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CFPB Likely to Crack Down on Arbitration Clauses
American Banker (12/12/13) Witkowski, Rachel

The Consumer Financial Protection Bureau (CFPB) is taking a close look at arbitration clauses. Despite the Supreme Court’s repeated approval of arbitration clauses, the bureau issued a report stating that arbitration clauses are overused and strip away important consumer rights.

Sen. Al Franken (D-MN) also announced that he would hold a Senate Judiciary Committee hearing on the subject with an aim of abolishing mandatory arbitration clauses. "I've heard from Minnesotans that recent decisions by the Supreme Court have given big corporations the unbridled ability to deny small businesses and consumers their day in court, and something has to be done to stop it," Franken said.

The Dodd-Frank Wall Street Reform and Consumer Protection Act gave the CFPB the authority to write new rules on arbitration. Industry analysts expect that new rules limiting the use of arbitration clauses will be issued soon.

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Financial Services Conference Session Focuses on Small-Dollar Loans

During a Dec. 5 panel discussion on “Affordable Small-Dollar Loans for Lower-Income Households” at the Consumer Federation of America’s Financial Services Conference, AFSA President and CEO Chris Stinebert detailed the benefits of traditional installment loans. Stinebert emphasized that traditional installment loans are underwritten to consider a borrower’s ability to repay, are fully amortized with affordable equal monthly payments, and help consumers build or strengthen their credit history through reporting to credit bureaus. In contrast to other products being presented, Stinebert pointed out that traditional installment loans do not include a balloon payment, do not assess prepayment penalties, and do not require access to a customer’s deposit account.
Joining Stinebert on the 75-minute panel were Jim Blaine, president, State Employees' Credit Union; Ann Baddour, senior policy analyst, Texas Appleseed; Jeanne Hogarth, vice president, policy, Center for Financial Services Innovation; Rob Rosenblatt, CEO, UniRush, LLC.

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Fair Lending Covered in AFSA’s First Compliance Outlook Webinar

On Dec. 11, AFSA hosted a compliance outlook webinar on fair lending. Presenter Leonard Chanin, partner, Morrison & Foerster, provided an overview of fair lending laws and regulations and explained the different legal theories of discrimination, including disparate treatment and disparate impact. Chanin also reviewed the Consumer Financial Protection Bureau’s fair lending work and provided suggestions as to how a company can meet the CFPB’s expectations and stay compliant. More than 100 AFSA members participated in the hour-long webinar.
AFSA’s next compliance outlook webinar, to be held in late January, will address the Telephone Consumer Protection Act. AFSA will send more details about the webinar in the upcoming weeks. 

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Financial Services Issues Discussed at NCSL Fall Forum

AFSA staff attended the National Conference of State Legislature’s (NCSL) Fall Forum, held Dec. 4-6, in Washington, D.C. During the business meeting of the Communications, Financial Services and Interstate Commerce Committee, the committee voted almost unanimously against a proposed resolution urging Congress to reinstate the Glass-Steagall Act. Maine abstained due to the conflicting opinions of the legislators in attendance (NCSL procedural rules allow only one vote per state). 

The forum included sessions on the rise of mobile payments and digital currencies, including how state and federal policies could impact innovation; efforts to reform Fannie Mae and Freddie Mac; and state legislation and federal policies designed to prevent financial exploitation of the elderly. Panelists for these sessions included industry representatives, state legislators, and representatives from the Consumer Financial Protection Bureau and Conference of State Bank Supervisors.

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New AFSA Committee Dedicated to Vehicle Credit Risk Management

Based on interest by AFSA vehicle finance division members, AFSA has formed a new Credit Risk Management Committee to provide a forum for vehicle finance risk management executives to share insights, examine trends, and discuss and communicate best practices. The committee will focus on credit risk management methods, tools, governance and processes used to identify, measure and manage credit risk in order to achieve key business objectives, as well as credit risk management governance and oversight issues unique to the vehicle finance sector. Chaired by Daniel Parry, Executive Vice President & Chief Credit Officer, Exeter Finance, the committee’s members will include senior credit risk officers from captive auto finance companies, diversified financial services companies providing financing and leasing, and finance companies specializing in prime, near prime and subprime auto finance and banks. 
The committee’s next meeting will be held Jan. 22, 2014, in conjunction with the AFSA Vehicle Finance Conference. For more information on the committee, please contact AFSA Vice President of Member Services Sheilah Harrison at sharrison@afsamail.org or 202-466-8602.

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Inside the Beltway
Senate Confirms Rep. Mel Watt to Lead Federal Housing Finance Agency
The Wall Street Journal (12/10/13) Timiraos, Nick

Under new rules that require only a simple majority for executive nominations, the Senate confirmed Representative Mel Watt (D-NC) to lead the Federal Housing Finance Agency (FHFA). Watt will be the first permanent director of the agency in more than four years. The FHFA, which also oversees Fannie Mae and Freddie Mac, is currently dealing with how to overhaul the nation’s $10 trillion mortgage market. On Dec. 10, Watt was confirmed in a 57-41 vote, where all 55 Democrats, as well as Senators Rob Portman (R-OH) and Richard Burr (R-NC) voted for his confirmation.
Watt, who was nominated in May by President Obama, has had his confirmation vote held up by Senate Republicans who disagree with the President’s tack on the role of government in the housing market. The agency has been led by Edward DeMarco, who has been applauded by industry as well as consumers for his work to attempt to reduce government’s role in the mortgage space. Watt has announced little about his policy prerogatives, but industry watchers have noted that he will likely work closely with the Obama administration, as well as with a group of bipartisan Senators to overhaul the FHFA.

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Volcker Rule Wall Street Crackdown Revealed
PoliticoPRO (12/10/13) Davidson, Kate

On Dec. 10, regulators approved the controversial and long-awaited Volcker Rule, which will prohibit banks from making risky bets in the market with their own money if they receive federal deposit insurance or have access to Federal Reserve loans. It also will restrict a bank’s ability to invest in hedge funds or private-equity funds. The writing of the rule has developed into a proxy battle over how strong a hand regulators should have in the business practices of banks.

The Federal Reserve, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Securities and Exchange Commission all approved the final rule, which will take effect in July 2015. 

Part of the issue with writing the rule was determining how to distinguish between activities that are permitted and trading that is barred. The rule will require that bankers show that any hedging activity would “demonstrably reduce or otherwise significantly mitigate” one or more “specific, identifiable risks.” The rule also will require a bank to conduct correlation analysis to support its hedging strategy.

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Fed Files Reply in Interchange Case
ATM Marketplace (12/06/13)

The Federal Reserve Board submitted its reply to the U.S. Court of Appeals regarding its interchange fee cap. In November, merchants submitted a lawsuit that asked the U.S. Court to affirm a lower court’s ruling that struck down the Fed’s debit card interchange fee cap and network exclusivity regulations.

The Fed’s response counters arguments made by merchants that the Fed erred when interpreting the rule mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Fed asked that the District Court remand the case with instructions to enter judgment in favor of its rule. Oral arguments will be held on Jan. 17, 2014.

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FHA to Pull Back on Big Mortgages
CNN Money (12/08/13) Wallace, Gregory

The Federal Housing Administration (FHA) is lowering its cap on the mortgages it will back from $729,750 to $625,500 in a move industry analysts view as an indication of a strengthening housing market,. Lowering the limit will allow the agency to refocus on less wealthy borrowers. New lower limits will be set in approximately 650 counties nationwide.

The FHA stepped in to bolster the mortgage market during the 2008 financial crisis, increasing its exposure to defaults. Since the housing market began to recover, the agency has tried to reduce its portfolio and exposure to the market. The agency will continue to insure home loans for those who can afford as little as a 3.5 percent down payment.

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Budget Agreement Reached
Politico (12/10/13) Bresnahan, John and Sherman, Jake

On Dec. 10, Rep. Paul Ryan (R-WI) and Sen. Patty Murray (D-WA) unveiled a budget framework that would fund the government through the end of fiscal year 2015 and provide a level of certainty through the next election cycle. The plan calls for $63 billion in sequester relief, $85 billion in total savings and $23 billion in net deficit reduction. Additionally, it would set fiscal year discretionary spending over the next two years at $1.012 trillion and $1.014 trillion, respectively.

Both Republicans and Democrats are unhappy with the agreement, but analysts note that such an occurrence is a good sign that the bill language is sufficiently bipartisan. Democrats are unhappy that the bill does not contain an extension to federal unemployment benefits, which expire on December 28. Republicans dislike that the agreement would require business owners to pay higher premiums in order to guarantee pension benefits.

President Obama voiced support for the plan, noting that it does not include everything he likes, but that it is a good first step and is an excellent compromise. Many veteran lawmakers commented on the bipartisan nature with which the negotiations took place and how well Ryan and Murray seemed to work together. Both House Majority Leader Eric Cantor (R-VA) and Senate Majority Whip Dick Durbin (D-IL) voiced their support of the deal. Both conferences will now meet to discuss the agreement and party leaders must shepherd it through Congress. Votes are expected to be taken Dec. 12 and 13 before Congress leaves for its winter break.

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CFPB Targets Lender over Medical Debt
PoliticoPRO (12/10/13) Davidson, Kate

The Consumer Financial Protection Bureau (CFPB) has ordered CareCredit, a subsidiary of GE Capital, to pay $34.1 million in refunds to consumers. The CFPB alleges that CareCredit urged more than a million customers to sign up for credit cards that were interest-free to cover medical debts when , in actuality, the accounts accrued interest. If the full balance was not paid during a promotional period, the interest became due.

“Deferred-interest products can be risky for consumers in the best of circumstances, and today’s action ensures that CareCredit will no longer profit from consumer confusion,” said CFPB Director Richard Cordray. “The bureau will not tolerate financial companies that take advantage of patients and their loved ones.” The enforcement action also requires CareCredit to improve its disclosures during its application process and requires mandatory training for staff marketing cards to customers.

The CFPB warned that it will be taking a closer look at deferred interest products in an October report on the CARD Act.

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December 12, 2013

Forward To A Colleague

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