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U.S. Amasses Data on 10 Million Consumers as Banks Object
Bloomberg (04/17/13) Dougherty, Carter

The Consumer Financial Protection Bureau (CFPB) is collecting records from banks on consumers’ accounts, with the intent to make “data-driven” decisions based on how financial products and services are used.

CFPB Assistant Director for Research Sendhil Mullainathan said the bureau is committed to protecting the privacy of consumer information and does not collect personally identifiable information. “I understand that people don’t want firms doing it, so why would you want the government doing it?” he said. “It seems invasive.” The Dodd-Frank Wall Street Reform and Consumer Protection Act prohibits the CFPB from collecting data “for purposes of gathering or analyzing the personally identifiable financial information of consumers.”
According to a review of government records, CFPB researchers are collecting data across the financial marketplace, from credit cards to mortgage to payday loans. Banks are also being ordered to provide records of credit card ancillary products, such as credit monitoring and debt cancellation, as part of a separate industry-wide review. The CFPB also is purchasing records from outside the industry. For instance, the CFPB will pay Experian up to $8.4 million for data on 5 million to 10 million consumers “for use in a wide range of policy research projects.”
By aggregating information that it collects or buys, the CFPB complies with federal privacy laws, according to David Jacobs, consumer protection counsel at the Electronic Privacy Information Center. However, the bureau will need to ensure the data it releases cannot be added up. “Any agency compiling massive amounts of data has to consider that you can use bits that are not personally identifiable and put them together,” Jacobs said.

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AWARE Dispels Vehicle Financing Myths

In recognition of Financial Literacy Month, AWARE distributed a news release refuting common vehicle financing myths. AWARE explained that the annual percentage rate (APR) on vehicle financing can be negotiated, consumers should comparison shop for the best financing deal, an individual’s credit score is not negatively affected by multiple inquiries made within a 14-day period, and credit insurance and other service products are optional.

AWARE is a vehicle financing industry educational coalition to help consumers understand how auto financing works.

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Inside the Beltway
GOP Hits Perez over Fair Housing Case
Politico Pro (04/15/13) Prior, Jon

The House Oversight and Government Reform Committee, along with many congressional Republicans, are criticizing Thomas Perez, President Obama’s choice for Labor Secretary, after a report accused him of improperly facilitating a deal to get St. Paul, Minn., to drop a fair lending case that threatened a Justice Department strategy for going after banks. “I’m hard-pressed to understand why, with his engagement in this highly questionable activity, the president wants to promote him,” said Sen. Chuck Grassley (R-IA), who authored the report along with other members of the committee, including Chairman Darrell Issa (R-CA).

The strategy used at the Justice Department, called disparate impact, accuses lenders of charging higher rates to borrowers solely on their race. The theory allowed the department to successfully obtain a settlement from several mortgage lenders following the housing collapse. Landlords in the city of St. Paul, Minn., were suing the city on the same basic statistical grounds, arguing that the way in which the city enforced housing rules disproportionately affected minority groups. Should the city have prevailed, disparate impact as a tool would have been dealt a serious blow.

Republicans charge that Perez led efforts to ensure that the case would not be heard before the Supreme Court. The Department of Justice contends that it has the ability to drop cases for a wide variety of reasons and that Perez’s influence was not necessarily part of the consideration in this case.

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Mark Zandi, Moody's Economist, Rumored as FHFA Nominee
American Banker (04/15/13) Berry, Kate

The Obama Administration is searching for a replacement for acting Federal Housing Finance Agency (FHFA) director Ed DeMarco, and Mark Zandi of Moody’s Analytics appears to have emerged as a top contender. DeMarco has been under increased scrutiny as he refuses to endorse the use of principal deductions on Fannie Mae and Freddie Mac loans, leading some lawmakers to call for his resignation.

Zandi, who worked for Senator John McCain’s 2008 campaign for the White House despite being a registered Democrat, has been viewed by many as a solid choice to head up the FHFA and as a man who likely would be confirmed by the Senate. "We are optimistic regarding Zandi's chances during the confirmation process, but caution that those expecting a substantive shift in policy at the FHFA if Zandi is nominated and confirmed will likely be disappointed," wrote Isaac Boltansky, an analyst at Compass Point Research and Trading LLC.

Zandi does not have extensive policy experience and feverishly supported President Obama’s 2009 stimulus planning, leading many to believe that his confirmation would be anything but a lock.

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National and State News
Bill Would Hike Interest on Consumer Finance Loans
Charlotte Observer (04/15/13) Ranii, David

North Carolina SB489 would update rates on small-dollar loans in the state and allow consumer finance companies to charge rates that are consistent with today’s economic environment. The legislation cuts the interest rate on consumer loans from 36 to 30 percent, but would allow the higher interest rate to apply to loan amounts of up to $5,000; current law only permits higher interest rates on loans up to $1,000. The legislation would also raise the loan cap from $10,000 to $15,000.

Opponents charge that the amounts charged on the loans are increasing and will lead to a cycle of debt that is unsustainable. Proponents however, argue that the current law that lenders operate under dates back to 1983, making it difficult for lenders to make appropriate loans to today’s market conditions. “$1,000 in 2013 doesn’t buy what it brought in 1982, or 1992, for that matter,” said Erin Wagner, president of the Resident Lenders of North Carolina. The bill also includes important protections for members of the military, to ensure that service members are seeking credit responsibly. These provisions include verifying if a borrower is a member of a branch of the armed services and notifying their company commander when enlisted personnel are seeking a loan.

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QBE Agrees to Lower Rates, Halt Force-Placed Commissions in New York
American Banker (04/18/13) Horwitz, Jeff

New York's Department of Financial Services has settled with QBE, the second largest provider of lender-placed insurance. Similar to the state’s March deal with lender-placed market leader Assurant, the settlement includes a ban on commissions and free services to banks, servicers or QBE affiliates, tighter controls on pricing, and a $10 million penalty. According to N.Y. Gov. Andrew Cuomo, the settlement "will mean lower home insurance costs and better protections for many working New Yorkers."

Banks' purchase of this insurance has come under fire in recent years as consumer advocates and state regulators have alleged that the country's two largest insurers regularly inflated the cost of coverage and split the proceeds with banks. According to N.Y. Superintendent of Financial Services Benjamin Lawsky, private lawsuits and an investigation by the N.Y. Department of Financial Services discovered that bank-owned insurance agencies had received insurance commissions without employing any insurance agents.
Lawsky indicated that the settlement likely will be extended to other force-placed insurers in the state. "The momentum behind New York's force-placed insurance reforms is continuing to build,” he said. “We urge other regulators to pick up the ball and run with it by implementing New York's reforms nationwide.”

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Impact of the California Homeowner Bill of Rights on Foreclosures
DS News (04/15/13) Cho, Esther

The California Homeowner Bill of Rights (HBR) has led to a reduction in foreclosure sales and short sales in the state, according to a research report from Barclays. The bill, which took effect January 1, 2013, also has increased litigation risk for servicers.

Under the new law, homeowners can stop the foreclosure process through an injunction, as well as pass on all legal costs to the servicer, whether or not a material violation of the HBR is found. “Our understanding is that securing an injunction may require only a declaration from the borrower that a material violation of the HBR has occurred and some reasonable justification for further investigation into the alleged breach. It is possible that multiple consumer rights attorneys will offer their services on a contingent basis to borrowers facing foreclosure, effectively providing the homeowner with a zero-cost option to pursue litigation,” the report stated.
According to the report, “servicers have become significantly more cautious when carrying out foreclosure sales” in California due to the HBR. Although California is not a judicial state, analysts predict that servicers will pursue more judicial foreclosures, which are exempt from the HBR’s provisions.

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Mamou Town Council Looks to Fine Owners of Abandoned Structures
Evangeline Today (04/14/13)

The Mamou, La., town council voted on April 10 to amend their current vacant property ordinance to include steep fines and jail time for property owners who fail to either remove or repair vacant, derelict properties.

The ordinance would allow a magistrate to compel a property owner to appear in court and levy fines of up to $500, combined with jail time of up to 30 days. If the property is not improved after the first round of fines and jail time, the property owner can be found in contempt and a warrant may be issued for the owner’s arrest. Peter Savoy, the Mamou town attorney, said that this may be the first ordinance of its kind in Louisiana.

The ordinance follows a previous attempt by the town council to allow the town to demolish vacant derelict buildings at the town’s expense. Mayor Ricky Fotenot found that this was illegal and explored other avenues to rectify blighted structures inside the town limits.

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California Lawmakers to Consider Legislation to Curb Payday Lending
The Mercury News (04/13/13) Sa, Karen De

A new California bill, SB515, is looking to cut back on the extremely popular and very lucrative payday loan industry in the state. The bill, which was introduced by Senators Jim Beall of San Jose and Hannah-Beth Jackson of Santa Barbara, both Democrats, would limit the amount of loans a consumer could take out per year to four. It would increase the amount of time that borrowers have to pay back loans to 30 days for each $100 borrowed. Lenders also would have to more carefully review the financial portfolio of borrowers.

The loans would be cataloged into a state-run system that would track borrowers and the amount of each loan they have taken out. Additionally, it would prevent lenders from providing credit to consumers who have already exceeded their yearly limit. Proponents of the bill argue that the legislation would provide continued access to short-term credit for those who require it while limiting the cycle of debt that plagues many borrowers. The payday lending industry argues that the legislation would severely restrict access to credit for Californians who will be forced to seek it out from unlicensed resources.

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CFPB's Raj Date Starts Own Bank Advisory Firm
American Banker (04/17/13) Witkowski, Rachel

Raj Date, former deputy director of the Consumer Financial Protection Bureau (CFPB), has started a bank advisory firm to focus on consumer finance issues. Based in Washington, D.C., Fenway Summer LLC will focus on advising large financial companies, supporting merger and acquisitions through private equity partnership, and launching startup businesses.

"There is a ton of opportunity to build and refine consumer finance into a better industry," Date said. "We're really on the cusp of being able to have financial companies that are more transparent to customers in a way that's more efficient to operate; and to take advantage of data and analytical tools that five years ago didn't even exist."
Prior to joining the CFPB in 2010 to help set up the bureau, Date worked for Capital One Financial Corp. and, Deutsche Bank Securities and ran the nonprofit think tank Cambridge Winter Center for Financial Institution Policy.

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April 18, 2013

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