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What NLRB Decision Would Mean for CFPB
PoliticoPRO (06/24/13) Davidson, Kate

On June 24, the U.S. Supreme Court elected to take up the case surrounding the recess appointments by President Obama of three members of the National Labor Relations Board. At issue is whether the Senate was actually at recess and whether President Obama actually had the authority to make a “recess” appointment. Consumer Financial Protection Bureau (CFPB) Director Richard Cordray was appointed on the same day, Jan. 4, 2012. The case, entitled Noel Canning v. National Labor Relations Board, could take up to a year to decide. The government has 45 days to submit a brief, which will then be followed by oral arguments, likely to take place in December. Following arguments, the court generally takes three to six months to issue an opinion.

The decision will not immediately apply to the CFPB because Director Cordray’s nomination is not a part of the case in question, but it would provide some compelling legal standing should the court find the appointments were made improperly. After the ruling, an affected party would have to directly challenge one of the regulations made by the CFPB and the lawsuit would begin in district court, one step below the circuit court of appeals where the NLRB case started, elongating the process.

If the court decided that Cordray’s appointment was unconstitutional, they could take a number of actions. First, they could completely vacate any rules made by him. Alternatively, the court could uphold the rules the CFPB wrote under his leadership, citing the impact it would have on the economy. Finally, they could uphold only the rules that the CFPB made up until the point that the bureau learned of the issues with Cordray’s appointment.

If Cordray were removed, his deputy likely would take over his role, either directly or by appointment from Treasury Secretary Jack Lew, who has the authority to name a temporary advisor for the CFPB if the post is empty. Either way, the bureau would be stripped of its powers to regulate non-banks and would be limited to enforcing the laws that it inherited from other government agencies. A deal to confirm Director Cordray before the court case plays out is very unlikely. 

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CFPB Issues Rule on Supervising Nonbanks that Pose Risks to Consumers

On June 27, the CFPB issued a final rule that establishes procedures to bring under its supervisory authority certain nonbanks whose activities it has cause to determine pose risks to consumers. Such conduct may involve, for example, potentially unfair, deceptive, or abusive acts or practices, or other acts or practices that potentially violate federal consumer financial law. The Bureau must base such reasonable cause determinations on complaints collected by the Bureau or on information from other sources, such as judicial opinions and administrative decisions. The rule outlines procedures for notifying a nonbank that it is being considered for supervision allowing the nonbank a reasonable opportunity to respond. And the rule creates a mechanism for nonbanks to file a petition to terminate the CFPB’s supervisory authority after two years.

AFSA commented on the proposed rule when it was released last year. The CFPB adopted some of AFSA’s suggestions. For example, the CFPB lengthened the amount of time that nonbanks have to respond to a notice that they are being considered for supervision. The CFPB also provided some additional clarification as to what factors it will review in deciding which nonbanks may pose risks to consumers. Additionally, the CFPB agreed with AFSA and other commenters that it may be helpful to respondents to include in a notice to nonbanks more information on items that were in the proposed rule. Thus, the final rule will set forth not just a “description of the basis” for, but also a “summary of the documents, records, or other items relied on,” by the CFPB.

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Homeowner’s Bill of Rights Defeated as Model Bill at Council of State Government’s Leadership Forum

Efforts by AFSA and industry colleagues contributed to the successful removal of California Assembly Bill 278 of 2012, the Homeowner’s Bill of Rights, from the Council of State Governments (CSG) docket for 2014 Suggested State Legislation (SSL) at their June 22 meeting. The inclusion of this law in the SSL docket could have led to its publication in the committee’s annual volume of Suggested State Legislation, which highlights innovative draft legislation from one state that may be beneficial to other states.

AFSA submitted a comment letter and testimony to the Committee making the case against the bill’s inclusion in the docket. AFSA’s objection centered on the fact that the bill was written for use in a non-judicial foreclosure state, making it is unsuited for nearly half the states in the country. In addition, the bill’s provisions are comprehensively addressed by both the CFPB’s Final Mortgage Servicing Rules and the 2012 national mortgage settlement.

At the meeting, which was attended by AFSA staff, committee members immediately proposed to remove the law from consideration for the reasons outlined by AFSA and unanimously voted to reject the bill from inclusion in the next SSL volume.

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MoneySKILL Teacher Training Off to a Strong Start

MoneySKILL teacher training for 2013 kicked off with two sessions at the South Carolina Department of Education’s Education and Business Summit held June 24-25. More than 150 South Carolina teachers participated in an interactive MoneySKILL workshop. Teachers responded positively to the course and asked excellent question. Workshops are scheduled this summer in Tennessee, Texas, Kentucky, Kansas and Alabama. The training offers an overview of the course, Internet demonstration, and features requested by teachers. Information on AWARE’s Auto Financing 101 is also distributed.

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New Member Welcome

AFSA welcomes new Active Member Foursight Capital, LLC and welcomes back Active Member Vernick Financial Services.
Foursight Capital, LLC specializes in the purchase, securitization, and servicing of auto retail installment contracts. Working through the indirect sales channel, Foursight partners with auto dealerships to fund vehicle sales. The company was founded in 2012 and is headquartered in Salt Lake City.

Vernick Financial Services is an independent family-owned business that specializes in the purchase of consumer installment sales paper and revolving charge accounts. Vernick has been serving its customers since 1968 and originally joined AFSA as a member in 1994.

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Inside the Beltway
U.S. Bank to Reimburse Military Borrowers over Auto Loans CFPB
American Banker (06/27/13) Browdie, Brian

The Consumer Financial Protection Bureau (CFPB) announced on June 27 that U.S. Bancorp (USB) and one of its nonbank partners, Dealer Financial Services (DFS), have agreed to settle unfair lending charges filed against them. The two companies were accused of misleading military service members about certain fees on vehicle loans. They will settle the issue for $6.5 million.

The charges alleged that USB and DFS failed to disclose a processing fee that was charged to borrowers who participated in the Military Installment Loans and Educational Services (MILES) program, which required payment through military allotment. The total undisclosed fees averaged $180 over the life of a five-year loan. Additionally, the CFPB found that the bank misled consumers surrounding a bi-weekly payment system; the method created a lag between when payments were due and when the payment actually posted, creating on average $75 in extra interest over the life of a loan. The CFPB said DFS misled borrowers about the costs and benefits of vehicle maintenance contracts.

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Senators Introduce Bipartisan Bill to Replace Fannie, Freddie with New Agency
The Washington Post (06/25/13) Douglas, Danielle

Senators Bob Corker (R-TN) and Mark Warner (D-VA) have introduced legislation to replace Fannie Mae and Freddie Mac, which back nearly 90 percent of all the home mortgage loans in the United States. The two companies, which were bailed out with $100 billion five years ago, would be replaced by a new government agency that would slowly shift the mortgage market from the public to the private sector.

Congressional Republicans want to take the government completely out of the mortgage market, arguing that the private sector is more adept to handle the space. Democrats, however, argue that private sector manipulation was part of the cause of the financial crisis and say that the government must play at least some part in any mortgage reform program.

Under the compromise plan, homeowners must make a 20 percent down payment or pay for private mortgage insurance. The home could then be sold for the remainder of the loan value. If the house dipped below that value, the bank that originally issued the loan would have to absorb the loss on the mortgage. As a last resort, the government would create an agency, modeled after the Federal Deposit Insurance Corporation (FDIC), that would promise to cover the remainder if the bank could not.

The legislation also takes into account mortgage-backed securities, which lower the cost of homes in the U.S. by allowing home loans to be packaged and traded on the open market. The new legislation would require banks to hold onto part of the mortgage-backed securities that they sell. The legislation would also disband the Federal Housing Finance Agency (FHFA) and require Fannie and Freddie to cease operations within five years – all three organizations’ duties would be taken up by the new agency.

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CFPB Proposes Further Revisions to Mortgage Regs
American Banker (06/24/13) Witkowski, Rachel

The Consumer Financial Protection Bureau (CFPB) proposed a number of changes to its previously promulgated mortgage rules. One of the changes would require a servicer to inform the borrower within five days from when it receives a loss mitigation application, whether the application is complete or incomplete. "When we published our mortgage rules, we pledged to be attentive to issues that arose through the implementation process," said CFPB Director Richard Cordray. "Today's proposal revises and clarifies certain aspects of our rules to ease implementation and to pave the way for more effective consumer protections in the marketplace."

The tweaked rules also propose that lenders provide borrowers with a two-month forbearance should they need temporary assistance. The rules also keep in place protections that exist under current rules, such as prohibiting lenders from initiating foreclosure during the first 120 days of delinquency. The changes also made additional revisions to higher-priced mortgages and institutions that would be exempt from certain provisions because they provide mortgages to “rural and underserved” areas.  The rule changes are open for comment until July 22.

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Lenders’ Anti-Discrimination Efforts Lagging, CFPB Director Says
Bloomberg BusinessWeek (06/24/13) Dougherty, Carter

Consumer Financial Protection Bureau (CFPB) Director Richard Cordray told members of Congress in a June 20 letter that several financial institutions are falling short of their equal protection responsibilities in several markets outside of housing. Several Democratic members of the House Financial Services Committee wrote to Cordray on May 28 requesting information on industry practices. In the letter, the committee asked for specific information for determining that discrimination has taken place and specific allegations against companies. The CFPB did not provide details about the policy’s origins, but made it clear that the bureau is watching many industries closely and is reviewing them on a “case-by-case basis."

“We have found frequent instances where lenders had robust fair lending compliance programs for mortgage lending but weak or non-existent fair-lending compliance programs for other types of consumer lending,” Cordray wrote.

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National and State News
Will Auto Sales Continue to Boost the Economy
Wall Street Journal (06/24/13) Boudette, Neal E.

One of the few bright spots in the U.S. economy has been the steadily increasing sales of cars and light-trucks. Since 2009, the number of sales has steadily increased from 10.4 million vehicles to 14.5 million last year, and sales are expected to top 15 million next year. "If you want to point to a stellar performer in the recovery, you point to the auto sector," said Thomas Klier, a senior economist at the Federal Reserve Bank of Chicago. "It's been pretty solid, continuous growth" since 2009.

The big question is whether the strong numbers will continue. Automakers are using incentives to push dealers to move cars and, analysts argue, when these incentives are removed, the sales numbers could begin to soften. The auto industry makes up four percent of the U.S. gross domestic product (GDP) and employs nearly 2.5 million people.

Some analysts argue that the strong auto sales numbers are giving a false reading of the strength of the economy. This stems from consumers who are coming into dealerships to buy a new car simply to get a lower payment – those who bought a car when interest rates were high and want to refinance into a lower rate, even if it only drops their payment by a few dollars a month. Other analysts however, have a brighter outlook. Lacy Plasche of Edmunds believes that auto sales will continue to rise because home values are on the rise – this tends to make consumers feel wealthy and puts them in a spending mood. Still, she notes, until more consumers head to the auto dealerships, especially the 18-34 age bracket and those making less than $50,000 a year, the auto industry will not kick into overdrive.

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Easton, Bethlehem Join Allentown in Fighting Foreclosure Problems
The Express Times (06/24/13) Olanoff, Lynn

Several eastern Pennsylvania towns are mandating vacant and foreclosed property registries. Allentown, Pa., about an hour north of Philadelphia, already has a vacant property registration on its books. Soon, it will soon be joined by Easton and Bethlehem. Both towns fall just to the east of Allentown and all three are dealing with a significant number of vacant properties.

“It makes it easier for our inspectors and it’s helpful to our neighbors,” said David Paulus, building director for Allentown. . According to city officials, the ordinance has been successful thus far. Allentown has partnered with the Federal Property Registration Corporation to work with mortgage companies to ensure compliance. The property registration fee in Allentown and Bethlehem is $200; Easton’s fee is $250 with increases to $5,000 if the property stands vacant for ten years. Both Easton and Bethlehem have said that they will partner with private companies to manage their registries as well.

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Moody's Warns of Losses from Home Equity Loans
American Banker (06/25/13) Browdie, Brian

Moody’s, an international ratings agency, is warning lenders that they may see significant exposure to risk unless they begin to identify homeowners who are having trouble making payments on their home equity loans. The warning came in a comment published on June 25. As of March 31, U.S. home equity loans hit $552 billion and combined for $486 billion in available credit.

"Most of these [home equity lines of credit] were originated at the height of the crisis between 2005 and 2007 when credit-underwriting standards were dismal," wrote Thuy Nguyen, a Moody's analyst. "As such, they are a particular concern." Moddy’s also gave an example of the increased exposure: A consumer with a $210,000 mortgage with a $40,000 home equity loan can expect to see a 26 percent increase in their monthly payment when the principal comes due.

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June 27, 2013

Forward To A Colleague

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Carleton, Inc.
GoldPoint Systems
Life of the South
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Wells Fargo Preferred Capital
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.