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As Dodd-Frank Turns Three, It Remains a Work in Progress
The Washington Post (07/19/13) Douglas, Danielle

When the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted, federal regulators were tasked with writing 398 brand new rules. Given the severity of the crisis at the time, Americans and those in the government thought that the new agencies and regulatory bodies tasked with implementing such rules would move swiftly to do so. As the bill turns three years old, nearly 62 percent of the deadlines for rule filings have been missed.

On July 24, Treasury Secretary Jack Law said that by year’s end the bulk of Dodd-Frank rule filings will have been made and put in place. He noted that the controversial Volcker Rule would be completed. Regulators have consistently cranked out new rules in the last two months, including the increased capital requirements for banks and changes in the derivatives market.

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Hispanic State Legislators Endorse Responsible Small Dollar Loans, Government-Issued Prepaid Cards

In resolutions adopted at their June 13 Executive Committee meeting, the National Hispanic Caucus of State Legislatures (NHCSL) endorsed the development of responsibly underwritten small-dollar installment loans and the use of government-issued prepaid cards.

NHCSL’s resolution promoting safe and affordable lending practices follows a similar resolution ratified in December 2012 by the National Black Caucus of State Legislators (NBCSL). It acknowledges the public need for small-dollar credit and identifies key structural qualities of safe and affordable loans as being a schedule for repayment in substantially equal installments and the lender’s assessment of the borrower’s stability, ability and willingness to repay the loan. It also recognizes that annual percentage rates are not the best indicator of the cost of the loan.

NHCSL’s resolution encouraging government use of prepaid cards recognizes the lower cost and increased efficiency, safety and transparency of using prepaid cards to make electronic payments such as social security, food stamps and tax refunds to unbanked individuals. It also emphasizes other significant advantages of prepaid cards to the unbanked, including ensuring payments are received promptly, protecting against risk of loss and theft, and serving as a tool for better financial management.

Both resolutions will be considered for ratification by the NHCSL body at their Annual Meeting in November.

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Inside the Beltway
Expect an Even Bolder CFPB in Year Three
American Banker (07/22/13) Witkowski, Rachel

Industry leaders and analysts are warning that the Consumer Financial Protection Bureau (CFPB) could seriously ramp up the speed and ferocity with which it issues rules now that it has a Senate confirmed leader in Director Richard Cordray. "They really have momentum now and we're going to see much more from them on every front," said Jo Ann Barefoot, co-chair of Treliant Risk Advisors.

After Cordray’s July 16 confirmation, the agency is poised to move full steam ahead with its regulatory agenda. Advisors note that the CFPB will continue to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act and begin to check other things off of its agenda, including a mortgage disclosure rule that will combine the disclosures for the Truth in Lending Act and the Real Estate Settlement Procedures Acts into a simple document. In year three, the CFPB’s top priority likely will continue to be the mortgage market. The bureau is also looking into arbitration agreements.

The CFPB also will finish its first round of exams for the large bank participants that fall under its enforcement and supervision actions - those with more than $10 billion in assets. Additionally, they will continue to expand their oversight of other nonbank companies that are larger participants.

The CFPB’s data collection efforts will continue despite a Government Accountability Office (GAO) investigation. The agency continues to be data-driven and much of their enforcement and supervision action stems from their massive consumer complaint database.

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Senate Passes Student Loan Interest Rate Compromise
PoliticoPRO (07/25/13) Nelson, Libby

An 81-18 vote on July 24 allowed a bill to keep student loan rates down to pass the Senate even though Democrats voiced serious concerns with its structure and the overall problem of ballooning student debt. The House is expected to act on the bill early next week and the president is expected to sign it.

The legislation ties the student loan rate to the government’s borrowing rates in the form of the 10-year Treasury bond, setting rates at 3.86 percent for this year for a new undergraduate Stafford loan. Stafford graduate loans would be set at 5.6 percent and PLUS loans for graduates and students would come in at 6.4 percent. The legislation is retroactive to the July 1 deadline that saw interest rates on new student loans double, in some cases, to above 10 percent. The rates in the current bill are adjustable based on the 10-year Treasury note, but are capped and, according to estimates by the Congressional Budget Office, would not being pushing at the cap for nearly five years.

Some legislators voiced their opposition to the bill, including Senator Elizabeth Warren (D-MA) because of its structure. “I cannot support a plan that asks tomorrow’s students to pay more in order to finance lower rates today,” she said. Previously Most Senators voiced their opinion that the bill was not perfect, but agreed something had to be done. President Obama continues to push for a wider review of the cost of higher education.

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The New Power Triangle
Politico (07/23/13) Allen, Mike and Vandehei, Jim

According to his advisers, President Obama had been looking for a partner to bargain with on the Hill since the beginning of his first term and he may have finally found one in Senator John McCain (R-AZ). The elder statesman, who is well respected around the chamber and the country, has helped usher immigration reform, confirm nominees to cabinet level positions and now is working to avert another budget standoff despite a bitterly divided Congress.

McCain is assisted by Senator Chuck Schumer (D-NY) and Obama’s Chief of Staff Denis McDonough. Schumer has an uncanny ability to get things done and McDonough is widely regarded as the one of the most respectable Obama staffers because he calls and seems to care what Senators have to say.

The three are able to work together by sidestepping the traditional leadership hierarchy and appealing directly to their party caucuses. All three have strong motives to work together. McCain wants to make a strong statement about his legacy in his waning years as a senator. Schumer can show he deliver results and has what it takes to be his party’s next leader in the Senate. The positives are plain for McDonough, who is attempting to usher the President’s agenda through Congress.

All three parties agree that they have been fairly successful because they tacitly agree on the issues they have worked on to date, like immigration and the approval of nominees. The true test is coming this fall, as the Congress once again will have to take up the budget and the debt limit.

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Federal Suit Challenges CFPB Data Gathering
American Banker (07/22/13) Cumming, Chris

Florida-based law firm Morgan Drexel has filed a lawsuit challenging the Consumer Financial Protection Bureau’s (CFPB) request for access to its records about a vast number of clients the firm works with. The suit also challenges the ability of the CFPB to regulate a law firm and that the records are protected under attorney-client privilege.

The charges come just a week after the Government Accountability Office (GAO) announced that it would investigate the CFPB’s data gathering operations, which in recent months, has gathered more than 10 million records on ordinary Americans. ”The CFPB lacks political accountability and internal checks and balances that are constitutionally required," the suit says, adding that the agency "is so ‘independent' that it is not sufficiently accountable to the political actors to survive constitutional scrutiny."

The suit was filed on July 22 in the U.S. District Court of Florida.

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National and State News
Easing of Mortgage Curb Weighed
Timiraos, Nick and Zibel, Alan (07/23/13) The Wall Street Journal

The Federal Reserve and Federal Deposit Insurance Corporation (FDIC) are preparing to loosen a requirement for companies to hold a certain number of the securities they packaged for sale in to the market. Consumer advocates and industry  have pushed hard to have the requirements relaxed, arguing that keeping them in place will increase the cost of homeownership and financing and do very little to stabilize the mortgage market.

Before the financial crisis, banks packaged subprime loans with high default rates without government backing and sold them into the securities markets. In response, the Dodd-Frank Wall Street Reform and Consumer Protection Act required that banks hold at least five percent of all mortgage backed securities it issued that did not have government backing. However, in crafting the rule, Congress also carved out exceptions, including 30-year fixed rate mortgages, which leaves regulators with the question of how to define the so-called qualified mortgage rule.

To alleviate confusion in the market, regulators want to do away with the rule and only require banks to follow the five percent rule on the riskiest of mortgages, which are defined clearly. Regulators also have dropped a requirement that five percent of loans that did not have at least a 20 percent down payment had to be retained.

Consumer advocates and industry argued that the market should decide what a proper down payment is, not regulators. The regulatory agencies agreed. The industry has also noted that down payment requirements create an unfair marketplace since mortgage giants Fannie Mae and Freddie Mac would not have to comply with the rules, and neither would federal agencies. However, the plan to relax the requirements could change as it has not been finalized.

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Youngstown Has Collected $480K, Awaits More with New Foreclosure-Bond Law
The Vindicator (07/21/13) Skolnick, David

The city of Youngstown, Ohio, has collected nearly $500,000 as a part of its vacant property registration program. The money mainly comes from $10,000 bonds that banks are forced to pay when residents abandon the property. The institutions will get all but $200 back if the property is cared for and sold. The bond money is used to take care of any homes that fall into disrepair.

Industry analysts contend that the bond amount is “extreme” and simply puts more distance between the city government and the banks they do business with. Analysts suggest working with the city and the state to allow the banks to take control of properties faster and thus get them into the hands of owners who will take care of them.

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Wells Fargo Ousts ICBC as World's Biggest Bank
The Wall Street Journal (07/23/13) Frangos, Alex

The Industrial & Commercial Bank of China (ICBC) has been the largest bank in the world by market capitalization since the financial crisis began in July 2007, when it overtook Citigroup Inc. Now, nearly six years later, it has moved to the number two spot, as U.S.-based Wells Fargo & Co. becomes the largest.

A much anticipated increase in the value of U.S. bank stocks combined with reduced expectations for Chinese economic growth has resulted in the shifting perception. Additionally, the Chinese economy has entered into a perilous credit crunch, originally designed by the government to deter undisciplined lending, the plan has resulted in lower stock prices. The value of the Chinese banks has sunk so much that some investors believe that a bailout or restructuring may be necessary.

Wells Fargo has traded the top spot with ICBC since June 26, but has held it continually for the last 30 days.

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July 25, 2013

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