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Banks Vulnerable to Same Type of Attack that Hit Times Website
American Banker (08/28/13) Sposito, Sean

On Aug. 27, the website of The New York Times and several servers belonging to the Twitter were hacked by a group known as the Syrian Electronic Army. The specific attacks, which involved rerouting traffic to both nytimes.com and Twitter’s photo servers to the hacker’s own sites, took advantage of the architecture of the Internet as opposed to the specific content of the site, making them extremely difficult to defend against. The group, which backs Syrian President Bashar Al-Assad, is capable of the same attacks across many different platforms, including those used by financial institutions.

Melbourne IT, the group that hosts nytimes.com, also has several bank clients, and IT industry analysts note that hackers could easily attack any of the company’s clients or those using the same technology.. This stems from the fact that a single password is required to log into the IT group’s settings website – once the user gains access, they can make any change they wish. While a particular website’s security may be robust, if their provider/web host’s security is lacking, they are equally if not more, vulnerable. "It could happen to bank websites since the same underlying issue (relying on a third party as its domain name registrar) exists for them as well," says Joram Borenstein, vice president of NICE Actimize, a provider of risk and compliance software to banks.

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Inside the Beltway
Federal Regulators Propose Rules to Toughen Oversight of Mortgage-Backed Securities Market
The Wall Street Journal (08/28/13) Zibel, Alan and Timiraos, Nick

The Dodd-Frank Wall Street Reform and Consumer Protection Act changed many things about the financial industry, one of which was requiring banks to hold a portion of the risk for mortgages and other loans that they bundle into securities and sell into the open market. Determining just how much “skin in the game” banks should have has been a challenge for regulators, lawmakers, and industry advocates. Congress did not specify a required amount in the original legislation.

On Aug. 28, federal regulators proposed rules that would force loans to meet standards that were previously set down by the Consumer Financial Protection Bureau (CFPB) earlier this year. In doing so, regulators hope to standardize the regulation across many agencies, making it easier for regulators to regulate and businesses to do business. The new regulations allow up to a 43 percent debt threshold for mortgage borrowers, up from 36 percent in an early iteration of the rule, which also required a 20 percent down payment.

Public comments must be submitted by Oct. 30.

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GOP Lawmakers: Government ‘Intimidating’ Online Lenders
The Wall Street Journal (08/26/13) Zibel, Alan

Thirty-one Republican lawmakers, in a letter sent last week to the Department of Justice (DoJ) and the Federal Deposit Insurance Corporation (FDIC), have accused the government of “intimidating banks and electronic payment processors.” The letter accuses the agencies of forcing the companies to stop doing business with certain lenders through intimidation and pressure. Rep. Blaine Luetkemeyer (R-MO) notes that the agencies are “intimidating some community banks and third-party payment processors with threats of heightened regulatory scrutiny unless they cease doing business with online lenders."

DoJ notes that they are not specifically aiming at online lenders, but are instead targeting merchants that exploit consumers with false claims of being able to erase debt. Critics contend that the online lending industry has been bypassing state usury caps by lending over the Internet across state lines.

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CFPB to Help Public Employees Tackle Student Loan Debt
American Banker (08/28/13) Berry, Kate

On Aug. 28, the Consumer Financial Protection Bureau (CFPB) launched a new effort for government agencies and organizations as well as school districts to help their employees pay down and erase their student loan debt. The CFPB estimates that approximately 25 percent of the U.S. workforce is in public service, from teachers to first responders to nurses.. In 2007, Congress created the Public Service Loan Forgiveness program to encourage public employees to make timely payments on their loans 10 years and then be eligible for forgiveness of the remaining debt.

The CFPB released a guide that is designed to help qualifying employees gather and submit the appropriate information to take advantage of debt forgiveness programs. CFPB Director Richard Cordray asked public employers to speak with their employees about the programs.

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National and State News
Banks Look to Consolidate Auto Lending Gains
American Banker (08/23/13) Wack, Kevin

Banks have been consistently improving their market share in auto lending since the 2008 financial crisis and subsequent bailout, cutting into the profits of captive auto finance arms. By upgrading technology, work processes and automating many tasks, banks have been able to increase their share of the auto lending space by eight percent since 2008, when they controlled just 31 percent of the market.

During the financial crisis, banks seized the opportunity to lend to consumers in the auto space because the class of debt performed surprisingly well in a tumultuous economic environment. People  need vehicles to get to and from work and thus, paid their bill on time.

"I do think that you're seeing margins tighten because you've got more players in the space," said Bill Himpler, executive vice president of the American Financial Services Association. However, automakers and their captive arms may see some relief from the more crowded marketplace as the Consumer Financial Protection Bureau (CFPB) gears up to begin regulating auto lending, regulation that would likely hit banks before it hit captives.

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A Clash over Payroll Cards
American Banker (08/26/13) Thompson Osuri, Laura

Increased cost savings for employers, as well as convenience for consumers, has led to increased use of electronic prepaid cards as the primary payroll device for workers. However, the U.S. Congress and the N.Y. Attorney General’s office have both opened investigations into the use of the cards, citing the fees – about $1.75 per card per month – that issuers are able to collect on wages. A recent industry study shows that prepaid payroll card use continues to rise and will continue to do so, with about 25 percent of payroll payments being issued this way by the end of 2013.

The N.Y. Attorney General’s office is investigating claims made by employees that they were forced to select payroll cards over checks or bank account direct deposit. According to industry analysts, the benefits of the cards greatly outweigh the fees. A lost or stolen card, for example, can easily be replaced.

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Court Says Fannie, Freddie Exempt from Chicago Ordinance
The Wall Street Journal (08/26/13) Timiraos, Nick

In a decision issued on Aug. 23, U.S. District Court Judge Thomas Durkin ruled that Fannie Mae and Freddie Mac are not subject to the city of Chicago’s vacant property ordinance. The law requires financial institutions to pay fines of up to $1,000 if the property in question is found to be vacant and in disrepair. The ordinance requires financial institutions to provide basic maintenance to the properties, including mowing the lawn and tending shrubbery. The ordinance also requires a $500 registration fee and monthly inspections of the property.

The Federal Housing Finance Agency, which oversees Fannie and Freddie, contested the ordinance, and the court found in the agency’s favor, noting that Fannie Mae and Freddie Mac cannot be made to comply with a patchwork of different regulations across the country. “Such a result would invite chaos, as FHFA would be subject to a variety of potentially conflicting ordinances, raising the expenses of FHFA in not only complying with those ordinances, but in simply monitoring the various requirements," wrote Judge Durkin.

The city responded in a press release that they were disappointed by the decision and will continue to hold financial institutions responsible for the upkeep of vacant properties in the city.

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Enforcement Attorney Leaves CFPB for Online Lender
American Banker (08/23/13) Witkowski, Rachel

Neil Peretz, who until recently had been an enforcement attorney at the Consumer Financial Protection Bureau (CFPB), left the agency and joined a San Francisco-based short-term online lender called BillFloat. The move is somewhat surprising given that the CFPB and some states – New York chiefly among them – have increased scrutiny of the online lending space.

In a press release, Peretz noted that BillFloat’s business model was revolutionary, looking beyond a simple credit score to determine creditworthiness and ensure that people have access to the credit they need, when they need it. In his new position, Peretz will oversee new product development and regulatory compliance.

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CFPB Bolsters Staff with 4 Additions
SubPrime Auto Finance News (08/28/13)

The Consumer Financial Protection Bureau (CFPB) has made four additions to its leadership team, although it still has not named a replacement for the regulator who will oversee the auto lending sector.

Cheryl Parker Rose will serve as the assistant director for the office of intergovernmental affairs. Previously, she worked as the president of strategic operations at the Service Employees International Union and most recently served as the deputy director of U.S. government relations for the Bill and Melinda Gates Foundation.

Christopher Carroll has moved into the assistant director and chief economist position in the office of research. He is a professor of economics at Johns Hopkins University, as well as a board member of the  National Bureau of Economic Research. Carroll will not begin his duties until January. In the interim, the current deputy assistant director, Ron Boraekowski, will fill that role.

Kathleen Ryan has been selected to serve as the deputy assistant director in the office of regulations. She was the senior regulatory counsel at JPMorgan Chase & Co. Previously, she was responsible for drafting several key consumer protection rules as the senior counsel at the Federal Reserve.

Elizabeth Ellis, who previously worked as a financial analyst with the Congressional Oversight Panel and most recently served as the senior advisor to the CFPB’s chief of staff, will serve as deputy assistant director for the office of financial institutions and business liaison.

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August 29, 2013

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