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What the CFPB's Qualified Mortgage Rule Means to Lenders
American Banker (01/10/13) Witkowski, Rachel and Joe Adler

The Consumer Financial Protection Bureau (CFPB) released its long-awaited “qualified mortgage” (QM) or “ability to repay” rule on Jan, 10, establishing new standards for all mortgages. The bureau designed the new rules to allow more loans to attain qualified mortgage status, making it less restrictive than many lenders had initially expected.

"Our goal here is not only to stop reckless lending, but to enable consumers to access affordable credit," said CFPB Director Richard Cordray. "We can draw up the greatest consumer protections ever devised, but if consumers cannot get credit, then there is nothing to protect."

The new rule has a number of important elements. First, lenders must verify a borrower’s ability to repay through eight underwriting principals, including current income or assets, employment status, and the monthly debt-to-income ratio. The rule also bans prepayment penalties for certain fixed-rate, qualified mortgages and requires lenders to keep records demonstrating they have complied with the ability-to-repay rule for at least three years.

Under the rule, the characteristics of a qualified mortgage are: the borrower has a debt-to-income ratio no greater than 43 percent; fees and points do not exceed three percent of the total loan amount; lenders verified a borrower's income; and the loan does not include certain characteristics of nontraditional mortgages.

Loans meeting these requirements will be afforded a legal safe harbor, while higher-priced loan get a rebuttable presumption. The new rule will go into effect January 10, 2014.

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AFSA State Government Affairs Publishes 2013 Legislative Preview, 2012 Review

On Jan. 7, AFSA’s State Government Affairs (SGA) Department published its 2013 State Legislative Preview (and related 2012 year in review). This annual paper provides a complete preview of state and some limited federal legislative and regulatory activity in 2013 relating to electronic payment systems, mortgage lending, personal loans, vehicle finance and key general interest topics such as ancillary products, credit reporting and the expansion of the Nationwide Multistate Licensing System (NMLS) to non-mortgage non-depository entities. The paper also gives a comprehensive overview of hot issues in the states in 2012, including the Missouri ballot initiative petition to cap interest rates on small-dollar loans, the National Mortgage Servicing Settlement, and legislation and regulations relating to integration/merger clauses in motor vehicle retail installment contracts.

The 2013 Legislative Preview can be viewed by AFSA members here.

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AFSA Comments on CFPB Proposed Credit Card Rule

Federal Reserve Board regulations the implementing the Credit Card Act of 2009 require a credit card issuer to evaluate a consumer’s ability to make payments based on his or her independent income or assets before opening a new account. As an unintended consequence, stay-at-home spouses could be denied credit. Since the regulation was proposed, AFSA and numerous other groups have been arguing for a change that will allow the more than 16 million married people who do not work outside the home to qualify for credit.
On Oct. 25, 2012, the CFPB announced proposed changes to the regulation. The proposal attempts to add accessible income as a way to allow spouses and partners not working outside the home to qualify for credit and build their own credit histories. Under the proposal, the accessible income must be money that the consumer has a reasonable expectation of being able to use, and it applies to all credit card applicants who are at least 21 years old, whether married or unmarried. AFSA submitted a letter on Jan. 7 generally supporting the proposal. However, AFSA outlined a few concerns, including how the proposed rule would interact with the Equal Credit Opportunity Act and how the rule would affect credit card applications.

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Telephone Consumer Protection Act Court Victory

On December 28, the U.S. Court of Appeals for the Ninth Circuit favorably amended its opinion in the Meyer v. Portfolio Recovery Associates case. AFSA and the California Financial Services Association (CFSA) filed an amicus brief in this case in support of the appellant’s petition for rehearing to request that the court reconsider and remove from its opinion two sentences that are incorrect, unnecessary to the court’s decision, and potentially extremely troublesome for creditors and debt collectors.

Although the court denied the petition for rehearing, it amended its opinion exactly the way AFSA’s and CFSA’s amicus brief requested, stating that the two sentences quoted above should be replaced with the following language: “Pursuant to the FCC ruling, prior express consent is consent to call a particular telephone number in connection with a particular debt that is given before the call in question is placed. Id. at 564–65. PRA did not show a single instance where express consent was given before the call was placed. Id. at 565.” The Ninth Circuit correctly deleted all reference to consent given “at the time of the transaction” and now refers to consent given before the call is placed and “in connection with a particular debt.”

If the opinion had not been amended, every call placed by AFSA members to any California cell phone number would be actionable if the number was not provided at the time of application. Current practice amongst members varies, but it has been uniformly assumed that members can autodial a customer that provided a cell phone number in connection with a debt, regardless of whether the number was provided at the time of application or on a later date. As the Telephone Consumer Protection Act contains a $500 per violation statutory penalty provision and a four-year statute of limitations, and given current autodial volumes, this ruling could have opened to door to huge exposure for AFSA’s members.

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Inside the Beltway
Nasty Confirmation Battles Loom
Politico PRO (01/08/13) Raju, Manu

Jack Lew, the White House chief of staff and President Obama’s nominee for Treasury secretary, has a contentious relationship with some Senate Republicans. A trusted Obama aide, Lew was the budget director under Bill Clinton and Obama and now is the president’s chief of staff. However, Lew has irritated many Senate Republicans during the fiscal cliff fight last year and tense negotiations to raise the debt ceiling in 2011, causing many in the caucus to speak out against his nomination.

“We’ve got to have a person who has credibility with the leaders of the American and world economy, someone who has credibility with the Congress, and I would feel like Mr. Lew’s nomination would be a mistake,” said Alabama Senator Jeff Sessions.

With current Treasury Secretary Timothy Geithner slated to leave his post at the end of the month, the Lew confirmation fight will come right in the middle of continued talks between the White House and Congress over the debt ceiling and sequestration cuts. These talks will be the Treasury Secretary’s first test if and when he is confirmed by the Senate. The White House has made it clear that a speedy confirmation process is essential to continued economic growth and market stability.

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Deval Patrick, Barney Frank and the Politics of Senate Appointments
The Washington Post (01/10/13) Sullivan, Sean

The nomination of Senator John Kerry (D-MA) for Secretary of State by President Obama has left an open Senate seat for Democratic Massachusetts Governor Deval Patrick to fill. Retired Congressman Barney Frank has made it clear that he should be a serious contender for the seat. Governor Patrick has announced he will wait until Senator Kerry is confirmed and has stated that Congressman Frank is certainly on the short list.

However, it will not come as a surprise if Governor Patrick decides to go with someone else, as Rep. Frank is well known for speaking his mind and calling out those he disagrees with, sometimes harshly. This makes him a wildcard for an interim appointment. Outgoing Administration and Finance Secretary Jay Gonzalez has also surfaced as a possibility for the Massachusetts appointment if Governor Patrick decides against Congressman Frank.

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National and State News
City Cracks Down on Owners of Blighted Properties
NorthWestOhio.com (01/09/13) Maddrick, Bryant

City leaders in Toldeo, Ohio, are cracking down on blighted properties in the city with changes to the city’s vacant building registration system. The change would require owners to pay a $200 registration fee to join the registry. "We're going to hold mortgagees and owners accountable for these properties," said Toledo City Councilman Adam Martinez.

City leaders say the point of this updated law is to target large companies that own property in the city and are not taking care of it. Money from the $200 fee will go to nuisance inspectors and cutting grass around properties. The law will not affect people or businesses trying to work with the city.

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Auto Lenders Decry Georgia's Tax Hike on Leases
Automotive News (01/09/13) Henry, Jim

A new Georgia law that takes effect on March 1, 2013, will place a higher tax burden on consumers who choose to lease cars as opposed to those who choose to buy. Georgia HB 386 imposes a one-time 6.5 percent tax on the fair market value of the vehicle and leaves a tax on monthly lease payments. The result will roughly double the tax on leases.

"If the consumer has to pay more to lease, nobody's going to lease," said Danielle Fagre Arlowe, senior vice president of state government affairs for the American Financial Services Association. She speculated the effect on leases was an "unintended consequence." While the leasing company technically has to pay the one-time tax, the additional cost likely will be passed on to consumers.

"People lease cars because of the lower payment," said Jack Tracey, executive director of the National Vehicle Leasing Association. "If you double the taxes, you're really going to suppress the market."

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City Approves Ordinance to Protect Borrowers from 'Predatory Lenders'
KFOX14 (01/08/13) Curtis, Genevieve

In a 6-2 vote, the El Paso, Texas, City Council passed an ordinance and resolution that members said will protect economically vulnerable citizens from predatory lenders. The new ordinance, which is slated to take effect in July, will prevent borrowers from borrowing more than 20 percent of their gross monthly income and reduce the number of times a loan can be refinanced to three.

The ordinance is modeled after similar statutes recently passed in San Antonio, Dallas and Austin, the former two of which are facing lawsuits claiming that they contradict existing state law.

Texas is the only state that has not passed statewide legislation restricting payday lending. The state has one of the largest underbanked populations in the country, making payday loans a profitable business there.

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New Florida Bill Would Speed up the Foreclosure Process
The Miami Herald (01/04/13) Olorunnipa, Toluse

A new bill filed this week in the Florida Legislature, HB 87, by Rep. Kathleen Passidomo (R-Naples) would drastically change the way home foreclosures are carried out in the state. The bill’s provisions mostly aim at speeding up the foreclosure process, which currently takes nearly 600 days in the state. “We need to make sure the process is as efficient as possible while at the same time giving the borrower their due process rights,” said Passidomo. “Unfortunately, if you don’t have an income or you can’t afford to pay anything, the property can’t just sit in limbo forever.” A similar bill presented in the last session came under fire from consumer advocacy groups and sparked protests.

The bill would require strict paperwork requirements for lenders, fast-track foreclosure procedures and provide a shield against protracted and awkward legal battles.  It also includes a provision that consumer activists supported last year to limit banks’ ability to collect additional debt after a foreclosure from five years to one.

Many consumer advocates are already speaking out against the bill, urging homeowners to oppose it early. The legislature has tried to reform the foreclosure system in Florida twice before, each time facing outcries from advocacy groups.

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Regional Management Expands into Georgia
SubPrime Auto Finance News (01/04/13)

Regional Management Corp., an AFSA member, has opened its newest AutoCredit Source branch location in Atlanta, signaling their entrance into lending operations in the state. "The AutoCredit Source brand and unit has been a successful extension of our business since we opened the first branch in early 2011, and the opening this week of ACS branches in Atlanta and Austin represent a continuation of our indirect auto lending strategy focusing on major metro markets," said Thomas Fortin, chief executive officer of Regional Management.

The ACS Atlanta branch is the fifth location to open in a major metropolitan area – the sixth opened recently as well, in Austin, Texas. The branch opening in Atlanta continues Regional Management’s expansion in the Southeastern and Southwestern U.S. "We are excited to provide Atlanta residents with a new source for their indirect auto lending needs," Fortin said. “Our indirect lending strategy complements our traditional direct lending model to used car dealers through traditional Regional branch locations.”

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January 10, 2013

Forward To A Colleague

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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.