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CFPB Urged to Improve Transparency, Accountability

On Sept. 24, AFSA staff attended a briefing by the Bipartisan Policy Center (BPC), a Washington think tank, on its new report on the Consumer Financial Protection Bureau (CFPB). Panelists summarized the recommendations of BPC’s Task Force on Consumer Protection, which spent the last year conducting thorough review and analysis of the CFPB.

The report recommended that the CFPB: seek input from stakeholders, including consumer advocates and regulated entities, through a formal notice-and-comment process akin to rulemaking, when issuing substantive guidance; provide a statement of intended use with each data request; take stronger steps to ensure that no breach of data occurs; and designate more resources to verify consumer complaints. The report also recommended that Congress prescribe CFPB authority over the financing functions of vehicle dealers. The authors maintained that an independent funding mechanism for the CFPB should be retained, but the Bureau should have an inspector general with full investigative and reporting powers.

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Inside the Beltway
Dodd-Frank's Costs Will Be Paid for by Low-Income Bank Customers
Forbes (09/26/13) McCloskey, Abby

As the five-year anniversary of the financial crisis passed, little conversation has focused on how the policies put in place after the crisis have affected  the consumer. From 2009-2011, nearly 1 million people were completely shut out from mainstream financial products, according to a study by the Federal Deposit Insurance Corporation (FDIC). Low income and minority populations have seen a sharp drop in access to banking products and credit as a direct result of the increase in regulation brought on by the Dodd-Frank Wall Street Reform and Consumer Protection Act, according to Abby McCloskey, program director of Economic Policy at the American Enterprise Institute, in this opinion piece.

Coupled with tighter regulation and fewer products is an increase in both compliance costs and legal fees for financial institutions, recently measured at $34 billion and $103 billion respectively. The availability of loans by credit cards has been cut by nearly $70 billion, disproportionately affecting low-income people. The checking account and debit card marketplace is no better; Dodd-Frank capped the interchange fee charged to retailers for their use of payment networks, thus causing a dramatic loss of revenue for banks. In turn, banks sought to make up for the losses by increasing fees for consumers. “Priced out of mainstream banking, low-income earners are turning to alternative finance measures, such as payday lending and check cashers, widely considered to be more risky and expensive,” the author stated.

When the Consumer Financial Protection Bureau (CFPB) begins to clamp down on these establishments, consumers will be pushed to even riskier and illegal lending options, like loan sharks, McCloskey said. The CFPB needs to think about the remaining 238 Dodd-Frank regulations it needs to implement and perform a careful cost-benefit analysis to determine if each one is actually helping or hurting the consumer in the long run.

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Mortgage Data Rule Changes to Lighten Banks' Burden: CFPB's Cordray
American Banker (09/24/13) Adler, Joe

In a Sept. 24 speech, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray said that banks should be prepared to change the way they report Home Mortgage Disclosure Act (HMDA) data to the federal government. The director did not go into specifics, but alluded that the changes would make it easier for banks to comply with forwarding data to the appropriate agencies.

"We … will be revising the process by which the financial institutions provide information about the mortgage market under HMDA … both to improve the categories of information that are gathered and to ease the operational and technological burdens on industry to comply with this law," Cordray said. The HMDA data is used to assess how well banks are serving the communities they serve in terms of supplying adequate housing needs and addressing issues of discrimination.

Cordray reiterated the CFPB’s reliance on the disparate impact theory to determine whether banks are committing discriminatory acts in their mortgage lending activities. He emphasized that cleaning up deception in the marketplace is a priority for the agency, noting that the CFPB would be looking closely at the debt traps caused by payday loans. "We want to make sure that consumers can get the credit they need without jeopardizing or undermining their finances," Cordray said.

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National and State News
Are F&I Products the Next CFPB Target?
Automotive News (09/25/13) Henry, Jim

F&I administrators predict that the Consumer Financial Protection Bureau (CFPB) will be taking a close look at finance and insurance products, while dealerships are looking to these products as a critical source of income. As the agency continues to crack down and examine the use of dealer reserve, dealerships have been moving toward the F&I products to make up for lost revenue.

The F&I industry argues that the CFPB is preparing to regulate their industry without actually understanding how it works. In a recent settlement with a company offering extended service contracts, the CFPB argued that the company’s disclosures were not adequate and did not clearly state that the contracts were optional. Many in the industry agree that more disclosure is a good thing. If consumers are educated, industry advocates argue, they will see the value of the products being offered. More disclosure will also push the bad players – which are present in every industry – out of the market.

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Chicago Renters in Foreclosed Buildings Get New Protections
Chicago Tribune (09/24/13) Podmoluk, Mary Ellen

The “Keep Chicago Renting” ordinance, which provides additional protections for tenants of buildings that have been foreclosed upon, went into effect on Sept. 24. Under the ordinance, individuals who are renting within a foreclosed building are entitled to rent-controlled leases for as long as the foreclosing entity owns the building or up to $10,600 per unit in relocation assistance.

The ordinance also will require landlords who allow renters to stay in place to offer a rent increase of no more than two percent per year. The ordinance applies to any rental property, whether multi- or single-family, and most likely will apply to buildings that are repossessed by financial institutions after foreclosure proceedings.

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Congress Turns Attention to Debt Limit Battle
Reuters (09/26/13) Younglai, Rachel and Cowan, Richard

While Congress struggles to avoid a government shutdown on Oct. 1, the Obama administration warned that the Treasury Department is running out of options to keep paying the nation’s bills. In a letter to Speaker of the House John Boehner (R-OH), Treasury Secretary Jack Lew stated that he had only about $30 billion to continue making payments on the nation’s bills, which would effectively get him to Oct. 17 before the debt ceiling would need to be increased.

Both the debt ceiling and government funding measures have been complicated by attempts by House Republicans to attach provisions to defund the healthcare law, which Democrats refuse to do. Sen. Ted Cruz (R-TX) believes strongly that the healthcare law should be defunded and responded with a 21-hour marathon speech opposing Majority Leader Harry Reid’s (D-NV) plan to strip the defunding language from the House legislation. Several prominent Republicans have noted that it is virtually impossible to gut “Obamacare” with the current partisan setup.

A new New York Times/CBS News poll found that roughly 80 percent of Americans disapprove of a government shutdown of any kind. Congress is on the hot seat to find a solution before the Oct. 1 and debt ceiling deadlines.

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Student Debt Is Making All Your Life Choices Worse
Huffington Post (09/24/13) Kingkade, Tyler

According to a new report from the non-profit American Student Assistance (ASA), student loan debt is having a profoundly negative effect on younger Americans’ ability to make other financial purchases that previous generations were able to make more easily. The report also shows that student loan debt is also making it increasingly difficult for students to afford basic necessities.

To avoid economic stagnation in the next decade, the ASA recommends that the government offer more grants to new students while keeping interest rates on new and existing loans low. The group also calls for employers to assist students with paying off their loans as a way to retain employees. The report showed that nearly 60 percent of students did not understand their loan paperwork and 69 percent did not know about other repayment options available to them. The increase in student loan debt also has a downstream effect on universities, which are experiencing a dramatic decrease in student and alumni charitable giving.

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Leases Buoy Market, Add Factory Risk
Automotive News (09/25/13) Sawyers, Arlena

Leasing has come back as a popular option for Americans to get into new vehicles at low prices, but presents risks for dealers who have to guess at the residual value of a vehicle after a lease period ends. In the first half of 2013, 26 percent of new vehicle purchases have come from leases, up from 21 percent the year before.

Some automakers are placing higher residual value estimates in order to move vehicles. Yet the marketplace is heavily affected by the economy. When gas prices spiked in 2008, the residual value of large SUVs shrank drastically, forcing lenders to take dramatic losses on them at lease end. In 2009, when credit tightened, leasing diminished along with U.S. sales of new light vehicles, which plunged to 10.4 million. Leasing began to rebound in 2010 and has been growing steadily.

As positive as the lease market appears to be, many automakers are taking a more cautious approach. Instead of offering a lease at 100 percent of a vehicle’s projected value and offering the lowest possible payment, makers are keeping a few points in reserve.

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Huntington Broadens Auto Dealer Financing Business into Iowa
SubPrime Auto Finance News (09/25/13)

Huntington Auto Finance has expanded operations into Iowa and added additional staff to cover the territory. "Our track record in the Midwest and New England, as well as part of the Upper Midwest, demonstrates a proven business model with auto dealerships, one that we now bring to auto dealers in Iowa," said Rich Porrello, director of Huntington Automobile Finance.  Huntington hired an experienced team with local market knowledge to serve the new territory. The company is ready to begin processing loan applications in Iowa and expects to provide financing solutions to more than 300 dealers throughout the state.

Huntington finances new and used vehicles purchased by a dealership’s retail customers and also provides floorplan lending.

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Dealertrack Technologies Announces Deal to Buy VINtek
Auto Remarketing (09/24/13) Staff

On Sept. 23, Dealertrack Technologies announced that it had entered into an agreement to purchase VINtek, an automotive collateral management, electronic lien and title and consumer automotive finance processing services company, in a $53.4 million cash transaction. The deal is expected to be closed by the end of the fourth quarter.

“VINtek has been an innovator and strong supporter in the ELT marketplace for years, and is well-respected by state governments, including their departments of motor vehicles,” said Mark Furcolo, executive vice president and group president of lender solutions at Dealertrack.

“The uniting of our organizations will allow us to deliver operational and service synergies that will benefit all of our customers, as well as the technologies and services that will help them grow their automotive loan volumes,” said VINtek President Larry Highbloom. “We look forward to working with our existing customers, and Dealertrack’s customers, to deliver ELT and collateral management solutions that will set the standard for others to follow.”

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September 26, 2013

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