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Deluge of New Bank Rules Incoming After Quiet Summer
American Banker (09/17/12) Adler, Joe and Davidson, Kate and Finkle, Victoria

Regulatory activity is expected to accelerate in the next few months as regulators push to release a flood of new regulations, including some of the most contentious, before Jan. 1. Isaac Boltansky, an analyst with Compass Point Research and Trading, predicts rulemaking to especially pick up mid-October, “largely due to comment periods ending as well as a renewed sense of importance given the post-election setting."
The Volcker Rule was supposed to become effective two months ago, but has yet to be finalized. Regulators have said they will try to get a final rule before 2013, but they may need another round of proposed rulemaking first. More delays are likely because of the vast number of regulators that must agree to the rule, the chance of disagreement over how exemptions from the proprietary trading ban will be crafted, and how to define “hedging” and “market-making” activities.
The Consumer Financial Protection Bureau’s final qualified mortgage (QM) rule has also been pushed back to the end of the year. The Dodd-Frank Wall Street Reform and Consumer Protection Act mandates a final rule by Jan. 21, 2013. This delay has also had an impact on the risk retention rule, because the qualified residential mortgage (QRM) is supposed to be more broadly defined than the QM. Observers predict that regulators will continue to wait for the Bureau to finalize the QM rule before they move ahead. The Bureau is also under pressure to finalize recently proposed mortgage servicing regulations, which also become effective on Jan. 21, regardless of whether or not they are finalized. If the agency were to miss the date, "the statute becomes effective, but there are no implementing regulations in place, which means that there can be ambiguity, lack of clarity," said Thomas Vartanian, a partner at Dechert LLP.
Progress is expected on the Financial Stability Oversight Council’s proposed rule designating certain non-banks as “systemically important.” Before the end of the year, "it's reasonable to believe the process will at least begin in earnest" on designating firms, said Coryann Stefansson, Managing Director at PricewaterhouseCoopers.

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AFSA Makes Case for Installment Loans

AFSA president & CEO Chris Stinebert responded to an American Banker article claiming a “lack of safe, affordable, high quality small-dollar credit options” with a letter to the editor. Stinebert explained how installment loans are vastly different from payday, pawn, direct deposit advance and auto title loans. He emphasized that installment lenders report consumers’ payment behavior to credit bureaus and the loans are fully amortizing, do not require a balloon payment, and are without the associated cycle of debt.
“Installment lenders have been successfully serving their communities with small-dollar credit for close to 100 years, and have been effectively regulated at the state level. These loans meet [the Center for Financial Services Innovation’s] definition of ‘high-quality credit,’ which according to the study "must be affordable, marketed transparently, priced fairly, structured to support repayment without creating a cycle of repeat borrowing and should support credit-building," Stinebert said.

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Inside the Beltway
CFPB Opposes 20% Down Payment, Won’t Abuse Powers: Cordray
American Banker (09/13/12) Berry, Kate

While testifying before the Senate Banking Committee, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray told lawmakers that the Bureau would not include the 20 percent down payment requirement for high-risk loans in its proposal requiring mortgage lenders to verify a borrower’s ability to repay a loan, which would define a “qualified mortgage” (QM) that automatically complies with the rule. Cordray did not clarify whether the Bureau would oppose the 20 percent down payment requirement that regulators have proposed in their plan exempting loans defined as “qualified residential mortgages” from risk retention requirements.
At the hearing, Cordray also described the Bureau’s response to the 72,297 complaints it received from consumers as of Sept. 3, a process that was criticized by Sen. Bob Corker (R-TN), who questioned why the Bureau puts complaints against banks and other financial institutions on its website. “Do you all verify that they are real,” asked Corker, “are you first checking out the complaint to make sure it's real or is it a gossip board?” Cordray said that Bureau verifies the relationship between the customer and the company and weeds out some complaints. He also said that the Bureau’s process of publicizing the complaints, which is similar to the process of other federal agencies like the Consumer Product Safety Commission, puts pressure on financial institutions. “We do find it somewhat incentivizes companies on how they can serve their customers better,” he stated.

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Commentary: A $447 Million Consumer Alert
The Wall Street Journal (09/19/12) Neugebauer, Randy

In this opinion article, Rep. Randy Neugebauer (R-TX) criticizes spending at the Consumer Financial Protection Bureau (CFPB) and the Bureau’s vague responses to Congressional requests for details. The Bureau has sole authority to determine its $550 million-plus annual budget, and its funds transfer requests are often one page and do not detail how the money will be spent. “At a time when the federal debt is so high that we are borrowing 40 cents of every dollar we spend as a nation, shouldn't we expect some spending accountability from the Consumer Financial Protection Bureau?” Neugebauer asks.
While CFPB director Richard Cordray has stated the Bureau’s commitment to “transparency and accountability," requests by the House Subcommittee on Oversight and Investigations to review the Bureau's statutorily required financial operating plans and forecasts were denied. As of Aug. 28, approximately 60 percent of the CFPB’s 958 employees make more than $100,000 a year. “I look at hardworking Americans – who make a median annual salary of $50,054 – and I wonder: Why is it necessary for a government agency, let alone one that was created to assist and protect consumers, to pay the majority of its employees six-figure salaries?” Other examples of questionable expenditures at the CFPB are $124,090,000 for undefined "other services," $40 million for building renovations, and providing consumer information in 187 languages.
To strengthen oversight of the CFPB and make it more accountable, Neugebauer has introduced H.R. 1355, "The Consumer Financial Protection Safety and Soundness Improvement Act," which would end monetary transfers from the Federal Reserve and put the Bureau under Congressional oversight of its budget.

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National and State News
Republican State AGs Resisting Cooperation with Consumer Bureau
Bloomberg (09/19/12) Dougherty, Carter

A group of Republican state attorneys general (AG) have refused to sign a memorandum of understanding (MOU) with the Consumer Financial Protection Bureau (CFPB) designed to “preserve the confidentiality of information the parties share.” Thus far, only 12 states (NH, NM, MT, NY, VT, NC, HI, IA, MS, NV, WY, ND) and the District of the Columbia have signed the agreement. North Dakota AG Wayne Stenehjem is the only Republican state official that signed the agreement. One reason cited by AGs for declining to sign the MOU is legal objections to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) that created the Bureau. “There are misgivings I have about the authority and scope and power of the CFPB and the power granted to the director,” said Oklahoma AG Scott Pruitt. “Frankly, until some of those issues are fleshed out, it is very premature for a state to enter into an MOU.” Indiana Republican AG Greg Zoeller stated the agreement was “unnecessary” because his office can sign confidentiality agreements that cover specific enforcement cases they work on with the CFPB.
Pruitt and attorneys general from South Carolina, Michigan and Kansas plan to become to plaintiffs in a lawsuit challenging the constitutionality of Dodd-Frank and the CFPB, according to a person briefed on the decision. Zoeller is not involved in broader challenges to the Bureau, stating a Republican-only lawsuit “hurts our credibility in challenging federal laws.” Despite the opposition of the creation of the Bureau by Republicans at the federal and state levels, some Republican AGs have given their support to Cordray as director after he publicly promised to assist AGs fight payday lenders that have affiliated with Native American tribes to dodge state laws.

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Mortgage Loans Hit 16-Year Low as Standards Tighten
The Wall Street Journal (09/18/12) Timiraos, Nick and Portlock, Sarah

The Federal Reserve’s analysis of 2011 Home Mortgage Disclosure Act (HMDA) data released on Sept. 18 showed that mortgage lending dropped to its lowest level in 16 years. Loans for home purchases dropped five percent in 2011, while refinances dropped 13 percent despite a rebound at the end of the year due to low interest rates. Purchase loans for owner-occupied homes were down 7.2 percent overall, with a 13.8 drop in neighborhoods considered hardest hit by the housing bust. Lending to non-owner-occupants rebounded, rising 10 percent.
In 2011, banks funded about 7.1 million mortgages, a 10 percent decrease from 2010. Accounting for approximately one-third of all mortgage originations, the top 10 largest lenders experienced a 17 percent drop in 2011 home-purchase lending, compared to a 2.6 percent decline for all other financial institutions.
Since 2006, the median credit score for loans has risen about 40 points. "The difficulties of households with lower credit scores in obtaining mortgage credit warrants ongoing attention," said William Dudley, president of the Federal Reserve Bank of New York. Loan denial rates for 2011 were flat – with approximately 23 percent of all mortgage applicants being turned down – but increased for minority applicants. The denial rates for conventional home-purchase loans were 15 percent for Asians, 12 percent for non-Hispanic whites, 31 percent for African-Americans, and 22 percent for Hispanics.

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San Diego Puts Heat on Banks for Foreclosures
U-T San Diego (09/18/12) Kuhney, Jen Lebron

On Sept. 18, the San Diego City Council unanimously passed two ordinances designed to hold banks accountable for distressed properties. The abandoned property ordinance requires owners to file notice of an abandoned property with the police and imposes penalties if they do not make a good-faith effort to upkeep the property. The second approved ordinance, which is similar to ordinances enacted this year in New York and Los Angeles, requires banks doing business with the city to provide data about their lending, foreclosures and service to minority communities. A third ordinance, which would require banks to register with the city when they foreclose on a property and face penalties of up to $1,000 for failure to upkeep a property, is not expected to be discussed until October.

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Bank Files Lawsuit Challenging St. Louis County Foreclosure Law
St. Louis Post-Dispatch (09/19/12) Hampell, Paul

The Business Bank of St. Louis filed a class-action suit against St. Louis County regarding an ordinance passed in August that requires banks to participate in formal mediation (and pay a $500 fee) before foreclosing on a county resident, arguing the county went beyond its authority with the new ordinance. The commercial bank’s suit claims the ordinance constitutes an "effort to deny to Plaintiff and others similarly situated the right to choose when and how to exercise a lawful foreclosure remedy granted by the Missouri Legislature to stated chartered banks." John Davidson, the bank’s attorney, also contended that loans made by local commercial banks were not the loans involved in the residential foreclosure crisis that was the focus of the ordinance. The sponsor of the ordinance, County Councilwoman Hazel Erby, D-University City, introduced legislation on Sept. 18 that would amend the ordinance in response to concerns from lenders. The proposal adds wording noting the ordinance does not provide grounds for individuals to sue the bank over foreclosures and gives banks extra time to hold required foreclosure sales due to the mediation process.

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Santander to Purchase DriveTime in $700 Million Transaction
SubPrime Auto Finance News (09/19/12) Zulovich, Nick

Santander Consumer USA will purchase the finance receivables portfolio of national automobile retail train DriveTime Automotive Group, according to a filing with the Securities and Exchange Commission. The portfolio includes vehicle-related installment sales contracts, certificates representing DriveTime’s residual interests in securitizations of finance receivables and other assets. Santander will purchase the portfolio for approximately $700 million and will assume, refinance or repay certain items of existing indebtedness of DriveTime, the filing showed. "The purchase transactions are subject to customary closing conditions, including the receipt of required regulatory approvals, if any, and, with respect to the obligations of the purchasers to consummate the purchase transactions, the successful completion of an offer to repurchase DriveTime's $200 million publicly traded senior notes," DriveTime said in its SEC filing. The company’s dealership operations will be acquired by a new entity owned by third-party investors.

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September 20, 2012

Forward To A Colleague

Black Book
GoldPoint Systems
Allied Solutions
Wells Fargo Preferred Capital
ParaData Financial
Counselor Library
Life of the South
Carleton, Inc.
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