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PNC Disparate Impact Investigation Just the Start, Lenders Fear
American Banker (08/13/13) Witkowski, Rachel

A joint U.S. Department of Justice and Consumer Financial Protection Bureau (CFPB) investigation into mortgage pricing at PNC Financial Services could be the first of many based on the controversial disparate impact legal theory. PNC disclosed the investigation, which centers on mortgages from its 2008 acquisition of National City Corp., in an Aug. 8 filing with the Securities and Exchange Commission.

The investigation is the first time the CFPB is publicly pursuing a bank using disparate impact, and experts predict the bureau will ramp up use of the theory with the Mount Holly case pending before the U.S. Supreme Court. "All of this may be taken away from regulators in the future depending on the Supreme Court's decision," said Michael Mierzewski, a partner at Arnold & Porter. "I think the regulators would like to take advantage of this as much as they can before the Supreme Court rules." Others suggest that that the CFPB may feel more confident in using disparate impact now that questions about its leadership have been resolved with the Senate’s confirmation of Director Richard Cordray. "The safest strategy for the CFPB is to go after the low-hanging fruit first, and disparate impact actions are rarely low-hanging fruit," said Ronald L. Rubin, a former CFPB enforcement attorney who is now a partner with Hunton & Williams. "However, now that Richard Cordray has been confirmed, the bureau is a lot less worried about falling off a ladder."

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Massachusetts Supreme Judicial Court Upholds Arbitration

On Aug. 12, the Massachusetts Supreme Judicial Court issued a decision compelling arbitration in the McInnes v. LPL Financial case. The case presented a direct challenge to the supremacy of the Federal Arbitration Act (FAA). At stake were the integrity of arbitration agreements in Massachusetts, and possibly elsewhere. The court’s decision to uphold the arbitration agreement is on par with recent Supreme Court interpretations of the FAA.

AFSA submitted an amicus brief in this case asking the court to uphold the arbitration agreement. AFSA has consistently supported arbitration as a prompt, fair, inexpensive, and effective method of resolving disputes.

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Array of Issues Covered at NCSL Legislative Summit

AFSA staff attended the National Conference of State Legislators’ (NCSL) Legislative Summit, held Aug. 12-15 in Atlanta. AFSA hosted its annual reception honoring legislators who serve on financial services committees and their staff.

During the Communications, Financial Services and Interstate Commerce Committee meeting, a resolution was introduced supporting the reinstatement of the Glass-Steagall Act, but was withdrawn from consideration the next day. Sessions at the summit included a discussion of financial challenges faced by active duty military and veterans, particularly housing issues; an update on federal financial services issues with a focus on community banks; and an overview of mobile banking and payment technologies, future trends and the regulatory environment. Retired U.S. Supreme Court Justice Sandra Day O’Conner gave a keynote address at the meeting in which she promoted the return of civics education in schools and removing money and politics from judicial elections.

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New Member Welcome

AFSA welcomes new Active Members American Credit Acceptance, LLC and Finance U, LLC, as well as Business Partner Michigan Auto Title Services, Inc.

American Credit Acceptance is a subprime auto finance company providing targeted financing solutions from coast-to-coast and serving more than 3,500 dealerships. ACA is based in Spartanburg, S.C.

Finance U, LLC is an installment lending company founded in 2012. The Oklahoma-based company offers installment loans to a wide variety of customers.

Michigan Auto Title Services, Inc. is a title processing company that operates in all 50 states and deals in repossessions, duplicates, transfers, redemptions, and corrections. MATS has been in business since 2003 and is based in Mr. Clemens, Mich.

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Inside the Beltway
Subprime Auto Worries Appear Overblown: Fed Report
American Banker (08/14/13) Wack, Kevin

As the subprime auto sector continues to grow, fears of a drop in demand are beginning to swirl. However, in a new report issued by the New York Federal Reserve, the central bank seems unconcerned. "While individuals with lower credit scores are able to originate auto loans, the origination amounts are still below, but approaching, the levels seen in the early- and mid-2000s," New York Fed officials wrote in an Aug. 14 blog post.

The report points out that subprime auto lending severely contracted during the recession and  only now is returning to its normal volume. Twenty-four percent of borrowers fell into the subprime bracket during the period the New York Fed conducted its study, which remains far below the 30-plus percent before the recession.

In the second quarter of this year, many sectors saw improvement, including the decrease of both mortgage loan and student loan delinquencies. Across all debt categories, borrowers were 92.4 percent current on their obligations.

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Suit Accuses Online Lender of Violating New York Rate Caps
The New York Times (08/12/13) Silver-Greenberg, Jessica

N.Y. Attorney General Eric T. Schneiderman filed a lawsuit on Aug. 12 against online lender Western Sky Financial and its affiliates, which claim connections to American Indian tribes, for violating state usury laws that limit interest rates on loans to 25 percent. Western Sky offers short-term loans with interest rates exceeding 300 percent.

The lawsuit states that the applications of consumers who apply for loans through Western Sky’s website are forwarded to subsidiaries in California that finance the loans. Schneiderman claims that the process means the loans are in Western Sky’s “name only,” while the subsidiaries “bear the risk.” According to Schneiderman, Western Sky and its affiliates have made approximately 18,000 costly loans to N.Y .residents since 2010. The lawsuit seeks to stop the companies from lending in the state, void loans that have already been made, pay a fine and refund N.Y. borrowers all interest paid in excess of the state’s interest rate cap.

Western Sky claims that its tribal affiliations immunize them from federal and state laws. But Schneiderman and others disagree. In April, Oregon’s Department of Consumer and Business Services fined Western Sky for promoting loans with interest rates of 342 percent “through an aggressive TV and radio advertising campaign.” This summer, Lori Swanson, the attorney general of Minnesota, sued Western Sky, accusing it of violating a state cap on interest rates, following a May ruling by a Colorado district court judge that lenders’ tribal ties did not shield Western Sky from state law.

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National and State News
Break-Up-The-Big-Banks Fever Hits the States
PoliticoPRO (08/13/13) Cirilli, Kevin

Lawmakers in at least 18 states have introduced legislation to urge Congress to reinstate the 1933 Glass-Steagall Act, a depression-era law that forced investment banks to be separate entities from their depository counterparts. Only Maine and South Dakota have approved Glass-Steagall resolutions, but if enough noise is made at the state level, members of Congress could begin to feel pressure to make a broader change.

The National Conference of State Legislatures (NCSL) was set to vote on a resolution supporting a return to Glass-Steagall policies at their annual conference in Atlanta. However, the resolution was tabled before it was introduced. A similar bill was considered during Delaware’s legislative session, but was tabled due to industry pressure.

Glass-Steagall was repealed by President Bill Clinton, and proponents of reinstating it claim that its repeal was a key cause of the 2008 financial crisis. Sen. Elizabeth Warren (D-MA) has introduced the 21st Century Glass Steagall Act with Senators John McCain (R-AZ), Maria Cantwell (D-WA) and Angus King (I-ME). Opponents of the resolutions counter that state and federal lawmakers are being shortsighted. They contend that if lawmakers separate commercial and investment banking functions, local governments and municipalities will have a hard time getting funding via bonds for necessary civic projects.

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Judge Adds New Wrinkle to Swipe Fee Fight
PoliticoPRO (08/14/13) Davidson, Kate

In July, U.S. District Court Judge Richard Leon ruled that a Federal Reserve rule capping fees that banks collect from merchants when a consumer uses a debit card is outside the bounds of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. On Aug. 14, Judge Leon suggested that the banks may be forced to return some of the money they have collected from merchants while the rule was in place. “There is a number out there somewhere that represents the amount of overcharge during this period that’s been going on,” Leon said.

The Fed has until Aug. 21 to determine how an interim rule for interchange fees would look. Neither side was prepared for the judge’s remarks concerning the return of funds. The lawyer for the plaintiffs, when asked how much he thought the merchants lost in overcharged fees, said that he was not prepared to answer the question.

Leon hinted that the cap should be closer to the original 12-cent cap, which would result in the loss of between $12 and $14 billion a year for banks.

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CFPB Loses Research Director
PoliticoPRO (08/12/13) Davidson, Kate

The Consumer Financial Protection Bureau (CFPB) continues to face a wave of departures in its highest ranks. The latest to leave the bureau is Senhil Mullainathan, who most recently served as the agency’s director of research. Mullainathan joined the CFPB in mid-2011 as an assistant director for research, focusing on why consumers make the economic decisions that they do. He provided analytical support that allowed the CFPB to enhance its understanding of the potential costs and benefits of the policies it prescribed. The CFPB said it will announce his replacement in the coming weeks.

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Hudson Cook Adds Jeffrey Levine as Partner
F&I and Showroom (08/13/13)

Hudson Cook, LLP has added Jeffrey Levine as a partner in the financial services firm to help establish its N.Y. office.  Levine will assist clients with regulatory exams at the state and federal level, as well as focus on assisting financial institutions, sales finance companies, motor vehicle dealers and manufacturers maintain highly functional leasing and financing operations. Before joining the firm, Levine worked with JPMorgan Chase’s auto finance and student lending businesses.

He has a comprehensive background in automotive financing and lease matters, and has a deep student loan legal background as well. “Jeff has been involved in the [Consumer Financial Protection Bureau] and other regulatory compliance exams, giving us ‘hands-on’ experience in dealing with the regulators. He’s a welcome addition to our firm,” said Tom Hudson, Hudson Cook chairman.

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August 15, 2013

Forward To A Colleague

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

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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.