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House Democrats Seek Details on Consumer Bureau Auto Loan Rules
Bloomberg (05/30/13) Dougherty, Carter

On May 28, 13 House Democrats sent a letter to the Consumer Financial Protection Bureau (CFPB) requesting details on how the Bureau plans to enforce its guidance on discrimination in auto lending. The letter concerns supervisory guidance the CFPB issued in March regarding discriminatory auto loans. The Democrats asked for “any and all background information” about the CFPB’s investigation into alleged discrimination in auto lending, details on the methodology the Bureau is using to determine discrimination, and additional information on how lenders are expected to comply.

“The CFPB is refusing to share how they came to the conclusion that dealerships have unintentionally discriminated or why,” said Damon Lester, president of the National Association of Minority Automobile Dealers. “The CFPB is fundamentally changing the multi-billion dollar automobile marketplace and yet the bureau is not clear on how their actions will impact auto lending, consumers or the economy."

Among the signers are Terri Sewell (D-AL), Joyce Beatty (D-OH), William Lacy Clay (D-MO), Gregory Meeks (D-NY), and David Scott (D-GA). All of the letter’s signers are members of the House Financial Services Committee, and five are members of the Congressional Black Caucus.

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AFSA Addresses Lender Placed Insurance in Letter to FHFA

On May 28, AFSA sent a letter to the Federal Housing Finance Agency (FHFA) in response to the agency’s notice addressing certain practices relating to lender placed insurance. In the letter, AFSA emphasized that lenders/servicers must purchase insurance if they want to protect their interests. AFSA also explained why the premiums for lender placed insurance usually are higher than coverage available for purchase directly by borrowers.

The FHFA proposed in its notice to prohibit two practices: the servicer’s receipt of remuneration on lender placed insurance, and the servicer’s receipt of remuneration associated with an affiliate’s reinsuring the lender placed coverage obtained by the servicer. AFSA expressed its belief these prohibitions are unnecessary. Furthermore, AFSA argued that the federal government should continue to leave insurance regulation to state regulators.

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Inside the Beltway
GOP Senators Urge Supreme Court to Hear Recess Appointment Case
Politico (05/28/13) Kopan, Tad

In an amicus curiae brief filed on May 28, all 45 Republican Senators urged the Supreme Court to take up the case to decide whether President Barack Obama’s recess appointments to the National Labor Relations Board were constitutional. The Senators, led by Senate Minority Leader Mitch McConnell, note in the brief that the appointments were not made during an actual congressional recess and are therefore, unconstitutional. In January, the D.C. Circuit Court agreed and invalidated the appointments.

During the same series of appointments, President Obama named Director Richard Cordray to head up the Consumer Financial Protection Bureau (CFPB), which raises some skepticism as to the legality of his position as well.

“The president’s decision to circumvent the American people by installing his appointees at a powerful federal agency while the Senate was continuing to hold sessions, and without obtaining the advice and consent of the Senate, is an unprecedented power grab,” said Senator McConnell.

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GSE Reform Bill Quietly in Works under Senator Corker
American Banker (05/24/13) Borak, Donna and Finkle, Victoria

Sen. Bob Corker (R-TN) is leading a bipartisan group of colleagues in drafting legislation that would drastically reform the housing finance system and considerably wind down government–sponsored enterprises (GSE) Fannie Mae and Freddie Mac. In September 2008, Fannie Mae and Freddie Mac were seized by the federal government and placed in conservatorship. Since then, the government has struggled with how to remove itself from the housing market. The Corker plan is expected to closely resemble a proposal that Federal Housing Finance Agency (FHFA) Director Edward DeMarco put forth earlier this year.  "I would expect if there is something introduced, it would track very similarly to what Ed DeMarco is putting into place," said Ed Mills, a financial policy analyst at FBR Capital Markets.

Representatives from the offices of Senators Mark Warner (D-VA), Jon Tester (D-MT), and David Vitter (R-LA) confirmed they are working with Corker on GSE reform legislation, and more Senate Banking Committee members are likely to join as well.

DeMarco’s plan called for the formation of a financial institution that would guarantee principal and interest payments to mortgage backed security holders through a pool of capital provided from shareholders. DeMarco has taken some steps of his own, in the absence of broader government action, to begin reforming the GSEs, including pushing Fannie and Freddie to create a unified back office to handle standardized securitization.

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National and State News
Regulators Probing Banks’ Debt Collection Practices
Washington Post (05/28/13) Douglas, Danielle

The Office of the Comptroller of the Currency (OCC) is expanding an investigation into whether some of the nation’s largest banks have been using flawed documents to collect on delinquent credit card debts. The agency is carefully examining the process by which a number of banks confirm the consumer’s outstanding debt before attempting to collect on the amount. The OCC declined to comment on any ongoing investigations.

During the financial crisis’ height in 2009, the charge-off rate on credit card debt was nearly $85 billion, according to cardhub.com. Millions of Americans began falling behind on bills and banks began taking judicial collection action.

The OCC has recently increased their focus on fair lending practices, teaming with the Consumer Financial Protection Bureau (CFPB) in July of last year to bring suit against a credit card for certain consumer credit products. This latest investigation continues that focus.

The CFPB is continuing its close examination of debt collection practices, but refused to comment on what, if any, action it would take to regulate the space. If the OCC finds evidence of abuses during the debt collections, they could levy fines and issue orders for banks to amend their practices.

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Payday Lenders Evading Rules Pivot to Installment Loans
Bloomberg Businessweek (05/29/13) Dougherty, Carter

Payday and title loan lenders have always known that a day would come when they would receive increased scrutiny from federal agencies. In preparation for that day, many have begun to switch from their normal business of short-term, small-dollar loans to longer term, higher principal loans. This move puts them in direct competition with more secure and more closely regulated installment lenders.
“You’re diversifying the revenue sources while also shedding regulatory risk,” said John Hecht, an analyst with Stephens Inc., an investment bank. While consumer advocates have taken issue with installment lending, they take more exception to the debt traps created by payday lending and note that the short term of payday loans combined with exorbitantly high interest rates place consumers at a far greater risk.

Payday lenders argue that their change in business strategy is simply a diversification to better serve customers. Many payday loan companies that have advanced into longer term loans stated they did so because consumers have come to them saying that they are unable to get loans at the local bank.

Richard Cordray, the Director of the Consumer Financial Protection Bureau (CFPB) said during a speech at the American Financial Services Association meeting in Las Vegas on April 10 that installment lending is an important service for consumers who need short-term credit.

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State AGs Object To Swipe-Fee Settlement With Visa, MasterCard
The Wall Street Journal (05/29/13) Johnson, Andrew R.

The Attorneys General (AG) of California, Ohio, Arizona and six other states have filed objections in a Brooklyn, N.Y., court that the $7.25 billion class action settlement against Visa and MasterCard over their transaction processing fees would strip them of their rights to sue the companies in the future. The AGs of 48 states and the District of Columbia also signed a brief in support of the objections.

The settlement reached last July included a provision that would have prohibited further litigation against the two companies from citizens of the states that sign onto the settlement. "As drafted, the settlement agreement opens the door for defendants to assert settlement releases against attorneys general or other law enforcement agencies in future law enforcement actions related to the payment card industry," the states said in the filing.

Preliminary approval of the settlement was granted in November 2012 and final approval is scheduled for September 12, 2013.

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Fitch: 2 Factors Impact Auto ABS Improvement During Past 3 Months
SubPrime Auto Finance News (05/29/13)

Fitch Ratings analysts noted a significant drop in the number of delinquencies on subprime and prime auto loans in its ABS indices for the third month in a row. The prime 60-day delinquency rate dropped 0.29 percent in April and net annualized losses fell 27 percent. Further, prime cumulative losses dropped 3 percent month-over-month and .29 percent in April, for nearly a 30 percent decrease year-over-year. In its findings, Fitch noted that the drop in delinquencies matched a drop in the unemployment rate.

"If these trends continue and U.S. consumers remain resolute in their auto loan payments, we would expect a positive impact on all our indices," said Hylton Heard, Fitch's senior director of U.S. structured finance and asset-backed securities.

With increased supply, however, some softening in the market has begun, and Fitch estimates some losses to begin increasing in 2013, but only at marginal levels that will not impact asset performance.

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Sallie Mae to Separate Banking Unit
The Wall Street Journal (05/29/13) Simon, Ruth and Chaudhuri, Saabira

Sallie Mae, the largest provider of private student loans representing 51 percent of loan originations in the country, announced on May 29 that it will split its banking division in hopes that the move will boost the company’s market valuation. In addition, the company named chief operating officer John F. Remondi as the new CEO, following Albert L. Lord’s retirement. The personnel change is effective immediately.

"We see ourselves as having two distinct businesses," Remondi said in a conference call with investors. "These entities can better succeed as distinct and separate entities." The company has long sought to divide itself after the federal government ended a program in 2010 that allowed Sallie Mae to originate federally guaranteed loans.

The split in the two divisions will likely open the new companies to a whole new set of investors that may have been wary of investing previously due to Sallie Mae’s non-traditional banking structure. The assets for the new company will likely be made up of private education loans and servicing platforms, cash and other investments, including Sallie Mae’s Upromise program.

Joseph DePaulo, currently Sallie Mae’s executive vice president of banking and finance, will become CEO of the new banking company. DePaulo joined Sallie Mae in 2009 as executive vice president and chief marketing officer.

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May 30, 2013

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