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Senators Question Bias Claim on Car Loans
Wall Street Journal (10/30/13) Zibel, Alan

On Oct. 30, 22 Senators – eleven from each the Republican and Democratic parties –   sent a letter to Consumer Financial Protection Bureau (CFPB) Director Richard Cordray criticizing the agency’s increased efforts to regulate the vehicle financing marketplace. The bureau has identified the area as a priority in order to protect consumers against discriminatory practices, but the bipartisan group of senators wants clarification on how the bureau plans to do that, and specifically, how the CFPB is examining auto loans.

The group of lawmakers raised several questions in their letter about the CFPB’s process, including why they issued a warning to auto lenders without an official rule-making process and if the bureau conducted a thorough cost-benefit analysis. Senators Rob Portman (R-OH) and Jeanne Shaheen (D-NH) are leading the effort seeking answers from the CFPB.

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CFPB Governance Discussed at Congressional Hearing

Replacing the CFPB’s director with a five-member bipartisan commission was one of several reforms discussed during an Oct. 29 House Subcommittee on Financial Institutions and Consumer Credit hearing on CFPB reform proposals. Two members of the committee asked U.S. Chamber of Commerce witness Jess Sharp specific questions about the merits and composition of such a commission.

Rep. Keith Rothfus (R-PA) followed up a question from Rep. Blaine Luetkemeyer (R-MO) about reserving a seat on the commission for an official with state-level experience overseeing consumer credit. “Data shows that finance companies account for nearly a quarter of the nation’s consumer credit. Because these companies lend their own capital, they are able to make loans to families with impaired credit or no credit history at all. From what I understand, though, the CFPB has limited experience overseeing this nonbank segment of the consumer credit marketplace,” Rothfus stated. “In an effort to maintain this important avenue of credit to these individuals, would the CFPB benefit from employing a multi-member commission structure, with at least one individual having experience regulating consumer credit at the state level, similar to how the FDIC board is structured?” Sharp agreed that the experience of a state-level regulator would be useful on a commission and recommended that it be legislated into statute.

Following the hearing, AFSA issued a media statement voicing support for replacing the CFPB’s sole director with a bipartisan commission and dictating that one of the members possess state-level experience overseeing consumer credit. “AFSA supports reforms to the CFPB’s governance that will encourage a dynamic consumer credit marketplace and promote consumer choice,” said AFSA president & CEO Chris Stinebert. “Congress should ensure that our federal financial regulators are led by officials who understand the nuances of consumer credit and the various kinds of institutions that provide it.” AFSA will continue to work with members of Congress to ensure that such a provision is part of any legislation to restructure the CFPB.

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AFSA Credit Risk Retention Comment Focuses on Vehicle Finance

On Oct. 30, AFSA submitted a letter to six federal agencies on their proposed rule regarding credit risk retention. AFSA’s letter focused on the impact of the proposed rule on the vehicle finance industry. The association encouraged the agencies to substantially revise the Qualifying Automobile Loan (QAL) standard, as the focus on the QAL underwriting standards and loan characteristics are more appropriate for mortgage loans than automobile loans. Calling the proposed QAL standard extremely narrow and unduly harsh, AFSA suggested an alternative approach.

AFSA’s letter said that the exclusion of motorcycles from the QAL should be removed. The association also asked for additional clarification for equipment and machinery finance.

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AFSA Signs Joint Trade Letter to Congress on Privacy Notices

On Oct. 29, AFSA, along with seven other trade associations, submitted a letter to Senators Harry Reid (D-NV) and Mitch McConnell (R-KY) supporting the Privacy Notice Modernization Act of 2013 (S.635). The bill would change the current law, which requires banks to notify consumers of their privacy policies, even if those policies do not change. Additionally, the bill would ensure that consumers continually have access to the privacy policies of financial institutions, regardless of whether privacy policies change or not.

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New Leaders Elected for Several AFSA Boards and Committees

Several AFSA Advisory Boards and Committees of Professional Interest elected new leaders during the association’s 97th Annual Meeting in Washington, D.C.

The Vehicle Finance Division Advisory Board elected Joy Falotico, Executive Vice President, Marketing, Sales & Americas, Ford Motor Credit Company, as vice chair. She will succeed Andrew Stuart, President & CEO, VW Credit, Inc., as chair at the conclusion of AFSA’s 18th Annual Vehicle Finance Conference & Expo in January 2014.

The Business Partner Advisory Board elected Glen Twede, Vice President, Sales, GOLDPoint Systems as chair for a two-year term.

The Marketing Committee elected Caren Roberson, Senior Vice President, Director of Marketing, Wells Fargo Dealer Services, as chair and Georgine Muntz, Senior Vice President, Partner Originations, as vice chair.

The Operations & Regulatory Compliance Committee elected Nathan Benson, Chief Executive Officer, Tidewater Finance Company, as chair; Dan Soto, Chief Compliance Officer, Ally Financial, as vice chair; Beth Decker, Privacy Officer and Compliance Manager, VW Credit, Inc. as chair of its Consumer Complaint Working Group; and John Short, Chief Compliance Officer, Fortegra Financial, as chair of its Business Partner Advisory Group.

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Inside the Beltway
Cordray Pledges Flexibility on QM Implementation
American Banker (10/28/13) Witkowski, Rachel

Consumer Financial Protection Bureau (CFPB) Director Richard Cordray noted on Oct. 29 that lenders’ concerns over complying with new mortgage rules are valid and that the agency will be “sensitive” to lenders that are having difficulty complying. He stated that as long as lenders are making a “good faith effort” to comply with the new regulations by Jan. 10, the bureau is willing to work with companies on a case-by-case basis.

"Let me also say that our oversight of the new mortgage rules in the early months will be sensitive to the progress made by those lenders and servicers who have been squarely focused on making good-faith efforts to come into substantial compliance on time — a point that we have also been discussing with our fellow regulators, " Cordray said in prepared remarks.

For the last several months, industry analysts have been pushing the CFPB to extend the compliance deadline for the new qualified mortgage, or QM, rules. The CFPB has not been receptive to moving the deadline, but has given assurances that deference will be given to companies that are working to comply with the rules.

In his speech, Cordray also noted that lenders would not run afoul of fair lending laws if they choose only to offer QM loans, and that the safe harbor legal protection for lenders remains strong under the QM requirements.

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National and State News
Calif. Ruling Recognizes 1-year Limit for Finance Law Claims
Automotive News (10/30/13) Freedman, Eric

The California Court of Appeals upheld the decision of a lower court in a class action suit that may drastically reduce the number of class action suits seeking to rescind retails installment sales contracts under the state’s vehicle finance law. The case alleged that CarMax Auto Superstores California violated the state's sales finance and unfair competition laws. The lower court judge dismissed the case, noting that it took the plaintiff more than two and a half years to bring the case forward, after her vehicle developed mechanical issues. The appellate court agreed with the lower court and stated that the plaintiff’s claim that the statute of limitations – normally one year for claims – should be four years was insufficient. The court also dismissed her unfair competition claim.

AFSA, the California New Car Dealers Association, and CarMax have petitioned the court to make the decision binding precedent. If approved, it would be much more difficult for similar class actions lawsuits to be brought to court.

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Microcredit for Americans
The New York Times (10/28/13) Dewan, Shaila

Microcredit is becoming increasingly popular in the United States. This type of unsecured loan, usually ranging between $1,500 and $8,000, originated in Bangladesh as a way to help consumers claw their way out of poverty. Now, the method is being put to use around the U.S., including in Queens, N.Y., where people are using the loans to buy groceries for their families, cars to get to work and machinery for businesses.

Traditional microcredit in the U.S. is defined as loans of less than $50,000, but entrepreneurs are unable to borrow these amounts from a bank or do not need that much and are unable to secure smaller amounts. A new company called Grameen America eschews the normal model, grouping lenders and asking them to approve each other’s loans, then ensuring they make weekly payments with 15 percent annual interest. If everyone in the group repays on time, each individual is entitled to borrow more money in the next lending cycle.

While good data on microcredit is hard to come by, analysts expect the trend to continue to grow and become more accessible to communities that cannot access more traditional forms of credit.

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Sallie Mae under Investigation
Delaware Online (10/30/13) Malcolm, Wade

The Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corp. (FDIC) and Department of Justice (DOJ) are investigating whether student loan servicer Sallie Mae incorrectly applied loan payments, causing multiple-loan borrowers to pay more interest. How payments are disbursed across loans with varying interest rates can drastically affect how much borrowers pay toward interest, principal and fees.

The CFPB report on the loan servicer noted that more than half the complaints the bureau receives about student loans come from Sallie Mae, which is about equal to the organization’s share of the total private student loan market. The report noted that borrowers have significant confusion about payment statuses for student loans. When borrowers pay ahead or pay more than is due, the status notifications on the website are confusing; borrowers are left wondering if they’ve applied additional funds toward the principal of the loan or if they’ve made the following month’s payment.

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October 31, 2013

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