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AFSA Comments on “All-in Finance Charge” and HOEPA Rule

On Sept. 7, AFSA submitted a letter to the Consumer Financial Protection Bureau (CFPB) on its proposed rule to amend the Home Owner’s Equity Protection Act (HOEPA) and the new, expanded definition of “finance charge.” In the letter, AFSA wrote, “AFSA members feel very strongly that the Bureau should not adopt the proposal to expand the definition of finance charge (all-in finance charge) and urge the Bureau to table any discussion of adopting an all-in finance charge until after all regulations mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act have been finalized, lenders have had a chance to implement the new rules, the full impact of these regulations can be gauged, and the Bureau can conduct empirical studies to determine whether additional changes are necessary to effectuate the purposes of the Truth in Lending Act and HOEPA.”
 
AFSA also expressed concerns with the proposed HOEPA rule. The letter stated that “if the Bureau adopts the all-in finance charge concept, it will need also to exclude from the definition of points and fees the additional closing costs that are captured by the all-in finance charge. Otherwise, a significant portion of transactions that now fall outside of the coverage of HOEPA would become high-cost mortgage loans.” Additionally, AFSA commented on the HOEPA counseling certification requirements and the prohibition on fees for payment deferrals.

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AFSA News
AFSA Renews Request to “Rethink” Lease Accounting Proposal

AFSA joined several other organizations, representing all sectors of the global economy, in a Sept. 10 letter to the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). The letter followed up on several previous requests regarding the Proposed Accounting Standards Update on Leases (lease accounting proposal). In 2009, the two boards initiated a joint project to develop a new approach to lease accounting that would ensure that assets and liabilities arising under leases are recognized on a lessee’s balance sheet.
 
The letter stated, “While we have raised a series of substantive concerns regarding the leases proposal, we have also raised a series of procedural concerns that directly impact the foundation of this effort. These issues, as well as recent investor concerns, prompt us to write this letter despite some beneficial changes to the real estate portions of the lease accounting proposal. In our May 26, 2011, letter, we raised serious concerns regarding the process of consideration of the lease accounting proposal and that a failure to address those issues would adversely impact the development of an accounting standard that would have broad negative implications for businesses, investors and the economy as a whole… Unfortunately, these concerns have come to fruition.” The letter renewed the organizations’ July 8, 2011, request that FASB and IASB conduct a “fundamental rethink” of the lease accounting project.

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Inside the Beltway
Regulatory Bill Sparks Alarm among Reform Advocates
American Banker (09/12/12) Wack, Kevin

Supporters of financial reform are pushing back against a bipartisan Senate bill that would require independent federal agencies, including the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau, to conduct a cost-benefit analysis of a proposed regulation and submit it to the White House for review. The president would be able to require the agencies to take a number of steps before issuing a new rule. The Federal Reserve Board's monetary policy duties would be exempt.
 
Under the bill, White House regulatory officials would issue a written determination of whether an independent agency complied with the required analysis. While the White House could not stop regulators from moving forward, financial reform advocates argue that a poor review would be fodder for industry lawsuits. "The litigation that's going to be created from this act is almost unbelievable," said Dennis Kelleher, president of Better Markets, a non-profit group that advocates for financial reform. "They're called independent agencies because they're independent of the executive branch. What this bill would do is actually subordinate them to the executive branch."
 
Sponsored by Rob Portman (R-OH), the bill is currently under consideration by the Homeland Security and Governmental Affairs Committee. No hearing has been held on the bill, and the committee will not reconvene until after the election. Mark Warner (D-VA) supports the bill and will be an important player in the deliberations. But opposition could come from committees that would see their authority diminished over other independent agencies such as the Nuclear Regulatory Commission. Senate Banking Committee Chairman Tim Johnson (D-SD) also expressed concerns about the legislation's potential impact to water down the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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Eminent Domain Furor Hits Capitol Hill
Wall Street Journal (09/13/12) Zibel, Alan

On Sept. 13, Rep. John Campbell (R-CA) introduced legislation that would prevent efforts by local governments to seize troubled mortgages through eminent domain. The bill, “Defending American Taxpayers from Abusive Government Takings Act,” would use Fannie Mae, Freddie Mac, the Federal Housing Administration and the Veterans Administration to block the concept. While the eminent domain proposal impacts private loans that are not guaranteed by the government, the bill would prevent government-sponsored entities from buying or guaranteeing loans in localities where a local government used eminent domain to seize a mortgage loan. Since the majority of home loans come through these entities, Rep. Campbell says the legislation would essentially stop the eminent domain idea.
 
The eminent domain concept, which is being pushed by San Francisco-based venture capital firm Mortgage Resolution Partners, has been strongly opposed by the mortgage industry. The Federal Housing Finance Agency has also said it is considering taking action against the idea. Daniel Alpert, managing partner of Westwood Capital – the investment bank hired by Mortgage Resolution partners to raise funds from investors – says this is a state’s rights issue. “I’d find it hard to believe that Congress would support blatantly retaliatory measures against cities and counties that are exercising their statutory powers under the constitutions of their states,” he said.

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National and State News
Retail Trade Group Plans to Fight Swipe Fee Settlement
Reuters (09/11/12) Dorfman, Brad and Dye, Jessica

The National Retail Federation (NRF) is opposing the proposed $7.2 billion settlement between some U.S. retailers and Visa and MasterCard over alleged price-fixing of swipe fees (fees charged to retailers to process credit card transactions), and has said it is exploring forms of legal action. The NRF said the settlement did not stop anti-competitive behavior by the card companies and would allow swipe fees to continue to rise while preventing further legal challenges.

According to court documents, under the terms of the settlement, which would resolve a seven-year lawsuit, the card companies offered to pay $6 billion and temporarily reduce swipe fees to save retailers about $1.2 billion over an eight-month period. It would also give merchants the right to negotiate collectively over swipe fees and would include broad releases shielding the credit card companies from future litigation over similar issues. The settlement still requires court approval.
 
The group of U.S. retailers that are the plaintiffs in the case said they remain on target to file for preliminary approval of the settlement by Oct. 12 and are unconcerned by the NRF’s opposition because it is up to the judge to approve the settlement, not the retailers. Trish Wexler, a spokeswoman for the Electronic Payments Coalition (EPC), called the NRF objections a “politically motivated” attempt to wrangle more concessions on swipe fees, both in the courtroom and before Congress. “We remain confident that the courts will approve this settlement agreement, particularly considering the years of negotiation and careful review of all evidence from both sides that has already been considered,” she said.

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Bundled U.S. Car Loan Deals Enjoy Comeback
Financial Times (09/12/12) Foley, Stephen and Rodrigues, Vivianne

Drivers are trading in their vehicles more regularly, a result of the booming demand for asset-backed securities (ABS) that has led to cheap financing. Due to the low availability of higher-yielding assets that has driven interest rates to historic lows, investors are increasingly purchasing securities created from pools of auto loans faster than lenders can sell them, enabling lenders to make more loans to more people at lower rates. Investors are increasingly clamoring for the high-risker risk portions of car and other types of ABS, suggesting the possibility of looser underwriting standards and increasing the options for subprime borrowers.
 
Along with heavy demand for prime car ABS deals, demand for securities in the secondary market has also been strong. Spreads in Barclays ABS (auto) index tightened to 0.48 basis points over similar swaps, compared to 0.92 a year ago. Tightening also was seen in other ABS classes, like credit card balances. Auto loan defaults remained low despite the credit crisis and recession, and according to analysts at bond rating firm Kroll, the value of the collateral for car loans has also been boosted by improvements in the second-hand car market, further bolstering investor sentiment. Jeremy Anwyl, Edmunds.com chief executive, predicts further improvement in financing conditions thanks to the booming demand for ABS. “For investors, interest rates are pretty high, the risk is fairly low. That seems like a pretty good deal to me.”

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U.S. Unbanked Households Rising as FDIC Pushes for Alternatives
Bloomberg (09/12/12) Dougherty, Carter

The U.S. unbanked population grew to 8.2 percent of the nation’s households in 2011, a 0.6 percent increase from 2009, according to the Federal Deposit Insurance Corp. (FDIC) National Survey of Unbanked and Underbanked Households, which was released on Sept. 11. Rather than managing their finances with accounts at insured institutions, the approximately 17 million unbanked adults (1 in 12 households) rely on non-bank financial companies such as payday lenders and check-cashing firms, according to the report. One in five households, or 20.1 percent, were underbanked (relying on alternative services even though they have bank accounts) in 2011. The report also concluded that minorities were more likely to be unbanked. The percentage of unbanked black and Hispanic households was 21.4 percent and 20.1 percent, respectively, whereas the percentage of unbanked white households was 4 percent and Asian households 2.7 percent.

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Foreclosure Pace Fell Nationwide in August from 2011
Associated Press (09/13/12) Viega, Alex

Foreclosure filings nationwide fell 13 percent in August from a year ago, according to RealtyTrac, showing a marked slowdown in foreclosure starts since the peak in April 2009. Increases in foreclosure starts occurred almost exclusively in judicial states like Florida and New York, whereas non-judicial states like California and Arizona had declines compared to August of last year. While experts expect the pace of homes entering the foreclosure process to gradually decline unless a severe economic shock occurs, they say it will continue to vary depending on states’ approaches to handling foreclosures. Foreclosure starts had annual increases in 18 states, mostly all of which had judicial foreclosure processes. Experts say judicial foreclosure states, where courts play a role in foreclosures, are now wading through the backlog of pending cases resulting from last year’s industry-wide slowdown.
 
One significant exception was Washington, a non-judicial state, where foreclosure starts more than doubled. RealtyTrac attributed this anomaly to a backlog of cases resulting from a state law that took effect in July 2011 allowing borrowers to request foreclosure mediation. “This trend in state legislation intervening in the foreclosure process in some of the non-judicial states, particularly over the past six months to a year, is actually going to prolong the time it takes to fully clear this backlog of foreclosure properties,” said Daren Blomquist, a vice president at RealtyTrac.

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People
CFPB Appoints Members to Its Consumer Advisory Board
HousingWire (09/12/12) Panchuk, Kerri

On Sept. 12, the Consumer Financial Protection Bureau (CFPB) announced the appointment of 25 individuals to its newly created Consumer Advisory Board. Board members include executives, law professors and lawyers with backgrounds in financial services, consumer protection and housing services. Board members will serve three-year terms with staggered appointments and will be utilized by the Bureau when it is enforcing rules and shaping lending and consumer protection guidelines. “This group of experts truly represents the interests of the diverse people and communities we serve,” said CFPB director Richard Cordray. “The Consumer Advisory Board will be a key resource to the CFPB and I look forward to working with its members to further our mission to protect American consumers.” The board will hold its first meeting on Sept. 27.

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September 13, 2012

Forward To A Colleague





Wells Fargo Preferred Capital
TCI
ParaData Financial
Allied Solutions
GoldPoint Systems
Life of the South
Megasys
Overby-Seawell
Black Book
Counselor Library
Carleton, Inc.
McGladrey
XEROX
About
AFSA Newsbriefs


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.