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The Consumer Financial Protection Bureau: A Toxic Workplace Begets Toxic Policies for Consumers
Forbes (04/06/14) Smith, Adam and Zywicki, Todd

The recent report by investigator Misty Raucci into multiple instances of discrimination and harassment has shown that there is a toxic workplace at the Consumer Financial Protection Bureau (CFPB). It also showed that things are just as bad on the inside of the bureau as their policies are on the outside, according to opinion article authors Adam Smith and Todd Zywicki. The bureau is independent from oversight by Congress, structured within the Federal Reserve, yet not accountable to the Fed. The sole director, who serves a five-year term, cannot be fired by the president. Yet, the CFPB controls every aspect of consumer credit products in America.

Proponents of the CFPB have noted that the bureau’s separate nature makes it more able to effectively regulate, but political scientists have said that certain pathologies make bureaucratic agencies more apt to become imperialistic. A new Mercatus Center study has revealed that, so far, the more imperialistic tendencies are coming to fruition in the CFPB.

The CFPB has extended its reach to attempt to regulate vehicle dealerships, yet has no mandate to do so. The agency has completely ignored the cost of its enforcement and rulemaking activities, the most poignant example being the qualified mortgage rule. Things become even more wrinkled when you consider how the bureau justifies its intervention. The bureau assumes that American consumers are uninformed and unable to make decisions for themselves.

All of this points to an agency that is out of control and dangerous, drunk on its own power with only its own best intentions in mind, the authors conclude. 

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AFSA News
SGA Publishes Lending Zoning Ordinances White Paper

AFSA’s State Government Affairs Department published a white paper on zoning ordinances which attempt to restrict borrowers’ exposure to payday and title loan businesses, but are sometimes written so broadly that they have significant unintended consequences on other sources of small dollar credit, such as traditional installment loans. AFSA’s paper identified 257 ordinances across the United States that restrict payday and auto title lending, a quarter of which either have a definite or potential effect on installment lending businesses. The paper details several threads that are common throughout the ordinances, including moratoriums on new businesses, limits on the number of businesses permitted in a municipality, and restrictions on how far these businesses can be from each other and areas like schools and churches. The paper also outlines new and moving state legislation that either authorizes municipalities to impose restrictions or preempts these local ordinances.
 
SGA also performed a substantial update to its regularly updated lending establishment zoning ordinance tracking chart in conjunction with the paper’s release.

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New Member Welcome

AFSA welcomes new active members Crossroads Equipment Lease & Finance, Dealer Funding, Southern Loans, Blackhawk Finance and ML Credit Holdings, as well as new business partners The Plateau Group and Neo.

Crossroads Equipment Lease & Finance is headquartered in Rancho Cucamonga, Calif., and specializes in loans and leases on trucks, equipment, buses and other large vehicles.

Dealer Funding
is a subprime auto finance company located in Alpharetta, Ga., with a combined 100 years of subprime lending experience.

Southern Loans
is based in Rocky Mount, N.C., and has been in business since 1988. Southern specializes in personal loans and vehicle finance loans.

Blackhawk Finance is based in Des Plaines, Ill., and has been in business since 2008, specializing in indirect auto lending.

ML Credit Holdings, doing business as Metrolina Credit Company, provides automobile financing for dealers throughout central North Carolina. The company has service offices in Charlotte, Concord, High Point and Burlington, N.C.

The Plateau Group is an insurance holding company that specializes in credit insurance and other loan-related products for financial institutions, automobile dealers, consumer finance companies and other retail lenders. Plateau is based in Crossville, Tenn.

Neo is a financial services company that specializes in technology-based solutions for the financial community. Neo is backed by Social+Capital partnership, a leading Bay Area venture firm dedicated to smarter and innovative ways to improve business processes in the financial marketplace.

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Inside the Beltway
Bank of America to Pay $772 Million Over Credit-Card Practices
The Wall Street Journal (04/09/14) Zibel, Alan

Bank of America reached a settlement on April 8 dealing with allegations brought by the Consumer Financial Protection Bureau (CFPB) and Office of the Comptroller of the Currency (OCC). The regulators charged that Bank of America “both deceived consumers and unfairly billed consumers for services not performed.” The company agreed to pay $727 million in refunds to customers and a $45 million penalty. This settlement marks the fifth of its kind against a major bank over credit card-related products, such as identity theft protection and debt cancellation.

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Cordray Reiterates CFPB Rulemaking Process
SubPrime Auto Finance News (04/07/14)

During a recent speech at the American Bar Association, Consumer Financial Protection Bureau (CFPB) director Richard Cordray reiterated the bureau’s focus on regulatory action as well as rulemaking, including a new program called regulatory implementation. Cordray pointed to the small business administration as an example of how the process is designed to work, including the creation of small business review panels that are meant to inform the bureau on the effects their regulations have on the business community.

“The goal is to gather input on our ideas from small financial services provider panels before we formulate a proposal,” Cordray said. “Concurrently, we have made it our practice to solicit the input of other stakeholders as well, including larger institutions, consumer advocates, vendors, government agencies and other parties as appropriate depending on the nature of the rulemaking.” Cordray noted that rules changes must be noted in the Federal Register, but he believes that many people do not read the register, meaning the rulemaking process remains mysterious. He also indicated that the bureau is in the process of producing rules that do not extend directly from a Congressional mandate.

Cordray also noted that it is not enough for the bureau to promulgate rules and then tell businesses that it is now “their problem.” He stressed the need for the CFPB to work closely with the business community to assist them with implementing the rules they write. 

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GOP Wants CFPB Merged with Other Regulators
HousingWire (04/08/14) Garrison, Tarry

The April 8 House Financial Services Committee hearing on the Consumer Financial Protection Bureau (CFPB) and the economic impact of its policies quickly led to a heated exchange. The hearing was meant to focus on all regulators, but ended up focusing almost exclusively on the CFPB. Committee Chairman Jeb Hensarling (R-TX) noted that the CFPB should be using cost-benefit analysis when considering rulemaking.

Democrats on the committee have been critical of cost-benefit analysis. Rep. Maxine Waters (D-CA) supported the CFPB and other federal regulators. Rep. Scott Garrett (R-NJ) argued that all the regulatory bodies should be rolled up into one large agency with a more accountable group heading up the operation. Rep. Sean Duffy (R-WI) noted that protecting citizens is important, but an agency that does not regulate itself is far more dangerous. 

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U.S. Consumer Bureau Details Diversity Efforts after Complaints
Reuters (04/04/14) Stephenson, Emily

In response to concerns over the management and oversight of its employees, including some charges of discrimination and harassment, the Consumer Financial Protection Bureau (CFPB) is stepping up its training programs and teaching managers to spot harmful behavior. The bureau emphasized that they took the allegations leveled against it very seriously and that steps were being taken to make corrections.

The allegations were leveled in an American Banker article that cited a diversity report obtained by the paper. After its release, a CFPB attorney told the House Financial Services Committee that she had faced discrimination at the bureau. CFPB officials have said they are working closely with the employee’s union to produce a new ratings system and to form a committee aimed at promoting diversity within the bureau.

Lawmakers from both parties are pressing the bureau to examine its treatment of women and minorities. Rep. Maxine Waters (D-CA), has requested personnel data from each of the financial regulatory agencies.

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National and State News
Chicago, Federal Housing Finance Agency End Vacant-Buildings Dispute
Chicago Tribune (04/08/14) Podmolick, Mary Ellen

Vacant homes backed by Fannie Mae and Freddie Mac will have to register with the city of Chicago, but will not have to pay the registration fee, according to an agreement reached on April 7. A U.S. District Court decision by Judge Thomas Durkin in August that properties backed by the GSEs were exempt from the ordinance had been holding up implementation. The Chicago ordinance requires vacant property owners, including banks and financial institutions, to register their property and pay a $500 fee. A $1,000 penalty is imposed for each infraction. The city countered that exempting properties backed by Fannie and Freddie would create a disparity in the mortgage market and in the city’s efforts to rehab homes.

Under the agreement, Fannie and Freddie will voluntarily register the properties without paying the fee, as long as the GSEs are still overseen by the Federal Housing Finance Administration (FHFA). 

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Subprime Surge Helps March Used Sales Soar
SubPrime Auto Finance News

March used car sales rebounded strongly after a subpar February, in part due to a large number of subprime consumers investing their tax refunds in new vehicles, according to CNW Research. For the first time this year, used car sales surpassed three million units, a 50 percent gain on the previous month. Sales at independent dealerships also topped one million. Sales to consumers with FICO scores below 550 increased by nearly 57 percent from February to March and used car sales overall increased 2.7 percent year over year.

The figures are remarkable, since there are approximately 13 percent fewer shoppers than a year ago. 

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April 10, 2014




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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 [email protected] to subscribe.

The American Financial Services Association, or AFSA, is the national trade association for the consumer credit industry, protecting access to credit and consumer choice. The association encourages and maintains ethical business practices and supports financial education for consumers of all ages.