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CFPB Coordinates Regulations with States, Announces Framework
InsideArm (05/22/13) Lunsford, Patrick

On Tuesday, the Consumer Financial Protection Bureau (CFPB) and the Conference of State Bank Supervisors (CSBS) announced a framework by which they will coordinate enforcement and regulation actions. “Our strong partnership with state regulators is critical to protecting consumers,” said CFPB Director Richard Cordray. “By working together, we are streamlining our processes, making the most of our joint resources, and ensuring evenhanded oversight of federal consumer financial laws.”

In 2011, the CFPB and CSBS signed a memorandum of understanding (MOU), which laid out the standards and procedures by which the two groups will work together to effectively regulate the industry. The 2010 Dodd-Frank Wall Street Reform Act requires the CFPB to work closely and coordinate with state regulators in order to avoid duplicating work and promote effective information sharing.

The MOU applies to depository institutions with over $10 billion in assets and all non-depository financial intuitions, regardless of asset value.

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Inside the Beltway
CFPB Driving Banks to Drop Auto Dealer Incentives
American Banker (05/15/13) Horowitz, Jeff and Wack, Kevin

The Consumer Financial Protection Bureau (CFPB) alleges discriminatory lending practices in regards to “dealer markups” and has also begun to take investigative actions, noting that they have the authority to sue lenders for buying loans from dealers who may have been given in a discriminatory fashion. "The discriminatory harm experienced by consumers is considerable. We estimate it's in the tens of millions of dollars," the CFPB wrote in response to questions by American Banker. "This represents significant discriminatory harm to individual consumers of a particular race or ethnicity."

The CFPB has avoided the politically charged option of completely banning dealer markups as a practice, instead opting to prosecute lenders for discriminatory practices. This leaves the lenders in limbo, as they continue to jockey for a piece of the nearly $700 billion auto loan industry, without running afoul of the CFPB. But consumer advocates argue that lenders who pay incentives to dealers for higher interest rate loans, are inadvertently steering unknowing customers into higher loans than they can afford – these customers, they argue, are predominantly minority populations.

In lieu of the rather accurate records on the race of borrowers that mortgage lenders have available to them – vehicle financers do not have this detailed information – the CFPB has begun to use a combination of zip codes and surnames to determine if “disparate impact” has occurred in the underwriting of vehicle loans. "They want lenders to profile you," John Campbell (R-CA), the chairman of the House Financial Services Committee said recently. The practice of proxy-analysis, as it is known in the industry, is fraught with potential pitfalls and the standard by which the software used classifies individuals is not hard and fast.

Letters have already been delivered too many financial institutions, outlining that disparate impact analysis has found that the institutions are offering loans to minority borrowers 20 to 30 basis points higher than other borrowers. Some institutions have chosen to voluntarily lower their exposure by restricting the flow of dealer markups, a preemptive action which the CFPB may have been aiming for in the first place.

It remains to be seen how banks can remain on the positive side of the CFPB enforcement action. The bureau recommends providing training for the lenders that it employs and reviewing its own anti-discrimination policies in house.

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Republicans Sharply Criticize CFPB Over 'Qualified Mortgage' Rule
American Banker (05/21/13) Witkowski, Rachel

On Tuesday, lawmakers in the House Financial Institutions subcommittee hammered representatives from the Consumer Financial Protection Bureau (CFPB), arguing that their Qualified Mortgage Rule – or QM rule – will restrict access to credit. "While the intent is to protect consumers from fraudulent mortgages, the practical implications of this rule could result in a constriction of mortgage credit for consumers," said Representative Shelley Moore Capito, (R-West Virginia).

The final QM rule, which was issued in January, creates a safe-haven for lenders who offer qualifying loans which meet requirements like a cap on interest rates according to the borrower’s debt-to-income ratio. Lawmakers noted that the “one-size-fits-all” approach that the CFPB has taken toward mortgage lenders hurts smaller and community banks. Representative Lynn Westmoreland, (R-Georgia) went so far as to call for the immediate repeal of the regulations citing that not doing so would cause community banks to stop lending and cause another housing bubble.

The CFPB noted that it has made several exemptions to the rule for rural lenders as well as small banks and credit unions. This prompted the lawmakers to contend that while this is true, the differentiation between rural and not rural is so fluid that it’s impossible to accurately define which county should be considered what.

The lawmakers also questioned the notion that a secondary mortgage market for non-QM loans would form. Representative Capito was the most outspoken on this subject noting that, "Despite the CFPB's claims that lenders will issue non-QM mortgages, my conversations with lenders lead me to believe that few, if any, will be willing to issue these types of mortgages."

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National and State News
As Cardholders Keep Paying on Time, New Normal May Be Emerging
American Banker (05/22/13) Wack, Kevin

Reports by the six major credit card companies show that 30 to 60 day delinquencies on charge accounts are at a record low level, as consumers continue to be diligent about paying off their balances on time. Some industry analysts note that the rate at which cardholders are paying off their debts may be signaling a new environment in the credit card space, where borrowers keep low balances and pay down their debts in a timely fashion.

Historically, this type of trend comes to a slow end as borrowers gain confidence and begin to borrow more – in turn, credit card companies extend credit to individuals who may not have as strong a credit profile, increasing the risk of late payments and defaults. However, industry analysts argue, the trend of lower delinquencies may continue and may prove to be the new normal, as a result of the 2009 CARD Act, which prohibits issuers from increasing rates or using certain marketing practices to attract new customers.

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Banks Surpass Mortgage Settlement Relief Expectations
National Mortgage News (05/21/13) Dymi, Amilda

Consumer relief data that was transmitted to the individual monitoring the allocation of mortgage relief funds showed that banks and servicers have exceeded expectations. To date, the banks have given just over $50 billion in principal forgiveness and loan modifications to consumers who were impacted as a result of the financial crisis. Just over $30 billion of the total was provided to consumers in the form of principal forgiveness, which produced a savings for consumers of, on average, $83,000 per loan.

The data that was made available encompasses relief plans that have been completed, as well as borrowers in first lien relief trial periods. The relief monitor, Joseph A. Smith, Jr. noted that the banks have exceeded the expectations of many, after the mortgage settlement was complete. In June, Smith will release additional reports, showing the progress that the banks have made.

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Kennedy: No Money for Foreclosure Mediator
The Daily Item (05/18/13) Jourgensen, Thor

Lynn, Massachusetts Mayor Judith Flanagan Kennedy told the city council that there is no money available to fund a foreclosure mediation program, which the council approved in April. "I cannot afford a mediator - the council can find money out of their budget," Kennedy said. Kennedy’s veto was overturned by 11-0 vote in the council.

Kennedy vetoed the mediation requirement on April 26, citing that it should not be the job of government to get in the middle of a contract binding two parties in the private sector. The mediation requirement would allow homeowners to discuss modification and other options with lenders before foreclosure proceedings began. The mayor’s $270 million budget will be delivered to the city council on May 24 and includes cuts in spending for both the mayor’s office and city council. Flanagan Kennedy noted that if the city council can find the money, she will have no objection to implementing the mediation system.

The town already has a $100,000 account for maintaining foreclosed properties – it is funded through the $300 registration fee that is paid by banks who own foreclosed properties. Assistant City Solicitor James Lamanna noted that he is unsure if the account could be used to fund mediators, as its written now.

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New Rules Have Big Impact on Small Banks in Oklahoma
NewsOK (05/20/13) Bailey, Brianna

Small community banks are feeling the pinch as they attempt to comply with new mortgage rules designed for larger, national banks. “When people think of a banker, they think of somebody who is ultra-rich — that these are the people who should take on all of the new regulations, but that's not always how it is,” said CEO of First State Bank Kim King. Her family owned and operated bank has just $60 million in deposits and is finding it particularly difficult to implement some of the aspects of the 2010 Dodd-Frank Wall Street Reform law.

Other operators of small banks in the state note that Washington always seems to think that a one size fits all solution is best to tamp down predatory lending practices and ensure banks are following the rules – they are not. Much of the mortgage loan business that communities banks do are non-traditional loans, due to the specific nature of the area around them. Most community banks also do not sell their loans to the secondary market, instead opting to keep them in house. Finally, many community bankers in thousands of small towns across the country use the character and reputation of the borrower as a serious indicator on whether they will loan the money, a practice that Dodd-Frank and the Consumer Financial Protection Bureau’s (CFPB) do not take into account.

In the short term, it’s likely that many rural community banks will either merge with others around them to take advantage of the economy of scale or simply sell themselves to already existing large banks.

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People
Experian Automotive Taps New President
SubPrime Auto Finance News (05/20/13)

John Gray, who joined Experian in 2006, has been tapped as the new head of Experian Automotive. Before being named president, Gray served as the senior vice president of sales and client services. "As we move forward, we remain committed to our clients by providing them with products and services that enable them to gain a better understanding of the market, the vehicles and the people who buy them," noted Gray. Before joining Experian he worked with Seibel Systems manufacturing, where he provided enterprise solutions to the automotive, aerospace and defense and industrial manufacturing industries.

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May 23, 2013

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