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CFPB Debt Collection Rules May Move in Unprecedented Direction
American Banker (11/06/13) Witkowski, Rachel

The Consumer Financial Protection Bureau (CFPB) began consideration of regulations that could regulate how banks and financial services collect their own debt. Traditionally, the regulators have focused on how third-party debt collectors communicate with consumers and attempt to collect funds. Now, the CFPB has issued an advanced notice of proposed rulemaking that would establish new restrictions on creditors.

The new regulations would require accuracy of documents shared between all collection parties, such as buyers and settlement firms, and update rules on how collectors communicate to consumers, including through text messages. “Updating the legal framework to protect today's consumers and to allow fair and appropriate use of modern technology is a high priority for the Consumer Bureau, which motivates this advance notice of proposed rulemaking," said CFPB Director Richard Cordray.

CFPB officials noted that the new rules would specifically affect creditors that collect their own debt, such as banks and financial services companies. The bureau vowed to carefully review all sides of the argument, including listening carefully to industry concerns, before writing any new regulations concerning collections.

In the notice, the CFPB said it is especially concerned with inaccurate information that is passed along to debt collection companies. The new rules may result in new disclosure requirements for financial services companies.

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Debt Validation Focus of SGA White Paper

AFSA State Government Affairs’ newest white paper focuses on an evolving trend in the states that imposes debt validation requirements on creditors collecting their own debts or who take assignment of current obligations prior to default. This trend presents many challenges for creditors attempting to collect on a delinquent account. The paper discusses the Consumer Financial Protection Bureau’s recent interest in creditor debt collection practices and its interpretation of the Fair Debt Collections Practices Act, which traditionally applied debt validation requirements to debt collectors and excluded creditors. It highlights state regulatory and legislative initiatives that impose these requirements on the creditor, most notably Massachusetts’ March 2012 regulations that imposed unprecedented validation of debt obligations on creditors attempting to collect on accounts they own or originate. The paper also covers proposed regulations in New York and bills in Connecticut, Maryland, Massachusetts, Minnesota, Mississippi, New Hampshire, New York and Ohio that would impose additional collection requirements on creditors.

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AFSA Forms New Vehicle Commercial Credit Committee

Based on interest by AFSA vehicle finance division members, the association has formed a new Vehicle Commercial Credit Committee co-chaired by Mike McConnell, vice president, corp. planning office, financial products & commercial lending, Nissan Motor Acceptance Corporation, and Jerry Bowen, executive vice president, commercial executive, Wells Fargo Dealer Services. The committee will examine trends and discuss best practices and challenges in commercial credit management unique to the vehicle finance sector. Members responsible for commercial credit management from captive auto finance companies, auto finance subsidiaries of banks and independent auto finance companies are eligible to join the committee. The next meeting will be held on Friday, Jan. 24, 2014, in conjunction with the AFSA Vehicle Finance Conference & Exposition in New Orleans.

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Inside the Beltway
CFPB Continues Crackdown on Auto Lending Industry
American Banker (11/04/13) Witkowski, Rachel

The Consumer Financial Protection Bureau (CFPB) has forwarded their investigation of several unnamed vehicle finance companies to the Department of Justice, according to sources familiar with the investigation. The probe centers around allegations of discriminatory practices related to dealer compensation.

In March, the CFPB issued a bulletin that warned indirect auto lenders they would be held liable if their dealer partners discriminated against protected classes through marking up loans. Industry analysts and lawmakers both have voiced criticism and skepticism of the CFPB strategy, citing that lenders do not receive or keep gender or race information, and thus could not have discriminated based upon it.

Dozens of House lawmakers have written letters of concern to the CFPB. The most recent letter by a bipartisan group of 22 Senators indicated that the bureau has not sufficiently explained its reasoning behind using the disparate impact theory to regulate the auto lending industry. The letter inquired whether the CFPB performed a “cost-benefit analysis” to determine if it was worthwhile to regulate using the method; the bureau responded that it was “not appropriate” to do so.

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CFPB Adds Complaints Database on Payday Lenders
American Banker (11/06/13) Cumming, Chris

The Consumer Financial Protection Bureau announced on Nov. 6 that it began taking complaints on payday loans. The bureau requires that the companies respond to the majority of inquires within 15 days and more cases be resolved by the company within 60 days. Consumers are encouraged to report unfair trade practices, deceptive behavior, or unclear disclosures to the bureau.

"Before the Consumer Bureau, consumers who had trouble with payday lending products had few places to turn," said CFPB Director Richard Cordray. "By accepting consumer complaints about payday loans, we will be giving people a greater voice in this market."

The bureau has led the charge against payday lenders this year and has recently cracked down on online payday lending, which many state regulatory bodies argue skirt usury laws.

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House GOP Seeks Delay of QM Implementation
American Banker (11/06/13) Blackwell, Rob

Nearly a quarter of the House of Representatives and several members of the House Financial Services Committee penned a letter to Consumer Financial Protection Bureau (CFPB) Director Richard Cordray, asking him to delay the implementation of the qualified mortgage (QM) rule, citing that financial institutions are facing extreme pressure attempting to comply with the burdensome regulation.

Coming in at nearly 4,000 pages, the new QM regulations are some of the largest mortgage-related laws in the country in history. "If financial institutions are unable to comply with these rules by the January 2014 deadline there could be significant distortions in the mortgage market affecting the availability of credit for consumers," the letter said. It also notes that smaller mortgage companies and community banks will find the new regulations particularly burdensome.

The CFPB has made several adjustments to its rules, but has not given any indication it will delay implementation of the QM laws.

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National and State News
FHFA's Force-Placed Rules Expected to Have Limited Impact
American Banker (11/05/13) Wack, Kevin

In a much anticipated move, Federal Housing Finance Agency (FHFA) acting director Edward DeMarco announced that the agency would ban fees on lender-placed insurance for homes backed by Fannie Mae and Freddie Mac. "FHFA remains concerned about the cost of lender-placed insurance for Fannie Mae, Freddie Mac, and consumers," DeMarco said. "This directive is intended to reduce their costs as we consider additional measures." Insurers backing mortgages that in turn are backed by the two mortgage giants are banned from receiving commissions from the banks that give them the business. Banks also are not permitted to use their affiliates to insure the mortgages.

However, industry analysts believe that the announcement will do nothing to bring the cost of the insurance down and, in fact, will have a very limited impact on the industry. Banks have long known that the changes the FHFA announced were coming and have moved away from the commission-based structure referenced by DeMarco. Many bank analysts and industry members note that the policies in place will allow financial institutions to remain profitable in the reinsurance marketplace.

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New York’s New Mayor Likely to Push Affordable Housing
National Mortgage News (11/07/13)

New York City voters elected Democrat Bill de Blasio to become their mayor in an overwhelming victory that saw him gain 73 percent of the vote. New Yorkers and housing industry analysts are hopeful for de Blasio’s upcoming term, as much of his career has focused on housing issues and ensuring that quality homes are affordable. New York City is notorious for its unaffordable living quarters.

De Blasio worked in the Clinton Administration, where he worked with now Governor Andrew Cuomo to ensure New Yorkers had affordable housing options. In 2011, he ran for and was elected as representative of the 39th District of New York City and has since made housing issues a hallmark of his legislative portfolio. De Blasio has made it clear that the first bullet on his extensive to do list once he gets into office is zoning issues for New York City.

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Six Banks Fight Springfield Foreclosure Rules
Boston Business Journal (11/05/13) Ring, Dan

Judges on the U.S. Court of Appeals heard a case brought by several banks that argues a Springfield, Mass., ordinance is illegal. The ordinance requires that the owner or lienholder of vacant properties – more often than not, the banks that hold the mortgages after the dwellers abandon the home – post a $10,000 bond for each vacant home within the city limits. The city argues that the ordinance and bond is necessary to ensure that the banks comply with the laws within the city regarding property upkeep.

A second ordinance within the city, and also included within the lawsuit, requires banks to initiate required mediation with borrowers before beginning the foreclosure process. The banks argue that the ordinances conflict with several state laws and should be struck.

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New Student Loan Rules Add Protections for Borrowers
The New York Times (11/05/13) Carrns, Ann

The U.S. Education Department has issued new rules that it hopes will help distressed borrowers recover from defaulted student loans. According to federal data, 600,000 borrowers who began making payments on their loans in 2010 had defaulted by 2012. The new rules will allow borrowers to rehabilitate their account status by entering into a payment system that is similar to the federal income-based model. The system caps the payments at 15 percent of the borrower’s annual income. If borrowers reject the plan for some reason, a more complex payment plan is developed.

The rules also will change how companies handle forbearances. The new regulations go into effect July 1, 2014.

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November 7, 2013

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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.