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Auto, Student Lending Each Rise More than 10%: Equifax
American Banker (08/30/13) Todd, Sarah

Based on a new report by Equifax, student and automobile lending increased in the 12-month period ending July 31. The balance of outstanding private student loans now stands at $884.2 billion, which is an increase of just over 11 percent from the previous year. Originations, however, fell by 9.3 percent in the same period. Auto loans increased just under 11 percent from the previous 12-month period. In all other segments of the credit space, consumers are attempting to reduce their debt burdens. Mortgages, home-equity installments and home-equity loans all fell. However, analysts note that new home mortgages will begin to rise again in the beginning of next year as the pace of foreclosures from the 2008 financial crisis finally comes to a slowdown.

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CFPBs Complaint Database Lacks Consumer Privacy Protections

AFSA and the Consumer Mortgage Coalition (CMC) sent a joint letter to the Government Accountability Office (GAO) on Sept. 4 regarding the lack of consumer privacy protections in the Consumer Financial Protection Bureau’s (CFPB) complaint database. The GAO is currently conducting a study of the CFPB’s complaint database. “The CFPB collects and makes public a substantial volume of consumer complaint information without adequate warning to consumers that information about their complaint will be made public, and without adequate consideration of applicable privacy protections on the use of consumer information,” the letter said. The trades are concerned “that the database divulges information from which it will be possibly, or sometimes easy, to discover nonpublic personal information in many instances.” The letter describes how Congress has prohibited this practice.

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AFSA, Trades File Joint Amicus in Supreme Court Disparate Impact Case

On Sept. 3, AFSA filed a joint amicus brief with several other trade associations before the U.S. Supreme Court in the Township of Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc. case. The court will consider, for the first time, whether the Fair Housing Act (FHA) recognizes a disparate impact theory of liability. The joint trade associations wrote that the FHA does not authorize a disparate impact theory of liability. The brief emphasized that “the use of the disparate impact theory has particularly deleterious effects on the residential mortgage lending industry.” The brief also stated that “national data reveal that virtually any lender could face disparate impact claims simply for implementing sensible, risk-based lending decisions.”

The trades emphasized that “newly-imposed restrictions on the lending industry as a result of the financial crisis only exacerbate the problems of the disparate impact theory of liability. At the government’s directive, credit standards have tightened, with clear racial and ethnic consequences, increasing the risk of disparate impact challenges arising from complying with the new standards or from not offering products with less stringent requirements. Under a disparate-impact theory, lenders would face the double bind of incurring increased litigation risk simply by complying with government directives and sensible lending standards.”

The court is likely to schedule oral argument in the case for late 2013 or early 2014.

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Inside the Beltway
Consumer Watchdog Chief Ratifies Actions as Recess Appointee
The Wall Street Journal (08/30/13) Zibel, Alan

Attempting to clear up questions of the legality of his prior actions, now confirmed director of the Consumer Financial Protection Bureau (CFPB) Richard Cordray began ratifying the actions he took during the period he was operating under a recess appointment from President Obama. In January 2012, the president named Cordray the director of the regulatory agency without seeking confirmation from the Senate, which argued that they were not in a recess. The administration argued that they were and thus, named Cordray director.

In a note in the Federal Register, Director Cordray stated that the actions he took before his confirmation were and remains "legally authorized and entirely proper." But, he said, "to avoid any possible uncertainty, however, I hereby affirm and ratify any and all actions I took during that period."

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CFPB Puts Consumer Data Suppliers in Crosshairs
American Banker (09/04/13) Witkowski, Rachel

The Consumer Financial Protection Bureau (CFPB) warned furnishers to consumer reporting agencies that they need to take responsibility when a consumer disputes anything on their credit report and maintain a system that is "reasonably capable" of handling information received from a credit reporting agency regarding a dispute. The CFPB’s Sept. 4 bulletin was its first official notice on handling consumer disputes on credit reports. The CFPB is taking a close look at whether furnishers are appropriately handling the complaints by sharing follow-up information and providing accurate and complete documentation related to its investigation with the reporting agency. The Federal Trade Commission and the Office of the Comptroller of the Currency have raised similar concerns.

The notice was partly triggered by an update to the software system used by the three largest credit reporting agencies. In a 2012 report, the CFPB highlighted deficiencies with the e-OSCAR system. "The e-OSCAR system has been upgraded so that the three companies can now send furnishers any relevant dispute documents mailed in by consumers. The CFPB is continuing to work to see that the capacity of the system is expanded further in the near future," the Bureau announced. An updated system leaves little room for excuses, and analysts project that furnishers that do not quickly update their own systems will face larger actions by the CFPB.
Furnishers have "got to clean up their systems right away because the next time the CFPB comes in to do an examination, or sees consumer complaints on their database pertaining to information on a credit report, they will come down hard," said Alan Kaplinsky, the head of Ballard Spahr's consumer financial services practice. In the bulletin, the CFPB stated it will monitor consumer complaints and prioritize exams and other actions based on risk to the consumer.

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Coming Rules Could Wall Off Banks from Affiliates
American Banker (09/03/13) Rehm, Barbara A.

While most institutions are focusing on the implementation and effect of the Volcker Rule, few are paying attention to another regulation that could allow federal regulators to build a fence around depository institutions, restricting the communication and cooperation between them and their affiliate institutions.

Section 608 of the Dodd-Frank Wall Street Reform and Consumer Protection Act expanded coverage of Regulation W, which limits transactions between depository institutions and their affiliates, including the passage of liquid assets. "The fundamental economics of a diversified bank holding company with a huge insured depository at its heart is to use those core funds for an array of activities, not just traditional lending," said Karen Shaw Petrou, managing partner of Federal Financial Analytics. The law dates from 2001 and implements the Federal Reserve Act’s Sections 23A and 23B. No rules have been written yet to implement Section 608 of the Dodd-Frank Act.

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National and State News
U.S. Banks Turn to Subprime Auto Loans as Delinquencies Fall
Reuters (09/03/13) Henry, David

As delinquencies continue to fall and subprime borrowers continue to seek auto loans, banks are beginning to turn their attention to this reliable sector of credit. Auto loans to subprime borrowers increased by two points, from 34 to 36 percent, in the second quarter, according to data from Experian. Banks are facing more competition from finance companies and captive auto finance arms and thus, have been moving down on the credit spectrum in order to replace lost income.

According to Experian, 84.5 percent of borrowers purchased their vehicle with loans or leases in the second quarter, which is good news for both banks and consumers. "Loans have become more accessible in recent years, and we've seen a steady growth in the percentage of consumers financing their vehicles," said Melinda Zabritski, Experian senior director of automotive credit.  Expanding credit to lower rated borrowers can be risky, but banks are counting on the volume of new auto loans to offset loans that may become delinquent.

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Greenville Changes Payday Loan Ordinance
The Herald Banner (09/02/13) Kellar, Brad

A Greenville, Texas, ordinance that prohibited alternative financial services businesses from selling their property to another alternative financial services business has been amended. The original ordinance was deemed in violation of the Texas state code, which says that a city must have a compelling and clear reason for barring nonconforming use businesses from selling their land or structure to another nonconforming use business or allowing another to occupy the space that the previous tenant occupied before going out of business.

At its Aug. 27 meeting, the Greenville city council voted unanimously to strike the language. City Attorney Daniel Ray noted that the council made no other changes to the ordinance and that the remainder, including zoning restrictions, remains in effect.

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Target Card Tests Future of Store-Branded Debit
American Banker (08/29/13) Wack, Kevin

Store-branded debit cards were expected to take a severe drop in use and profits after caps on debit interchange fees took effect in 2011. However, Target-branded debit cards continue to be popular and profitable with consumers who, on average, spend 52 percent more than those without the cards.

Target, which is known for its ability to analyze and use consumer data, has found that their customers simply prefer to use the card over having another credit card in their wallet. Stores like Target offer incentives such as a percentage off a total bill or free shipping when shopping online to entice consumers to use their debit cards. While the retailer takes an initial hit from not being able to collect fees and having to swallow the cost of a transaction if a consumer does not have enough funds in their account to cover a purchase, the store chain still realizes a profit as consumers tend to buy more.

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Prepaid Debit Cards Allowed as Health-Insurance Payment
The Wall Street Journal (08/28/13) Radnofsky, Louise

The Obama Administration announced on Aug. 28 that health insurance companies will be required to allow consumers to pay for their insurance coverage via prepaid debit cards as well as depository bank accounts. The move will allow millions of unbanked and underbanked consumers who may not have traditional checking accounts to receive health coverage.

Consumer advocates and industry analysts alike agree that the move is a positive one – allowing consumers to make a payment with the method of their choice will ensure that everyone has equal access to the health insurance exchanges, which will open in the beginning of October. Jackson Hewitt, a tax services company, told insurers that based upon their internal data, nearly one in four uninsured Americans do not have traditional checking accounts and rely on prepaid cards for all of their financial needs.

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CFPB's Antonakes Officially Takes No. 2 Spot at Agency
American Banker (09/04/13) Witkowski, Rachel

Steve Antonakes, who has been serving as acting deputy director at the Consumer Financial Protection Bureau (CFPB), was officialy named to the position on Sept. 4 by Director Richard Cordray. “Steve's experience, his knowledge and his judgment are vital in helping us achieve our mission of fostering a thriving, sustainable marketplace for both consumers and responsible businesses," Cordray said.

Before joining the CFPB team, Antonakes served as the Massachusetts Commissioner of Banks, having worked his way up from an entry-level position with the agency. He joined the CFPB in 2010 as the assistant director for large bank supervision.

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GE Set to Exit Retail Lending
The Wall Street Journal (08/30/13) Linebaugh, Kate and Terlap, Sharon

General Electric is preparing to spin off its highly profitable finance and lending arm amid growing concerns of the conglomerate’s exposure to the banking industry. Initial steps to separate the lending business from the remainder of GE are already underway and an initial public offering (IPO) of the spinoff is being prepared.

A sale of the business unit or its assets would be far quicker, but the size of the entire unit would bar most companies from being able to offer a competitive price. The business generated $2.2 billion in profit for GE last year.

GE has been methodically reducing its credit business since the 2008 financial crisis, which left investors concerned over the outstanding loans that GE had in its portfolio.

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September 5, 2013

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AFSA Newsbriefs

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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.

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