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Justices to Review Housing Bias Case
Kendall, Brent and Zibel, Alan (06/17/13) The Wall Street Journal

The Supreme Court agreed to take up a case involving the use of a legal theory known as disparate impact in housing discrimination cases. Disparate impact uses statistics showing minorities were disproportionately harmed by a practice to allege discrimination.

The Mount Holly v. Mount Holly Gardens Citizens in Action case centers around whether disparate impact claims are allowable under the Fair Housing Act. The township of Mount Holly, N.J., planned to redevelop a crime-ridden neighborhood where most residents were low-income minorities. A group of residents sued, claiming the redevelopment would disproportionately impact minorities, offer little affordable housing, and was not the only option for improving the neighborhood.

While the Supreme Court permits disparate impact suits for employment discrimination, Mount Holly officials argue that the theory does not apply to housing. According to civil rights advocates, disparate impact is an important tool for fighting discriminatory housing practices. The ruling could affect the Consumer Financial Protection Bureau, which is using disparate impact to determine discrimination in auto lending.

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U.S. Supreme Court Upholds Arbitration

In a 5-3 ruling on June 20, the U.S. Supreme Court upheld the use of mandatory arbitration clauses in contracts between companies and their customers. The court held that the Federal Arbitration Act (FAA) “does not permit courts to invalidate a contractual waiver of class action on the ground that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds potential recovery.” The decision, written by Justice Antonin Scalia, overturns a ruling by the 2nd Circuit Court of Appeals. Scalia was joined in the decision by Chief Justice John Roberts and Justices Clarence Thomas, Samuel Alito and Anthony Kennedy. Justice Elena Kagan wrote the dissenting opinion.

AFSA joined other trades in filing an amicus brief in the case. The brief defended arbitration as “a prompt, fair, inexpensive and effective method of resolving disputes . . . [that] minimizes the disruption and loss of good will that often results from litigation.” The amicus also argued that the 2nd circuit’s decision was fundamentally inconsistent with the Supreme Court’s prior rulings.

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AFSA SGA Forum Connects Industry and Regulators

The 15th annual AFSA State Government Affairs & Legal Issues Forum drew large attendance from both industry and regulators. The forum was held in conjunction with the National Association of Consumer Credit Commissioners (NACCA) in San Antonio, Texas. Sessions covered a wide range of topics, including vehicle finance issues and best practices when dealing with the Consumer Financial Protection Bureau (CFPB) and state regulatory agencies. Both NACCA and AFSA attendees found the sessions extremely informative based on initial evaluations and greatly enjoyed a lunchtime lecture from Alamo curator and historian Dr. Richard Bruce Winders.

The AFSA SGA Forum seeks to update members on key legislative and regulatory issues while providing an opportunity to meet with regulators during joint educational sessions. One of the conferences goals is to promote greater cooperation and more fluid working relationships between industry and its regulators.

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AFSA Vehicle Finance Executives Meet with NADA Leadership

For the fourth consecutive year, AFSA and the National Automobile Dealers Association (NADA) co-sponsored the AFSA/NADA Executive Forum on June 5 in Dallas. The event brought together CEOs and other top executives from virtually every major finance company and bank in the nation engaged in indirect auto financing as well as the leaders of the nation’s franchised automobile dealers. Representatives from the American International Automobile Dealers Association, Louisiana Automobile Dealers Association and National Association of Minority Automobile Dealers were also in attendance.

Co-chaired by Andrew Stuart, chairman of AFSA’s Vehicle Finance Division and president & CEO of VW Credit, and David Westcott, NADA chairman, the meeting’s primary focus was the challenging legislative and regulatory environment for finance sources and dealers.

For more information, contact Sheilah Harrison, AFSA Vehicle Finance Division liaison, at sharrison@afsamail.org.

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AFSA Comments on Federal Reserve Board Assessments

On June 14, AFSA submitted a letter to the Federal Reserve Board (FRB) regarding its proposed rule implementing section 318 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Section 318 of the Dodd-Frank Act directs the FRB to collect assessments, fees, or other charges equal to the total expenses the FRB estimates are necessary or appropriate to carry out its supervisory and regulatory responsibilities of bank holding companies and savings and loan holding companies with total consolidated assets of $50 billion or more, as well as nonbank financial companies designated for FRB supervision by the Financial Stability Oversight Council.

AFSA commented on how the FRB established the assessment basis, the criteria for whether a company is an assessed company, how the assessments are divided among assessed companies, and what assets should be assessable. Additionally, AFSA requested that the assessment be imposed prospectively and that the FRB promulgate the intermediate holding company rule.

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Inside the Beltway
Pace of Dodd-Frank Implementation 'Rapidly' Increasing Bernanke
American Banker (06/19/13) Borak, Donna

On Wednesday, Federal Reserve Chairman Ben Bernanke admitted that implementing the 2010 Dodd-Frank Wall Street Reform law was “taking time,” but that the market should be prepared to see an escalation of final rulemakings in the next few months. "It's an ongoing process, but I expect to see a more rapid completion going forward over the next few quarters," Bernanke noted during the Federal Open Market Committee meeting.

The chairman cited the complexity of a number of the law’s provisions as the reason why it has taken so long to implement. Complicated and intricate portions like the Volker rule have caused rule makers to stumble over language and wording for months. The Volcker rule, for example, required six separate regulatory bodies to agree on language. Many other provisions require at least three.

Some of the rule writing process had stalled while US regulators waited for international standards to be written to ensure that domestic rules matched. How to regulate the roughly 100 foreign banks that do business inside the United States, who would be subject to the same regulations under Dodd-Frank as domestic banks, provided a considerable roadblock as well.

At the meeting, Bernanke responded to critics who argued that only 30 percent of the rules have been completed by noting the positives. The Basil III liquidity requirements are nearing completion and many of the other rules required are “very advanced” in the process and have entered the comment period. Bernanke admitted too, that the onus is on the regulators to do their homework to ensure that regulations are correct before making them final.

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House Republicans Accuse CFPB of Overspending
American Banker (06/18/13) Witkowski, Rachel

Congressional Republicans have long sought to bring the Consumer Financial Protection Bureau (CFPB) under the congressional appropriations process. Now, members of the House Financial Services subcommittee are questioning the salaries and operating budget of the bureau. According to documents provided to the subcommittee, the highest pay scale at the CFPB is $259,000, as compared to the highest scale at the Federal Reserve, which is $205,000. "How do you account for that $54,000 difference?" asked Representative Sean Duffy (R-WI) of Stephen Agostini, the CFPB’s chief financial officer. Agostini argued that the Fed has a similar scale.

The committee also questioned Agostini about the planned renovation of their office building for which they CFPB has set aside $95 million. The bureau argues that the building is old and requires gutting in order to be useful – two floors are completely unusable because new technology cannot easily be put in them without an overhaul.

Representative Patrick McHenry (R-NC), the chairman of the subcommittee, also noted that the CFPB is not subject to Office of Management and Budget (OMB) alerts surrounding spending. Recently, the OMB released a report that detailed the staggering amounts that government agencies were spending to attend conferences. McHenry argued that if other agencies, which are under congressional oversight, have run afoul of OMB spending rules, it is possible that the CFPB has done the same.

Democrats on the subcommittee continued to praise the bureau for its transparency and hard work. Members of both parties raised the issue of the recent exodus of top officials from the bureau, many of whom cited cultural differences and a lack of training as reasons why they left.

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National and State News
NC Governor OKs Some Loan Interest Rate Increases
Associated Press (06/20/13)

N.C. Gov. Pay McCrory has signed into law N.C. Senate Bill 489, which alters the installment loan space in the state for the first time in more than 20 years. The bill increases the permitted borrowing cap from $10,000 to $15,000 on installment loans and allows for higher interest rates in a tiered system based upon the amount borrowed.

Consumer advocates argued throughout the process that the increase would serve only to trap consumers in cycles of debt, while proponents and industry analysts noted that access to safe and responsible credit helps consumers who have few borrowing options.

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FTC Issues Revised Business Guide on Red Flags Identity Theft Rule
SubPrime Auto Finance News (06/17/13)

The “red flag rule,” which the Federal Trade Commission (FTC) issued to protect consumers from identity theft, has been revised to help businesses such as auto dealerships and financial institutions, comply with its requirements. The new rule outlines four necessary requirements of a “red flag” program – one that raises warning signs that identity theft has taken place.

The program must be designed to allow the detection of identity theft activities in the day-to-day operations of the business, which must have reasonable policies and procedures in place to identify and deal with the red flags. Third, the policy must explicitly set out what actions are taken when red flags are detected and, finally, the program must be reevaluated periodically. The FTC views identity theft as an ever-changing battlefield and thus, an early-warning system must constantly be adjusted.

In December 2010, Congress narrowed the definition to restrict the number of creditors that were covered by the initial rule. The new rule now only covers creditors if, in the course of business, they transmit consumer information, use consumer reports in transaction or advance funds.

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June 20, 2013

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