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De Facto Cordray
Politico PRO (02/01/13) Davidson, Kate

Consumer Financial Protection Bureau (CFPB) Director Richard Cordray’s recess appointment by President Obama may be in jeopardy, but according to many in Washington, his work with the bureau very likely will not be. Lawyers from banks, government and trade associations have studied the case the case against Cordray, along with past judicial rulings that are similar, and have found that the final rules the CFPB has issued under Cordray will likely remain in place, while future actions  may be called into question.

Raymond Natter, a partner at Barnett, Sivon & Natter, stated that invalidating all of the CFPB’s work is both unlikely and costly for industry. Past decisions like the one involving Cordray have not removed regulations made by a bureau or regulatory body, even if the appointment of the director was invalidated, instead applying the decision moving forward, creating a “de facto officer doctrine”.

A court likely would uphold the rules that the CFPB developed, especially the crucial mortgage related rules, because undoing them would be more detrimental to the economy and industry. The decision in Franklin Savings Bank v. Office of Thrift Supervision in 1990 set the precedent for this idea. In the case, the 10th circuit court of appeals ruled that the agency director’s actions during the savings & loan crisis would not be invalidated because doing so would cause irreparable harm to the economy.

Still, if the director’s decision were to be overturned, the Treasury Department may have some standing to certify them. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Treasury Secretary was given some supervisory powers over the CFPB if no director was in place. Thus, as a last resort, Treasury could step in and validate Cordray’s actions. 

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New Member Welcome

AFSA welcomes new Active members USA Discounters and Vehicle Acceptance Corporation and new Business Partners Roy L. Weinfeld, P.A. and Synaptic Resources Inc.
Headquartered in Virginia Beach, Va., USA Discounters helps military, federal, state and local government employees with their shopping needs with automatic financing.
Vehicle Acceptance Corporation, located in Dallas, serves independent used car dealers who are looking for ways to expand their purchasing power and business potential.
Miami-based Roy L. Weinfeld, P.A. has practiced in commercial litigation, focusing on creditor and collections law in Florida for a variety of clients since 1995.
Formed in 2005, Synaptic Resources Inc. is a leader in Intraoperative Neurophysiological Monitoring. The company’s headquartered are in Tulsa, Okla.
AFSA also welcomes back Stephens Inc., a financial services firm headquartered in Little Rock, Ark., and ID Analytics, a risk management and consumer behavior analytics firm founded in 2002 in San Diego.

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Inside the Beltway
CFPB Scrutiny of Bank-College Partnerships Deepens
American Banker (02/05/13) Witkowski, Rachel

The Consumer Financial Protection Bureau (CFPB) is expanding its initial research into the marketing partnership between colleges and banks to include debit cards. The original CFPB mandate consisted of monitoring and regulating the student loan industry, but it has since expanded its purview to include college banking as well. The bureau argues that students may be lulled into a false sense of security regarding certain bank products because they are sponsored by a college. Students are unaware of hidden fees and requirements that go along with the accounts. "There are big deals made between universities and banks, and we think it's worth understanding how our students are essentially entering the financial services market, which might continue far after they graduate," said Rohit Chopra, student loan ombudsman for the CFPB.

Many banks have already pulled out of the student loan business, citing high default rates, and have also stepped back from student credit card offers. They have done so because the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 greatly restricted fees and the number of new applicants based on age requirements.

One of the areas that the CFPB is studying and could regulate is the amount of royalties or reward dollars the university collects for signing up new students, which the bureau argues, promotes the school to push students into unsafe financial agreements. Additionally, the bureau is expanding its study to include universities that allow a student ID card to double as a debit card. Chopra is concerned that universities are not informing students that signing up is optional, because the schools are receiving kickbacks from banks.

John Hirabayashi, president and CEO of Community First Credit Union of Florida says that the heightened scrutiny on these university-bank deals will create a level playing field for smaller banks, as well as online financial institutions.  These deals are generally worth many millions of dollars, so the scale tends to shut smaller financial institutions out of the conversation. One of the CFPB's goals is to highlight that students have options when it comes to university banking and are not required to sign up with the institution that their school contracts with.

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Fannie, Freddie Give Lenders Fuel for HARP
Politico PRO (02/04/13) Prior, Jon

New rules from Fannie Mae and Freddie Mac that allow lenders to provide incentives to mortgage holders have been approved, in the hopes that doing so will convince borrowers to take advantage of the Home Affordable Refinance Program (HARP). The program is intended to assist homeowners with mortgages for more than their homes are worth.

Under the new regulations, lenders may pay off as much as $2,000 of a borrower’s mortgage to entice them into getting a new mortgage under HARP. These incentives will be offset by allowing lenders to increase the interest rate on some loans slightly. Banks were growing eager for formal rules regarding the new incentives, to ensure that funding under the lucrative HARP program didn’t dry up. Lenders and banks have derived significant profits from HARP’s refinancing fees. In some cases, these profits have offset the increased cost of complying with new regulations and rules concerning home loans.

Last year, the Federal Housing Finance Agency (FHFA) relaxed restrictions on the HARP program, doing away with a requirement that banks buy back a loan if the borrower defaults and changing the amount of home value versus mortgage principal required to take advantage of the program. This action resulted in more than 709,000 people joining HARP.

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National and State News
Austin Officials Preparing for Fight Over Payday Lending Rules
The Statesman (02/03/13) Toohey, Martin

Critics of the payday lending industry are gearing up for a battle in Austin, as well as many other Texas towns, as the industry pushes for more uniform regulations. Instead of varying city ordinances, the payday lending industry is pushing for statewide regulations that would make it easier for lenders to comply and for borrowers to understand their rights.

The industry argues that the higher fees that they charge for their loans are a result of lenders taking on more risk than would normally be found in a traditional loan. The Austin City Council, as well as other Texas municipalities, has attempted to restrict payday lending, saying that the high interest rates and fees trap borrowers – many of which are low-income – in a spiral of debt from which they are unable to escape.

Payday lenders in the state further argue that they are not looking for a legislative fight and have, in fact, instituted fresh regulations on themselves that go beyond current law, such as allowing borrowers to roll over or defer the payment of a loan once without additional fees and interest. Rather, the industry in the state is looking for uniformity in the law, so they are not forced to comply with a patchwork of ordinances from town to town.

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St. Petersburg Wants to Create Foreclosure Registry
Tampa Bay Online (02/06/13) O'Donnell, Christopher

The city of St. Petersburg, Florida has been plagued by vacant, foreclosed properties and is now considering regulations requiring lenders to take responsibility for the upkeep and security of properties abandoned by their owners. The new regulation would require banks and companies that own a foreclosed property to register the structure, guarantee its security, and contract with a management company to ensure its upkeep.

Florida law slows down the foreclosure process, bringing the average time from start to finish nearly three years, which is one of the longest timetables in the country. Tom Tito, president of Bartlett Park Neighborhood Association, says that the problem doesn’t lie in the upkeep of vacant houses but in how long it takes to get new owners or renters into the homes. We need some financing to get people into the homes and to help people get out of foreclosure."

Banks would have to pay a $125 registration fee, more than half of which would go to the Federal Property Registration Corporation. The company, which already manages the vacant property registration information of several nearby municipalities, would administer this database. The vote to implement the registry is set for February 7th.

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Prospect Capital Invests $25.2 Million to Recapitalize Nationwide Acceptance

Prospect Capital Corporation has funded a recapitalization of Nationwide Acceptance Corporation for $25.2 million. Nationwide, founded in 1954, is a specialty finance company headquartered in Chicago. It purchased more than 7,000 loans last year alone, which originated from more than 800 automobile dealerships. The company’s continued success is the result of a broad dealer network, a careful loan underwriting process, and a commitment to monitoring current loans, ensuring they are collected in a timely manner.

"Prospect has worked extensively to understand the auto finance industry and Nationwide's long-term track record," said Martin Less, CEO of Nationwide. "Leveraging our broad footprint and the capital backing that Prospect provides, we anticipate continuing to deliver profitable growth by expanding our business in current states as well as new expansion states."

The senior management of Nationwide invested with Prospect Capital and owns 6.2% of the total interest in the company. Nationwide employs more than 120 people and has a loan portfolio in excess of $100 million.

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Chrysler, Santander Consumer USA Create Captive Arm
SubPrime Auto Finance News (02/06/13)

Reports that Chrysler and Santander Consumer USA were in the process of creating a captive auto finance arm have been circulating during the past few weeks. Yesterday, the deal was finalized, creating Chrysler Capital, which will provide consumers with a wealth of financing opportunities.

The new joint venture will provide Chrysler and Fiat consumers with both leasing and purchase financing, as well as provide wholesale financing options for dealers. Chrysler Capital will also provide revolving lines of credit and dealership construction financing with an eye to improving the purchasing experience for consumers. Santander Consumer USA is a financial services company based in Dallas, Texas and is owned by the Spanish Banco Santander, which has agreements to provide financing with ten automakers worldwide.

"We found in Santander Consumer USA a nimble partner backed by the strength and experience of a worldwide banking leader. We have been impressed with Santander Consumer USA's capabilities, energy and attitude about selling Chrysler Group vehicles," said Peter Grady, Chrysler's vice president of network development and fleet.

The separate business unit that Santander will create to form Chrysler Capital is part of the ten-year agreement between the two companies. "Santander Consumer USA is pleased that Chrysler Group has selected us to assist its dealer network in providing customers with competitive financing solutions,” said Thomas Dundon, chief executive officer and president of Santander Consumer USA. "Our top priority will be to provide best-in-class service to Chrysler's dealer body and retail consumers."

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February 7, 2013

Forward To A Colleague

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

AFSA Newsbriefs is a weekly executive summary of AFSA initiatives and consumer credit articles. AFSA Newsbriefs is free for members. Send an email to newsbriefs@afsamail.org to subscribe.

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.