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AFSA Newsbriefs will not be published next week, due to the Thanksgiving holiday. The newsletter will return on Thursday, December 5. From everyone here at the American Financial Services Association, we would like to extend wishes for a happy and safe Thanksgiving to all of our readers.

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Top Story
Senate Goes for ‘Nuclear Option’
Politico (11/21/13) Everett, Burgess

On Nov. 21, the Senate, led by an effort by Majority Leader Harry Reid (D-NV) made a historic rule change that eliminated the use of the filibuster when the chamber is considering judicial and executive nominees. The filibuster can still be used on presidential nominees to the U.S. Supreme Court. Reid used the long threatened nuclear option, which only requires a simple majority for passage. The measure passed 52-48 in favor of the rule change. The rule change means that presidential nominees no longer need to clear a 60-vote threshold to reach the Senate floor and get an up-or-down vote. Democrats are now expected to bring up and confirm several U.S. judges and presidential nominees. 

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AFSA Webinar to Address Fair Lending

AFSA is launching a Compliance Outlook webinar series focusing on critical compliance and regulatory issues in the current business climate.

The first webinar, Compliance Outlook: Fair Lending, will be held on Dec. 11, 2013, at 1:00pm EST and will be led by Leonard Chanin, Partner at Morrison & Foerster, LLP. The webinar will include a review of current fair lending laws and regulations, legal theories of discrimination, critical market considerations and alternatives to current fair lending compliance methods.

Other webinars in the AFSA Compliance Outlook series planned for 2014 include the Telephone Consumer Protection Act, the Fair Credit Reporting Act, handling consumer complaints, and ancillary products. More information will be provided in the upcoming months. To register, visit http://www.afsaonline.org/meetings_and_programs/meeting_information.cfm?meetingid=214.

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Senate Hearing Focuses on Military Lending and Debt Collection

On Nov. 20, the U.S. Senate Commerce Committee held a hearing on “Soldiers as Consumers: Predatory and Unfair Business Practices Harming the Military Community.” Witnesses included Robert E. Cooper, Attorney General of Tennessee and Holly Petraeus, head of the CFPB’s Office of Servicemember Affairs.

The committee’s chairman, Sen. Jay Rockefeller (D-WV), announced that it would be the first in a series of hearings. He singled out payday loans, installment loans for retail purchases, and auto title lending as specific areas of concern. Rockefeller stated that aggressive debt collectors sometimes put security clearances at risk by exposing the debts of service members to their commanding officers. He also commented that the Pentagon’s 2007 regulations on consumer credit offered to the military were limited in their application to very short-term loans, and that this loophole should be closed.

Sen. Bill Nelson (D-FL), co-author of the 2006 Military Lending Act, which prompted the Pentagon’s rule, wondered, “Why in the world would the Department of Defense limit the scope” in this fashion, adding to calls for the Pentagon to rewrite the rule.

In his testimony, Cooper warned that young soldiers are unsophisticated and do not know what to do when they get into trouble with credit. He also stated that pay allotments threaten their financial security. Petraeus echoed concerns about the insufficiency of the current military lending rule, and urged policymakers to avoid singling out specific products so lenders cannot evade the intended restrictions. She said that the type of institution originating a product should not matter. Petraeus shared that the CFPB had received 11,000 complaints from military consumers, with mortgages and debt collection topping the list.

Committee ranking member Sen. John Thune (R-SD) suggested that “not all short-term loans are predatory,” and asked the witnesses about which features or practices borrowers should be wary. Cooper cautioned borrowers about high-pressure sales tactics, and Petraeus encouraged service members to look first to the military relief societies for zero-interest loans.

AFSA submitted a statement to the committee, which was placed in the record. In its testimony, AFSA highlighted the positive features of installment loans and the effectiveness of the Military Lending Act.

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Inside the Beltway
Lawmakers Voice Support for Disparate Impact
American Banker (11/19/13) Witkowski, Rachel

During a House Financial Services Committee meeting on Nov. 19, several members of the committee voiced their support for the controversial disparate impact theory, which the lending industry argues has been overused by regulators in recent years. "My issue is in 2013, nobody is going to admit discrimination," said Rep. Emanuel Cleaver (D-MO). "So if nobody admits it then they are either unintentionally committing it — committing discriminatory acts — or they are denying that what they're doing is in fact discriminatory." Not all committee members were in agreement. “It's disconcerting that unlike other illegal discrimination claims, disparate impact claims do not require the government or a private plaintiff to provide intent to discriminate," said Rep. Patrick T. McHenry, (R-NC).

Industry had been hopeful that a case dealing with the use of disparate impact in Mt. Holly, N.J., would reach the Supreme Court this session, but the parties came to a settlement. Earlier this year, the Consumer Financial Protection Bureau (CFPB) announced it will pursue lenders for committing discriminatory practices using the disparate impact theory.

Lenders are concerned that the CFPB’s new mortgage rules will actually lead to more disparate impact theory cases being lodged against them. The new qualified mortgage (QM) rule offers legal safe harbors for lenders that show they have met certain requirements when underwriting mortgages. However, lenders worry that if they plan only to make such loans because they are so much safer to offer, they will be cited for discrimination.

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CFPB Releases Final Rule on Mortgage Disclosure Forms
American Banker (11/20/13) Berry, Kate

The Consumer Financial Protection Bureau (CFPB) released its much anticipated “Know Before You Owe” mortgage disclosure rule on Nov. 20. The new rule includes two new disclosure forms, which will replace a myriad of different forms required by the Truth In Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA). The existing forms have long been considered duplicative and confusing by regulators, industry and consumer advocates.

Along with the required use of the new forms, the rule restricts lenders from imposing new or higher fees on loans unless they can identify a legitimate reason. "Our new 'Know Before You Owe' mortgage forms improve consumer understanding, aid comparison shopping, and help prevent closing table surprises for consumers," said CFPB Director Richard Cordray. "Today's rule is an important step toward the consumer having greater control over the mortgage loan process."

The new rules and forms will go into effect on Aug. 1, 2015.

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Mulvaney Offers Plan to Represent Non-Depository Institutions at CFPB

On Nov. 20, the House Financial Services Committee began consideration of HR 2446, the Responsible Consumer Financial Protection Regulations Act of 2013, which would replace the current single director of the CFPB with a five-member commission appointed by the president and confirmed by the Senate. The bill was sponsored by Rep. Spencer Bauchus (R-AL).

During consideration, Rep. Mick Mulvaney (R-SC) expressed his intention to introduce an amendment that would require one of the five commission seats be held by a regulator with experience overseeing non-depository institutions. Mulvaney argued during the hearing that when 48 percent of borrowers use non-depository institutions as their primary means of gaining access to credit, the commission should reflect that fact.

Rep. Maxine Waters (D-CA) highlighted that the CFPB already has a vehicle for ensuring that non-depository institutions are properly represented in the form of the consumer advisory boards. Mulvaney countered that banks, but not non-depository institutions or other finance companies, typically are appointed as members of the consumer advisory boards.

Working with committee chairman Jeb Hensarling (R-TX), Rep. Mulvaney offered the amendment and immediately withdrew it. In return, Mulvaney will have the opportunity to offer his suggestion in the form of a bill early next year.

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CFPB Takes First-Ever Enforcement Action against a Payday Lender
American Banker (11/20/13) Wack, Kevin

The Consumer Financial Protection Bureau (CFPB) issued its first enforcement action against payday lender Cash America, carrying a $19 million fine. The bureau alleges that the payday lender robo-signed documents and urged its employees to destroy records once the agency announced its investigation. The company also allegedly overcharged members of the military, violating the Military Lending Act.

Under the agreement, Cash America will pay $14 million directly to affected consumers plus a $5 million fine. Enovo Financial, which is the company’s online lending arm, continued to shred documents during a CFPB investigation in July 2012 and broke the required 36 percent rate cap on military loans. "We are also sending a clear message today to all companies under our watch that impeding a CFPB exam by destroying documents, withholding records, and instructing employees to mislead examiners is unacceptable," said CFPB Director Richard Cordray.

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National and State News
GE Plans Partial IPO of Consumer Finance Unit in 2014
American Banker (11/15/13)

General Electric Co. CEO Jeffrey Immelt announced that the company is planning an initial public offering of its consumer lending arm as it begins a methodical retraction from reliance on financial profits. Immelt’s strategy is intended to boost the shares of the conglomerate’s other products, including aircraft engines and medical equipment. The finance arm, which offers a number of products including store credit cards, has slowly been reducing its credit profile under Immelt’s guidance.

GE representatives have noted that while the consumer finance business has been profitable for GE as a whole, it does not fit in with the company’s business profile. “When we looked at the position we have in credit cards and we look at the synergies we get between our commercial lending businesses and the rest of GE, we just don’t see that,” Said GE Capital CEO Keith Sherin.

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Millennials Wary of Borrowing, Struggling with Debt Management
Wall Street Journal (11/20/13) Shah, Neil

A new analysis of data provided by Experian shows that Millennials are less inclined to take on debt and  less able to manage the debt they have. The study found that Millennials have 1.5 credit cards on average, compared to an average two cards held by Generation X borrowers. Additionally, the younger generation carries, on average, $2,700 less in credit card debt. However, Millennials are late on payments on credit card debt at the same rate as Generation Xers.

The study also found that Millennials have the fewest assets of any generation, but have the highest student loan debt – which is a major reason why they have far less credit card debt. The District of Columbia has the highest credit card debt among Millennials when broken down by state. States in the south and southwest have the lowest.

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New Member Welcome

AFSA welcomes new Business Partner D2K Corporation and welcomes back Business Partner Burr & Forman, LLP.

D2K Corporation is a N.C.-based data, marketing and technology company that has been in business since 2005. D2K specializes in providing clients with access to a full array of data and database services as well as marketing services covering everything from design and production to campaign management, analysis and reporting.

The law firm of Burr & Forman, LLP is a century old full-service law firm. With nearly 300 attorneys in five states, Burr & Forman offers a wide range of business and litigation services to diverse clients with local, national and international interests.

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November 21, 2013

Forward To A Colleague

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Counselor Library
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.