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AFSA Submits Amicus to California Supreme Court
On Sept. 26, AFSA joined the California Financial Services Association (CFSA) and the California Bankers Association (CBA) in submitting an amicus brief to the California Supreme Court in the Sanchez v. Valencia Holding Company, LLC case. The case is of very serious concern to the vehicle finance industry. The standard form California conditional automobile sale contract contains an arbitration provision containing a class-action waiver that bans class-wide arbitration. The lower court’s decision in Sanchez allows plaintiffs to avoid arbitration, avoid enforcement of the class-action waiver, and avoid Federal Arbitration Act pre-emption under AT&T Mobility LLC v. Concepcion with a simple declaration by the consumer that the consumer did not read the back side of the contract. The amicus brief asks that the court hold that the form’s arbitration provision is enforceable and reverse the lower court’s judgment.
CFPB Provides Details on Amicus Program
On Oct. 3, AFSA staff attended a meeting at the Consumer Financial Protection Bureau (CFPB) to discuss the Bureau's amicus program. Senior members of the CFPB's legal team, including General Counsel Meredith Fuchs, led the discussion. The CFPB files amicus, or friend-of-the-court, briefs in court cases concerning the federal consumer financial protection laws that the CFPB is charged with implementing. The CFPB files these briefs to provide the courts with its views on significant consumer financial protection issues and "to help ensure that consumer financial protection statutes and regulations are correctly and consistently interpreted by the courts."
The CFPB will identify cases in which to participate in a few ways: the court may ask the CFPB to file an amicus, an interested party may request the CFPB's participation, CFPB staff may identify a case, or a person or organization may solicit the CFPB's help via the CFPB's website or email ([email protected]). The CFPB will most likely participate in cases that involve important issues, in which the decision will have a substantial effect, and cases that appear in federal appellate or state Supreme Court cases. The CFPB is looking for cases in which it has authority over laws involved and a clear position on the issues presented. Cases are also more likely to be considered if they have substantial precedential impact, if the courts are divided on the issue, and if it is likely that the courts will reach the issue that is important to the CFPB. To date, the CFPB has filed six amicus briefs in federal appellate court, dealing with the Fair Debt Collection Practices Act (FDCPA), the Truth in Lending Act (TILA), and the Real Estate Settlement Procedures Act (RESPA). The CFPB has also submitted five amicus briefs to the U.S. Supreme Court dealing with FDCPA and RESPA. CFPB staff said that briefs filed at the Supreme Court level were developed in conjunction with the Solicitor General’s office, as is the case with any other federal agency.
In response to questions posed at the meeting, CFPB staff emphasized that its amicus briefs were not to be viewed as guidance and that the CFPB would not use amicus briefs to interpret rules. Staff added that if industry representatives had questions about how to interpret rules, they hoped that industry would ask for clarification.
AFSA Submits Brief in Statute of Limitations Case
On Sept. 28, AFSA submitted an amicus brief in the Bediako v. American Honda Finance Corporation case in the U.S. Court of Appeals for the Fourth Circuit. The case addresses a limited issue, although the resolution of that issue is “likely to affect ‘tens of thousands if not hundreds of thousands of loan obligations currently outstanding’ in Maryland alone, including in the areas of motor vehicle loans, mortgages, personal loans, and others,” as the brief states. The issue in the case is whether the Maryland Credit Grantor Closed End Credit Provisions (CLEC) that specifies that an action for a CLEC violation “may not be brought more than 6 months after the loan is satisfied” is a standalone statute of limitations providing, as the plaintiff suggests, for the possibility of lifelong liability for creditors to borrowers so long as the borrower never satisfies the loan completely. AFSA contends the opposite – that the CLEC is a statute of repose that, if applicable, operates in tandem with an applicable statute of limitations.
AFSA Attends Democratic Attorneys General Association Meeting
On Sept. 27, AFSA staff attended the Democratic Attorneys General Association’s (DAGA) Fall Policy Forum luncheon held in Washington, D.C. Various Democratic attorneys general from different states were in attendance, including those from Connecticut, Hawaii, Kentucky, Maryland, Massachusetts, Missouri, Nevada, New Mexico, Oregon, Tennessee, Vermont and West Virginia.
The meeting focused on the current political landscape and state elections. The Democratic Governors Association’s (DGA) Executive Director gave an overview of this year’s DGA races. Other sessions included a discussion regarding female democratic candidates, as well as a political update on the AG races across the country, where attendees were able to hear from the candidates themselves.
New Member Welcome
AFSA welcomes new Active Member Global Lending Services, LLC and new Business Partner InterPoynt, LLC.
Based in Atlanta and formed in early 2012, Global Lending Services, LLC (GLS) provides finance and insurance products to automotive dealerships in the United States. website
InterPoynt, LLC, headquartered in Atlanta, provides web-based and phone-based electronic bill payment processing services. website
Why the CFPB’s AmEx Fine Should Scare BankersAmerican Banker (10/01/12) Adler, Joe and Davidson, Kate
The Consumer Financial Protection Bureau (CFPB) issued its third enforcement action on Oct. 1 against American Express, and while the total monetary penalties are lighter than in the Bureau’s first two enforcement actions against Capital One and Discover, the action’s broad reach has sent a significant warning to entities that provide consumer financial products and services. The Bureau’s American Express action targets violations ranging from improper debt-collection practices to discrimination against new customers on the basis of age and failure to report consumer disputes to consumer reporting agencies. Unlike the other enforcement actions, the action addresses problems appearing "at every stage of the consumer experience, from shopping for cards, to applying for cards, to paying charges, to paying off debt,” said the Bureau.
"If it only dealt with something unique to American Express such as their membership rewards program, then you could think this is only a one-off issue that just applied to American Express," said Anita Boomstein, a partner at Hughes Hubbard & Reed. "If it's a more broad-based effort to enforce a lot of existing laws … then you would take note of that because it might be indicative of a pattern of what they're going to be looking at." Also unusual was the number of agencies and entities involved in the actions against American Express – including the Federal Deposit Insurance Corp., Federal Reserve Board, Office of the Comptroller of the Currency and Utah Department of Financial Institutions. Observers say the Bureau’s ability to coordinate consumer-compliance efforts among multiple regulators helped lead to such a far-reaching action.
The inclusion of debt-collection practices in the orders also indicates a new area the Bureau may concentrate on in the future, noted Isaac Boltansky, an analyst with Compass Point Research and Trading. "The CFPB has been relatively quiet on the issue of debt collection ever since they designated debt collection firms as ‘larger participants’ earlier this year. … The work that they've done here on deceptive debt collection practices is a theme that we're going to see prominently from the CFPB in 2013," said Boltansky.
Judge Questions Intent, Impact of Durbin Interchange RuleAmerican Banker (10/02/12) Finkle, Victoria
On Oct. 2, merchants, the Federal Reserve and a coalition of banking trade groups made their case as friends of the court during oral arguments before Judge Richard J. Leon in the U.S. District Court for D.C. regarding the retailers’ lawsuit against the Federal Reserve Board’s implementation of the debit card interchange fee cap under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Leon’s questions centered around whether the Fed, when setting the debit interchange limit, appropriately considered the cost incurred by the issuer with respect to the transaction, as it was directed. He also questioned the Fed about why they changed the limit from a 12-cent cap in their initial proposal to a 21-cent cap in the final rule. The Fed said that they incorporated additional costs in their calculation after receiving comments on the proposed rule, and emphasized the practical difficulties of determining which costs were appropriate to consider.
Leon was also concerned about the potential impact on merchants that handle small-dollar transactions, after the merchants said in some cases they pay a larger proportion of the ticket sale on each purchase towards interchange and that the fees may actually increase. Banking groups present argued the Fed did not go far enough when considering various issuer costs and that the fee should be set higher.
Calif. BHPH Dealers to See More Regulations, Dodge Interest Rate CapF&I Showroom (10/01/12)
On Sept. 29, Calif. Governor Jerry Brown signed into law two bills regulating buy-here, pay-here (BHPH) dealers, but vetoed the third proposal, SB 956, which would have limited the interest rates dealers could charge to originate a loan at 17.25 percent and required dealers to register with the Department of Corporations. In his veto message, Brown stated he was “not yet convinced the evidence merited the regulatory oversight of the bill,” and that “if consumers need added protection once those bills are implemented, my administration will work with the Legislature to find appropriate, measured solutions.” The bill’s sponsor Ted Lieu said he will “work with the administration to address the excessive interest rates being charged by buy-here, pay-here dealers . . . and to address the issue of excessive default rates and churning, where the same used car is sold over and over again."
The two bills signed by Brown – AB 1447 and AB 1534 – become effective Jan. 1, 2013. AB 1447 prevents BHPH dealers from requiring customers to make loan payments in person and prohibits them from utilizing electronic tracking devices and disabling vehicles with starter interrupt technology unless they meet certain disclosure requirements. AB 1534 requires BHPH dealers to prominently and conspicuously post the vehicle’s reasonable market value on the vehicle.
Major Servicers Report Implementing 320 Servicing StandardsDSNews (10/02/12) Bay, Carrie
All five banks subject to the national mortgage settlement reached with the U.S. Department of Justice and 49 state attorneys general say they are in full compliance with the agreement’s mortgage servicing standards. The banks were required to implement the 320 servicing standards outlined in the agreement by Oct. 2. The rules address areas like borrower communication, providing a single point of contact, training loss mitigation staff and handling documentation related to foreclosure actions. In an Oct. 2 statement, the settlement’s designated monitor, Joseph A. Smith, Jr., said he will “conduct careful and thorough reviews of the banks’ processes to assure and verify that they are compliant with the settlement’s rules.” Smith will assess the servicers’ compliance using a series of 29 defined metrics. He will be evaluating the third and fourth quarter performance of the servicers against the metrics beginning in the first quarter of 2013. “While my team and I will work to review the banks’ compliance ourselves, I also need to hear from consumer professionals in the marketplace who work on these issues day in and day out,” said Smith. “I am asking these professionals to report to me when they see a mortgage servicer breaking the rules established in the settlement.”
Amazon Quietly Making Online Loans to MerchantsAmerican Banker (10/01/12) Sposito, Sean
Amazon has entered the lending business by making loans to some of its online sellers to fund their inventories upfront. Backed by Amazon Capital Services, Amazon Lending has been operating in a limited testing stage for about a year. The company reportedly is applying for lending licenses state by state and awaiting approvals.
Online retailer Firefly Buys received a loan from Amazon for more than $100,000. Jonathan Katz, senior vice president of strategy and marketing for Firefly Buys, provided details of the program. "This is more like an installment loan, where you do a six-month term, and you make equal payments every month," he said. "So they advance you the $300,000 and then every month for the next six months, you pay back $50,000 of the principal.” Amazon takes installments directly from the order payments it processes for the company, he added.
Jim Van Dyke, president and founder of Javelin Strategy & Research, sees financial services as a natural extension for Amazon. "From payments to financing, it's possible that we could even see Amazon go further into financial services," he said.
Colorado Payday Loans Drop by 60 Percent but Other Small Loans JumpThe Denver Post (10/02/12) Migoya, David
As a result of 2010 legislation that capped the interest payday lenders can charge and the size of loans they provide, in 2011, the number of payday lenders in Colorado and the number of loans made fell by 14 and 60 percent, respectively, according to an annual report on subprime lending by the state attorney general. The report also showed that the number of small installment loans (limited to $1,000, terms of 90 days to a year to repay, and interest rates of 10 percent) rose by more than 180 percent, although payday loan still outnumber small installment loans by 70 to 1. Only five companies were licensed in Colorado to provide small installment loans. The report also looked at traditional supervised loans made by finance companies and auto loans, student loans and loans for household goods, of which the average loan amount increased to $6,037 in 2011 from $5,563 in 2010.
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.