input from these groups, invited them to cosign the letter and ultimately submitted the letter jointly with the National Vehicle Leasing Association on November 28.
The letter emphasizes how GA HB 386, which was signed into law on April 19, will result in substantially higher overall costs for leasing versus purchasing a vehicle, putting leasing at a competitive disadvantage and denying some consumers the benefit of leasing. The letter noted that discouraging leasing could negatively affect tax revenue generation in the state, because a leased vehicle generates more revenue because of the frequent ownership change.
To keep a finance company’s cost of a purchase or lease agreement relatively  the same, AFSA recommended that Georgia either exempt leases from the TAVT and continue to hold them liable for sales and use tax, or adopt the tax purchase model in which TAVT is paid each time vehicle ownership is changed, without additional monthly sales taxes.

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AFSA Submits Comment Letter to FCC

AFSA submitted a comment letter to the Federal Communications Commission (FCC) regarding permissible non-telemarketing calls to wireless phones. AFSA’s letter generally supported Communication Innovators’ (CI) Petition for Declaratory Ruling. The petition asks the FCC to “clarify that companies may use predictive dialers to place non-telemarketing calls to wireless telephone numbers without triggering the [Telephone Consumer Protection Act’s or] TCPA’s autodialer restrictions, particularly when such dialers do not have the current ability to generate and dial random or sequential numbers.” AFSA’s letter stated that the FCC’s interpretation of “autodialer” has caused significant confusion and an array of unintended consequences that limit innovation. The letter added that today’s innovative predictive dialing technology provides significant benefits to customers and businesses.
However, AFSA supported a slightly different exception for predictive dialers than outlined in the petition. The letter requested that “the FCC clarify, consistent with the text of the TCPA and Congressional intent, that predictive dialers that (1) are not used for telemarketing purposes and (2) are not used to generate and dial random or sequential numbers regardless of whether they could be made to, are not autodialers under the TCPA and the FCC’s TCPA rules.” AFSA does not support limiting the exception for predictive dialers to those that neither have nor even with significant alterations could not have the ability to generate and dial random or sequential numbers.

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AFSA Details Concerns with North Dakota Proposed Debt Collector Definition

On Nov. 19, AFSA submitted a comment letter to the North Dakota Department of Financial Institutions regarding their proposed administrative rule amendments relating to collection agencies. Specifically, AFSA members expressed concern about the department’s proposed amendment to the definition of “debt collector,” which would significantly broaden the scope of the term by removing the current exclusion of banks and a creditor collecting its own debt from licensing requirements. The expanded definition will impose unnecessary and undue burdens on creditors. In addition, the potential change in definition introduces a confusing disconnect with other areas of North Dakota’s Code, which still distinguishes “debt collector” from “creditor” in some places. AFSA recommends the rule be clarified to state it does not apply to a creditor collecting its own debt or the debts of affiliates under common ownership and control, in line with most federal and state debt collection laws, and the definition be rewritten to prevent disconnect with other areas of the code outlining licensing requirements.

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Inside the Beltway
Hensarling Officially Tapped to Head Financial Services Panel
The Hill (11/28/12) Schroeder, Peter

Rep. Jeb Hensarling (R-TX) was officially selected on Nov. 28 to head the House Financial Services Committee in the 113th Congress. Hensarling stated that his goal over the next two years is to reduce financial regulations, end “too big to fail” and keep financial markets in check. “We must also reduce taxpayer risk in the marketplace and cut the sheer weight, volume, complexity, and uncertainty of the federal red tape burden that makes capital more expensive and less available. When we do, we can revive and strengthen the free enterprise system – the best housing and jobs program known to man,” he said.
The committee is expected to take on an overhaul of the nation's housing finance system in coming months. Hensarling had sponsored sweeping housing overhaul bills that would either dissolve Fannie Mae and Freddie Mac or allow them to function as fully private entities. A fierce critic of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Hensarling may attempt to alter or roll back some of the law’s provisions.
The head of the House Republican Conference, Hensarling was unchallenged for the chairmanship left open by Rep. Spencer Bachus (R-AL) who hit his term limit on the committee. Hensarling serves as vice chairman in the current session of Congress. Rep. Maxine Waters (D-CA) is expected to replace retiring Rep. Barney Frank (D-MA) as the committee’s top Democrat.

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Regulators Warn Firms on Mortgage Ads
The Wall Street Journal (11/19/12) Jackson, Maya

Nineteen non-banks operating in the mortgage market were warned that their advertising practices might be misleading consumers and violating federal law in letters sent by the Federal Trade Commission (FTC) and Consumer Federal Protection Bureau (CFPB) on Nov. 19. The agencies highlighted ads that appeared to exaggerate financial benefits of certain home loan products or programs, made troublesome claims targeted at veterans or the elderly and seemed to mislead consumers into believing the programs were affiliated with the federal government. The regulators also announced the launch of deeper investigations into potential violations of the 2011 Mortgage Acts and Practices Advertising Rule, of which they share enforcement authority. Industry groups, including the American Financial Services Association, have welcomed the scrutiny, stating it "supports ensuring the accuracy of advertisements."

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Federal Lending Push Swells Student Debt
The Wall Street Journal (11/27/12) Mitchell, Josh

In 2010, Congress eliminated much of the private student loan market and began making loans directly, rather than guaranteeing private loans, as part of a money-saving effort touted by President Obama. Last year, 93 percent of student loans were made directly by the federal government, which does not focus on a borrower’s ability to repay or what education they intend to pursue. The Department of Education said the goal was "to make student loans available to as many people as possible," and that requiring minimum credit scores would prevent many Americans from going to college. However, according to the Federal Reserve Bank of New York, U.S. student-loan debt rose by 4.6 percent to $956 billion in the third quarter, leading some to ask if it has become too easy to borrow too much.
By comparison, overall household borrowing fell in the third quarter and delinquency rates for all other consumer-debt categories either fell or were flat. The Fed data shows that total student debt has increased more than 56 percent, adjusted for inflation, since the end of 2007. During the same time, overall household debt, which includes mortgages, student loans, auto loans and credit cards, dropped 18 percent to $11.31 trillion as of Sept. 30.
"What we're really doing is piling up debt down the road the same students are going to have to pay off," said Sen. Bob Corker (R- TN) at a July hearing. Student debt is extremely difficult to discharge in bankruptcy. After falling behind on payments, a borrower typically finds it harder to obtain other types of consumer loans, or can only do so at higher interest rates. Earlier this year, Moody’s economist Cristian deRitis warned that a wave of future student-loan defaults could have a "crippling effect on the ability of many households to access credit in the future."

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National and State News
State Street: Sandy Recovery is in the Credit Cards for Insurers
NJBIZ (11/26/12) Kaltwasser, Jared

On Nov. 2, New Jersey Governor Chris Christie opened a new market for credit card companies, issuing an executive order allowing regulated insurance companies to issue claim payments via prepaid debit card. Christie also stipulated that consumers must have the ability to choose which form of payment they want, convert payments into cash, and cannot be charged fees by insurers. While New Jersey and the federal government already issue certain social program payments by prepaid cards, this is the first time the Department of Banking and Insurance has let regulated insurers utilize the cards. Card companies are hoping the change will become permanent and the state will expand the use of cards to issuing income tax refunds. "Branded prepaid cards, including MasterCard, are widely accepted by retailers, contractors and others, and also allow online and telephone purchases to be made," said Ron Hynes, group executive of global prepaid solutions at MasterCard. "This was a good call by the governor that will benefit people all across our state." Prepaid debit cards can be especially beneficial for consumers who do not have a bank or have lost access due to Hurricane Sandy, Hynes added.

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Visa, MasterCard Settlement Order Appealed by Plaintiffs
Bloomberg Businessweek (11/27/12) Smythe, Christie

Plaintiffs in the interchange fee lawsuit against Visa and MasterCard are appealing the proposed $7.25 billion settlement that was given preliminary approval in early November, arguing the provision that would prevent merchants from suing over the fees in the future is unfair. The settlement would end seven years of litigation over interchange fees. “The retailer objectors are focusing on an extremely limited and technical issue,” said Trish Wexler, a spokeswoman for the Electronic Payment Coalition. The move “does nothing to slow or change the settlement process.”

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GM Financial Acquires Ally’s Remaining Foreign Operations
SubPrime Auto Finance News (11/26/12)

With help from its parent company, GM Financial will acquire Ally Financial’s automotive financing operations in Latin America, Europe and China. While subject to regulatory approval, the transaction is expected to be completed by mid-2013. The news follows Ally’s recent announcement of agreements to sell its Mexican insurance subsidiary and its auto finance and deposit businesses in Canada. When the transactions are complete, Ally will have effectively exited the international markets. 

"The Ally International Operations have very strong underwriting and risk management, close relationships with GM dealers and an excellent customer service reputation," said Dan Berce, president and chief executive officer of GM Financial. He added that the international operations leadership team will transition to GM Financial.

"In May, we began a process to pursue alternatives for our international operations in an effort to accelerate repayment plans for the U.S. Treasury's remaining investment," said Ally CEO Michael Carpenter. "This transaction represents the third and final agreement in recent weeks toward those goals, and, combined, these sales are expected to generate approximately $9.2 billion in proceeds."

"Going forward, we remain squarely focused on further strengthening and growing our leading U.S. automotive services and direct banking franchises," Carpenter continued. "We have strong momentum in these businesses, and continued successful execution of our strategic plans will enable these operations to further thrive."

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November 29, 2012

Forward To A Colleague

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AFSA Newsbriefs

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