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Probe Turns up Heat on Banks
The Wall Street Journal (08/07/13) Zibel, Alan and Kendall, Brent

The Justice Department (DoJ) issued several subpoenas to banks and institutions that process payments for companies that offer “questionable financial products,” including online payday lenders. The move represents an elevation of an ongoing investigation by the DoJ and a change in how investigations are conducted; instead of going after individual companies, the government is targeting the infrastructure that the companies use. "We are changing the structures within the financial system that allow all kinds of fraudulent merchants to operate," a Justice Department official said, with the intent of "choking them off from the very air they need to survive."

The subpoenas follow continued efforts by the federal government to restrict fraudulent advertising by online payday lenders. The Justice Department is examining payment processors and banks, and is working closely with the Federal Trade Commission, which has been investigating alleged scammers and deceptive online lenders. The Federal Deposit Insurance Corporation (FDIC) already has warned several of its member banks to stop processing payments to online payday lenders. The Office of the Comptroller of the Currency (OCC) has alerted banks that continuing to allow automatic deductions from consumer’s bank accounts could lead to a severe hit to a bank’s reputation.

The online payday lending industry argues that they provide a valuable service for low-income people.  Thirty-five states allow payday lending, while 15, as well as the District of Columbia, outlaw the practice.

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AFSA Comments on Proposed Rule Implementing New York Lien Release Law

On Aug. 2, AFSA sent a letter to the commissioner of the N.Y. State Department of Motor Vehicles on its proposed regulations implementing A. 1346-C. The law, enacted in December 2012, authorizes the DMV to issue a lien-free certificate of title upon proof by a dealer of complete payment of the underlying debt without the involvement of the lienholder in confirming lien satisfaction. However, a lienholder is the best and most reliable source to certify and indicate whether a lien has been satisfied.

In the letter, AFSA raised its core concern about how the regulations allow a financial institution’s lien to be extinguished without providing them with the opportunity and mechanism to dispute the lien’s release. AFSA expressed concerns that liens may be released without the financial institution’s prior knowledge due to the exceedingly short two-week timeframe imposed on a financial institution to verify the status of a security interest, lack of standardized form to signal its importance to a mail room, and lack of database indicating where a lien release notice should be sent. In addition to removing an important check-and-balance that prevents fraud and protects against errors, these conditions could potentially lead to situations in which the lienholder receives notice of lien satisfaction after the collateral has been sold.

To ensure efficient and timely delivery of required notices from dealer to financial institution, AFSA recommended the creation of a database populated by lienholders indicating where a lien release notice should be sent and a standardized form to alert the lienholder that its security interest will be released unless it objects. AFSA also requested the regulations require a more robust burden of proof by the dealer of complete, unambiguous lien satisfaction, a greater timeframe be provided to the lienholder to verify this proof, and a mechanism be instituted for a financial institution that has a legitimate disagreement with a dealer to dispute a release before the department extinguishes their property right and releases the lien.

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AFSA Cautions against Expansion of DoD Credit Regulations

On Aug. 1, AFSA responded to the Department of Defense’s advanced notice of proposed rulemaking (ANPR) on consumer credit term limitations for service members and their dependents. A provision in a recent Senate bill that was struck down in conference would have required the Secretary of Defense to develop a policy on the “predatory extension of credit through installment loans that target members of the armed forces and their dependents.” Despite the fact that the provision was not enacted, the Department of Defense used it as the basis for an ANPR.

AFSA argued strongly that the current regulations are working and asked that the Department of Defense move cautiously on promulgating new regulations that would affect traditional installment consumer loans. “We believe that the current regulations provide the right balance between limiting bad forms of credit while ensuring that servicemen and women have the same access to good credit that is enjoyed in the commercial marketplace by the citizens they defend. It is a balance that must be maintained, as it is under the current regulations,” AFSA’s comment letter stated. AFSA also emphasized that because the provision was not passed, Congressional intent cannot be inferred.

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CFPB Proposed Arbitration Survey Unnecessary

On Aug. 6, AFSA commented on the CFPB’s proposed telephone survey exploring consumer awareness of and perceptions regarding dispute resolution provisions in credit card agreements. The survey is intended to be a part of the CFPB’s study on arbitration that was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“The proposed survey is unnecessary for the completion of the study,” AFSA’s letter stated. “The results the CFPB will gather from the survey are obvious from the outset – consumers are not generally aware of the dispute resolution provisions in their credit card agreements. Conducting a Survey with an obvious result is not a good use of the CFPB’s limited resources, nor a statistically valid, empirically derived method of obtaining what should be statistically relevant data.” AFSA offered several suggestions to improve the survey, should the CFPB decide to continue, as well as some alternatives to conducting the proposed survey.

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NTSF Committee Elects New Officers

The National Title Solutions Forum (NTSF) Committee elected new officers, who will serve two-year terms. Monica Mastrangelo, administrative support manager at CarMax Auto Finance, will serve as chair. Lea Strickler, title risk analyst, Harley-Davidson Financial Services, Inc., will serve as co-chair. Ella Patterson, vice president, Wells Fargo Dealer Services, will serve as secretary. John Yarbrough, director of business development, PDP Group, Inc., will serve as liaison.

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Inside the Beltway
Affordable Housing Will Be Key Challenge in GSE Reform Debate
American Banker (08/07/13) Finkle, Victoria

Affordable housing likely will be the largest hurdle that lawmakers face when they return from their summer recess. Fannie Mae and Freddie Mac, which both Congress and President Obama are eyeing to either wind down or eliminate completely, have provided mortgages with this goal in mind for two decades Republicans have voiced their strong displeasure with more government intervention in the housing sector, citing it as a contributing factor to the financial crisis. Democrats, however, argue that the government has an important role to play in ensuring people can purchase homes. Both agree that the current approach of mandating affordable housing goals is not the answer.

“We've got to keep housing affordable for first-time homebuyers. … When they're ready to buy a house, we've got to make sure it's affordable. Families who are working to climb their way into the middle class, we've got to do what we can to make housing affordable," President Obama said in an Aug. 6 speech.

Two plans are beginning to take shape in both the House and Senate. The Senate approach, sponsored by Bob Corker (R-TN) and Mark Warner (D-VA) focuses on erecting a Federal Deposit Insurance Corporation-like entity for the mortgage industry that would be funded by mortgagees and would backstop loans in the case of bank failure. The House version would refocus the Federal Housing Administration (FHA) on providing loans to low-incoming and first-time borrowers. Both bills would eliminate Fannie and Freddie.

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Dodd-Frank Stands as Judge Rejects Suit by States, Bank
Bloomberg (08/02/13) Rosenblatt, Joel and Schoenberg, Tom

U.S. District Judge Ellen Segal Huvelle dismissed a suit brought by 11 states and a Texas bank that directly challenged the Dodd-Frank Wall Street Reform and Consumer Protection Act. The lawsuit alleged that the Consumer Financial Protection Bureau (CFPB) violates the U.S. Constitution because it does not have its funds appropriated by Congress, among other charges. On Aug. 1, the lawsuit was tossed out because the plaintiffs did not have legal standing to bring their claims and “did not come close” to showing that they would suffer financial damage.

The State National Bank of Big Spring, Texas, and the state’s plan to appeal the ruling.

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Obama Signals Support for Easing Mortgage Rules
American Banker (08/07/13) Witkowski, Rachel

In a policy address on housing on Aug., President Obama called for  an easing of mortgage rules to alleviate the risk of overlapping regulations that could hamper qualified buyers from getting homes. "Now that we've made it harder for reckless buyers to buy homes that they can't afford, let's make it a little bit easier for qualified buyers to buy the homes that they can afford," he said. Industry analysts and housing experts noted that the president was likely referring to the qualified mortgage (QM) rule and the qualified residential mortgage (QRM) rule, although he did not mention either by name.  Lenders have expressed concerns that the two definitions could be incompatible and have urged regulators to ensure they are consistent with each other. Regulators are expected to re-propose the QRM definition in the near future and likely tie it to the QM.

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National and State News
Federal Judge Dismisses Wrongful Foreclosure Complaint Involving Mortgage Registry
Legal Newsline (08/06/13) Karmasek, Jessica

An Oregon judge tossed out a lawsuit brought by a homeowner challenging the validity of a trustee sale of his home after a foreclosure. In the complaint, Alan Chen argued that the foreclosure and subsequent sale was wrongful based on the role that the national mortgage registry MERS played in the process. Although they were not a party to the lawsuit – a number of banks as well as Fannie Mae were named parties – Chen charged that MERS failed to properly notify him of his rights before his home was sold.

Judge Owen M. Panner ruled that Chen received proper notice of the sale, which barred him from challenging the foreclosure afterwards.

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Freddie's Top Lawyer Threatens to Sue Over Eminent Domain
American Banker (08/07/13) Berry, Kate

Freddie Mac’s top lawyer has threatened to take legal action against any city that uses its eminent domain powers to capture home mortgages that are in default, at risk, or underwater. "Our sense is that those so-called voluntary loan sales would not be very voluntary. They'd be loan sales under pressure, under a threat of seizure by eminent domain," said William McDavid, Freddie Mac’s general counsel.

Richmond, Calif., continues to move forward with its plan to use eminent domain as an assistance program for its residents. The city recently sent 32 letters of intent to banks and mortgage companies asking to buy nearly 600 home loans that are currently underwater. The Federal Housing Finance Agency (FHFA) noted that the use of eminent domain to seize mortgages will have a disastrous effect on the mortgage marketplace because investors will refuse to buy mortgage-backed securities if they can be seized by municipalities.

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Half of $1T in Federal Student Loan Debt Unpaid
PoliticoPRO (08/05/13) Nelson, Libby

According to a study released by the Consumer Financial Protection Bureau (CFPB) on Aug. 8, more than half of the $1 trillion in outstanding student debt is not being paid back on time; one out of every eight borrowers has defaulted on their obligations. Rohit Chopra, the CFPB’s student loan ombudsman, said that most of these defaults and forbearances could have been avoided if borrowers simply knew what their options were and could have easily enrolled in them.

Only 10 percent of borrowers are enrolled in income-based repayment plans, which tailor terms to the borrower’s specific financial situation. President Obama has introduced additional incentives for participation in the plan – if borrowers pay 10 percent of their discretionary income toward their student loans, then the remaining balance will be forgiven after 20 years for non-federal employees and 10 years for federal, local and non-profit employees.

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New York Tells Online Lenders to Abide by State’s Interest Rate Cap
The New York Times (08/06/13) Silver-Greenberg, Jessica and Protess, Ben

New York’s financial regulator told 35 online lenders to cease and desist from offering any loans that violate local usury laws. Although the state has an interest rate cap of 25 percent,  the lenders are skirting the law by lending online to consumers around the country, said N.Y. superintendent of financial services Benjamin M. Lawsky. Some online lenders charge rates as high as 500 percent.

Lawsky’s office also is targeting banks that process automated clearinghouse (ACH) payments for the lenders. “Banks have proven to be — even if unintentionally — an essential cog in the vicious machinery that these purveyors of predatory loans use to do an end-run around New York law,” Lawsky said. He urged banks to “work with us to create a new set of model safeguards and procedures” that will detect illegal loans.

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August 8, 2013

Forward To A Colleague

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AFSA Newsbriefs

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