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CFPB Pursuing Higher Fines as Part of Enforcement Actions
American Banker (09/24/12) Davidson, Kate

The two enforcement actions by the Consumer Financial Protection Bureau (CFPB) have carried monetary penalties that are substantially higher than typical settlements between a lender and banking regulator, confirming predictions that the Bureau wants to significantly raise the financial cost of violations. "We want to make it more expensive to break the law than to abide by it," said CFPB Enforcement Director Kent Markus. The Bureau’s first enforcement action, which related to the marketing of payment protection products, required Capital One Financial Corp. to pay a $210 million penalty.
On Sept. 20, the Bureau issued its second enforcement action, jointly with the Federal Deposit Insurance Corp., against Discover Financial Services, ordering them to pay more than $200 million in restitution and $14 million in civil money penalties for using deceptive practices in the marketing of payment protection products. Telemarketers implied products were additional free benefits, rather than an additional product for which they would be charged, and in some cases processed purchases without consumers' consent.
Isaac Boltansky, an analyst with Compass Point Research and Trading, said regulators have been focusing on these products since March 2011, when a Government Accountability Office report found that "cardholders received 21 cents in tangible financial benefits for every dollar spent in debt protection product fees among the nine largest issuers in 2009." Boltansky does not think there is any interest to regulate these products out of existence. “If structured properly, there can be a consumer benefit. This is much more of a focus on how these products are presented to customers,” he said.

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Executives Join AFSA Board of Directors

AFSA has elected two new executives to its Board of Directors. The new board members are Mark Floyd, vice chairman & CEO, Exeter Finance Corp., and David Paul, vice president, financial services, American Honda Finance Corp.
Floyd is a member of the AFSA Vehicle Finance Advisory Board and has been involved in AFSA since 2005, when he was chief operating officer of AmeriCredit, now known as GM Financial. Floyd joined Exeter in May 2010 and is a member of Exeter’s Board of Directors. He led the development of Exeter into one of the premier non-prime auto finance companies in the U.S. Floyd held various executive management positions at AmeriCredit Corp., where he was responsible for executive oversight of loan originations, customer service and collections. He also has served as president of a private company involved in the purchase and servicing of loan portfolios from the FDIC and has served in various executive roles at several banks in the Dallas area. 
Paul is replacing retired member Steve Smith on the AFSA Board of Directors and Executive Committee. He has more than 25 years of experience in the automotive/financial services industry. Paul is responsible for all the national operations and sales financing business as well as the corporate operations, marketing, risk and product development groups supporting Honda Financial Services and Acura Financial Services. Just prior to joining Honda, Paul led Daimler Chrysler Financial Services’ efforts to develop and create an industrial loan bank in Salt Lake City. He has held numerous other positions in the industry, including co-founder of BMW Financial Services, serving as vice president over marketing, sales and operations and later as chairman, president and CEO of BMW Bank of North America, and leading business development activities at Toyota Financial Services.

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Inside the Beltway
Consumer Credit Scores Vary From What Lenders See, CFPB Says
Bloomberg Businessweek (09/25/12) Dougherty, Carter

Approximately one in five consumers is likely to receive a “meaningfully different” credit score than their lender, potentially harming the consumer’s access to credit, according to a study released by the Consumer Financial Protection Bureau (CFPB) on Sept. 25. “This study highlights the complexities consumers face in the credit scoring market,” said CFPB Director Richard Cordray. “When consumers buy a credit score, they should be aware that a lender may be using a very different score in making a credit decision.” In response to the study, Chi Chi Wu, an attorney with the National Consumer Law Center, said new legislation is needed to give consumers access to any credit report or score prepared about them. Stuart Pratt, head of the Consumer Data Industry Association, said the study also shows that “73 to 80 percent of the time” the information consumers receive is correct, and that the effect on what loan is or is not made is mostly dependent on how lenders use credit scores when making decisions.

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Oklahoma, South Carolina, Michigan Join Dodd-Frank Attack
Bloomberg Businessweek (09/21/12) Schoenberg, Tom and Dougherty, Carter

The attorneys general (AGs) from Oklahoma, South Carolina and Michigan joined a lawsuit challenging a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) that gives the Treasury Secretary the power to liquidate large non-bank financial companies whose collapse may threaten the stability of the banking system. The complaint the AGs joined was filed in June by the State National Bank of Big Spring in Texas and the Competitive Enterprise Institution, and alleges the Consumer Financial Protection Bureau (CFPB) is unconstitutional. The government has until Oct. 26 to respond to the original complaint.
In the amended complaint, the states said the law “denies the subject company and its creditors constitutionally required notice and a meaningful opportunity to be heard before their property is taken.” S.C. AG Alan Wilson stated, “Dodd-Frank empowers un-elected federal bureaucrats to pick winners and losers, liquidate entire companies, and decide which contracts are kept and which are broken, without congressional oversight or proper judicial review.” The AGs also emphasized that the lawsuit is necessary to protect state pension funds. “If a large financial institution fails, holding state pension contributions and tax dollars, the states have very little ability to recover their citizens’ assets,” said Mich. AG Bill Schuette.

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At-Home Moms Applaud Fix to Credit Card Law
Bankrate (09/21/12) Herron, Janna

The Consumer Financial Protection Bureau (CFPB) intends to propose new regulations by November to allow credit card issuers to consider household income on applications from non-working spouses, CFPB Director Richard Cordray said before the House Financial Services Committee on Sept. 20. The proposal will fix a rule under the Credit Card Accountability Responsibility and Disclosure Act that went into effect in 2011 and stipulated only individual income could be considered for getting a credit card. The controversial rule, which was intended to prevent young consumers from using their parents’ income to qualify for a credit card and then rack up debt in their own name, had the unintended consequence of preventing non-working spouses from getting access to credit. "There are tens, perhaps hundreds, of thousands of individuals who have been denied access to credit because of the way the law was interpreted," said Cordray. He also said the new rule will be ready for review by the time Congress reconvenes after the election.

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National and State News
City Council Passes Payday Loan Ordinance
WOAI-TV (09/20/12) Villarreal, Mireyna

On Sept. 20, the San Antonio City Council adopted an ordinance regulating payday and title lenders, becoming the third city in Texas – joining Austin and Dallas – to pass this type of ordinance. Councilman Diego Bernal, the sponsor of the ordinance, said the city is taking action because state legislators would not pass stricter guidelines for short-term lending. Supporters of the ordinance included consumer advocates and church representatives. The industry will likely go to the state legislature in January to try to get these ordinances repealed.
Effective Jan. 1, 2013, the ordinance limits payday loans to 20 percent of the borrower’s gross monthly income and auto title loans to the lesser of three percent of the borrower’s gross annual income or 70 percent of the vehicle’s value. Loans will be limited to no more than four installments or three rollovers or renewals, with the proceeds from each installment or renewal required to be applied to reducing the loan principal by 25 percent. The ordinance requires contracts be written in a language the borrower can understand. Lenders also will have to provide a bilingual form referencing programs and agencies that offer financial education and cash assistance programs.

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Final California Homeowners’ Rights Bills Signed into Law
DS News (09/26/12) Barringer, Tory

The final bills of the Calif. Homeowner Bill of Rights – SB 1474, AB 1950 and AB 2610 – were signed into law by Governor Jerry Brown on Sept. 25. According to Calif. Attorney General Kamala Harris, “the Homeowner Bill of Rights will provide basic fairness and transparency for homeowners and improve the mortgage process for everyone.” SB 1474 gives Harris the authority to use a statewide grand jury to investigate financial crimes and AB 1950 extends the statute of limitations on mortgage-related crimes from one to three years. AB 2610 requires new owners of foreclosed homes to give tenants at least 90-days notice before starting eviction proceedings and requires the owner to honor tenant’s existing fixed-term leases. Brown signed into law the other bills in the package in July. All the bills in the Homeowner Bill of Rights become effective Jan. 1, 2013.

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New Car Buying by Young Rises after Years of Decline
USA TODAY (09/26/12) Healey, James

After several years on the sidelines, young buyers slowly are returning to the new-vehicle market, due in part to easing credit and a marginally improving job market. "Younger buyers have returned to market at a higher rate than any other age category," stated a recent report by J.D. Power and Associates' Power Information Network. Made up of teenagers through those aged 35, young buyers accounted for 23 percent of retail buyers, the highest since 2008.
Polk, which tracks new-vehicle registrations, noted a similar trend. Their data showed that 12 percent of all new-vehicle registrations from January through July came from buyers aged 18 through 34. Data from TrueCar.com reflected a similar return to the market by younger buyers. “They're beginning to put their feet back in the water, but we're not near the level” of 2007, cautioned Tom Libby, Polk senior auto analyst.
According to J.D. Power Senior Director Thomas King, high used car values may be helping younger buyers who have a car to trade in or sell. Easier credit and longer-term loans may be other contribution factors, King said.

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CNW: Subprime Approvals Up by More than 60 Percent this Month
SubPrime Auto Finance News (09/24/12)

Subprime approvals for new and used vehicle sales in September rose 62.5 percent from a year ago, according to CNW Research’s September Retail Automotive Summary. The high number of approvals has led CNW to project an eight percent gain in used-vehicle sales for the month. "Like the new-car market, all dealers are finding it easier to place subprime used-vehicle paper," said CNW President Art Spinella. They project an 11.7 percent gain for franchised dealers and a 9.7 percent gain year-over-year for independent lots. Spinella expects “continued strong showings for independent dealers over the coming quarter as long as the supply issues continue to improve and new-car dealers have solid trade-in volumes.”

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September 27, 2012

Forward To A Colleague

Allied Solutions
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Counselor Library
Carleton, Inc.
Black Book
Life of the South
AFSA Newsbriefs

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