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Court Could Presage Big Changes at CFPB
Wall Street Journal (01/31/13) Zibel, Alan

Congressional Republicans and financial industry groups could have the leverage to oust the Consumer Financial Protection Bureau’s Director Richard Cordray, after a court ruling last week struck down President Obama’s appointments to the National Labor Relations Board (NLRB). Lawmakers have pushed for a bipartisan commission opposed to the single-director system the CFPB has in place now, and insisted that the bureau be subject to congressional budget approval.

Because Cordray was appointed in the same fashion as the NLRB members, many in the industry believe his nomination will be invalidated as well. As a result, they are calling for a sit down with Democrats and the White House to settle the CFPB structure.

Two conservative groups, the Competitive Enterprise Institute and the 60 Plus Association, are urging lawmakers to delay any confirmation hearings for Cordray until after the lawsuit is settled. Senator Tim Johnson (D-SD) stated that Cordray did and still does deserve an up or down vote in the Senate.

In a statement, the CFPB said it is not a party to the case in question and its result will not affect its work.

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Inside the Beltway
Cordray Recess Appointment Called into Question with Court Ruling
American Banker (01/25/13) Berry, Kate

On Jan. 4, 2012, President Obama made three appointments to the National Labor Relations Board, while the Senate was in what is known as a “pro forma” session. A court late last week ruled that the president did not have the power to make the recess appointments while the Senate was in such a session. On the same day, Obama appointed Richard Corday the Director of the Consumer Financial Protection Bureau (CFPB), casting considerable doubt on the legality of his appointment as well.

While the decision itself does not apply to Cordray, it opens the door to additional legal challenges to his appointment and comes at an inconvenient time for the Obama Administration, as Cordray recently was renominated for the post. The White House strongly disagreed with the findings of the NLRB lawsuit, which it will likely appeal to the Supreme Court.

Much of the CFPB’s supervisory and enforcement powers were transferred from the Federal Reserve Board, meaning that the bureau would not be affected by any decision in a case against Cordray. However, a large portion of the new powers that the bureau was given, specifically concerning the regulation of mortgage servicers and nonbank lenders, could only be exercised if a director was in place. If Cordray's recess appointment were to be invalidated, the bureau's actions would not automatically be reversed, said Don Lampe, a partner with Dykema.

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Economy Shrinks as Federal Government Spending Cuts Trump Private Sector Growth
Washington Post (01/30/13) Mui, Ylan Q.

For the first time since the recession, the economy sagged in the fourth quarter of 2012 by 0.1 percent, according to reports released by the Labor Department. The problem is not a lack of consumer spending, but continued wrangling over budgets cuts and federal spending. The economy was “being pulled in opposite directions. . . and ending up going nowhere,” said Richard Moody, chief economist at Regions Financial Corp.

Washington, D.C. politics now appear to be the largest roadblock to economic recovery, as Democrats argue that more responsible spending is required to keep the recovery going and Republicans argue that slashes in expenditures are the only way to fiscal health. Economists had predicted a modest 1.1 percent growth rate for the fourth quarter of last year, but cuts in defense spending pulled the economy back across the threshold by 1.3 points to the 0.1 percent mark.

Still, economists do not read completely negatively into the numbers released on Jan. 30. Some attributed the slide to early spending by federal agencies to avoid possible sequester cuts. Additionally, behind the negative number is a positive consumer spending increase of 2.2 percent and an exceptionally positive housing figure of 15.3 percent. Finally, the data released was the first round, which is usually revised.

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U.S. Consumer Bureau Seeks Comment on College Finance Products
Bloomberg News (01/31/13) Dougherty, Carter

The Consumer Financial Protection Bureau (CFPB) is seeking comment through March 18 on banking products that are sponsored by universities and marketed specifically to college students. “We have seen many colleges establish relationships with financial institutions to offer banking services to their students,” said Richard Cordray, the bureau’s director. “The bureau wants to find out whether students using college-endorsed banking products are getting a good deal."

A 2009 law already limits the type of marketing tactics that credit card companies can use to market their products to college students. The CFPB is now taking aim at bank accounts and debit card products that may take advantage of students who believe they are getting a good deal simply because the company is endorsed by the school.

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National and State News
How Negative Student Loan Trends Could Affect Auto Lending Market
SubPrime Auto Finance News (01/30/13) Zulovich, Nick

TransUnion and FICO Labs noted a disturbing trend, even as subprime auto loans and approvals rose 40 percent in January compared to a year ago. More than half of student loans are in deferment.

Adding to the troubles, FICO found that the principal balances students are required to take out have increased nearly $10,000 on average, significantly increasing the risk of default on those loans. The delinquency rate on loans originated from 2010-2012 is 15.1 percent up from 12.4 percent on loans originated from 2005-2007.

"As more people default on their student loans, their credit ratings will drop, making it harder for them to access new credit and help grow the economy," said Andrew Jennings, FICO's chief analytics officer and head of FICO Labs. "Even people who stay current on their student loans are dealing with very large debts, which reduces the money they have available to spend elsewhere.”

"While the focus in recent years has been on the mortgage market, lenders will need to keep an eye on student loan portfolios — and on customers who have student loan debt — as the high delinquency rates among these borrowers can spell trouble across multiple products," said Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit.

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New Law Would Make Car Leases Less Attractive
The Atlanta Journal-Constitution (01/29/13) Gould Sheinin, Aaron

Lawmakers in Georgia failed to account for the extremely popular practice of leasing cars in a massive tax bill that passed in 2012. The state legislature was attempting to repeal the “birthday tax” on vehicles, a tax paid on the owner’s birthday. Under the new law, those who purchase cars would only pay the initial sales tax on the purchase price of the vehicle, whereas those who lease would pay both the initial and monthly sales tax. The increase in taxes creates a serious disadvantage to leasing, which currently accounts for nearly 42 percent of vehicle transactions in Georgia.

Rep. Tom Rice (R-Norcross) has put forth HB 80 to attempt to fix the double taxation issue on leases by lowering the initial tax to four percent. However, his legislation would not fix the monthly sales tax that would continue to be charged. “We need to ensure there’s enough revenue on these vehicles to make up for the lost (birthday tax),” Rice said. “That’s why there’s any title fee on leased vehicles at all.”

Danielle Fagre Arlowe, senior vice president of the American Financial Services Association (AFSA), stated that the Georgia law would be the first of its kind nationwide, especially since Georgia has such an indiscriminately higher rate of leasing than any other state. “We don’t know any other state that treats leases negatively compared to purchases from a tax perspective,” Fagre said. “The fact that leasing is so much higher in Georgia than the national average makes this an even more important issue.”

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Attention Shoppers: Another Credit Card Fee Is Here
NBC News Business (01/25/13) Weisbaum, Herb

On Jan. 27, consumers may have begun seeing new fees at the checkout counter, as a settlement between Visa/MasterCard and merchants went into effect, allowing store owners to recoup the 1.5 to 3 percent interchange fee charged by the card companies.

The big question mark for card companies, merchants, trade associations and most of all, consumers, is which stores, if any, which actually impose the checkout fees. “We have discussed the settlement with many, many merchants, and not a single merchant we have spoken to plans to surcharge,” said Craig Shearman, spokesman for the National Retail Federation (NRF). Wal-Mart, Target, Sears and Home Depot have all announced that they will not charge check-out fees.

Stores that choose to impose checkout fees are required to post that fact at the entrance. The final percentage must be listed on the receipt, and debit cards are exempted from the surcharge. Online retailers may also charge the fee if they choose.

The settlement is still preliminary, and a final ruling is expected in 2014. Various merchants and business groups are expected to challenge the final ruling.

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After St. Louis County Acts, State Lawmaker Targets Local Foreclosure Mediation Program
St. Louis Beacon (01/29/13) Rosenbaum, Jason

The St. Louis County Council passed a law late last year that allowed homeowners who face a default or foreclosure on their mortgage to enter into mediation with the mortgage servicing company. The ordinance is facing legal pushback from both industry and the Missouri Banker’s Association (MBA), which has filed suit against the council and the statute, claiming it places an undue burden on the mortgage companies. An injunction is in place until a decision is rendered.

Some Missouri politicians also have voiced opposition to the measure. Stanley Cox, a Republican State Senator, said, “We could very well have 115 different types of laws when it comes to financing homes and so forth. That would cause a great difficulty upon consumers.” Senator Cox is in the process of drafting legislation that would mandate local ordinances be in line with state and federal law, thereby nullifying the local mediation requirement.

However, Missouri State  Senators Gina Walsh (D-Bellefontaine Neighbors) and Jamilah Nasheed (D-St. Louis) have voiced support for state-wide mediation legislation. Both senators’ districts have been hit hard by the housing crisis and each has expressed concern that not enough is being done to protect consumers.

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January 31, 2013

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