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New York Financial Regulator Uses Dodd-Frank to Sue Auto Lender
The New York Times (04/23/14) Abrams, Rachel

N.Y. Department of Financial Services Director Benjamin Lawsky, sued a subprime auto lender on April 23, claiming that the company violated several provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Doing so makes Lawsky the first state financial regulator to use powers given to him under the law. The move opens the door for other financial regulators at the state level to use their Dodd-Frank powers.

The complaint, which was filed in the District Court in Manhattan, accuses Condor Corporation, based in Long Island, of stealing money from several hundred borrowers. The complaint alleges that the company did this by turning off a borrower’s online account after a loan had been repaid, which prohibited the consumers from seeing whether they had an insurance payoff, overpayment or excess transactions to which they were due a refund. The complaint also contends that Condor mishandled consumer’s private information, leaving files with personally identifiable information strewn about the office. Condor had no comment regarding the lawsuit.

Ill. attorney general Lisa Madigan became the first state regulator to use Dodd-Frank to pursue a company when she filed a lawsuit against a payday lender in March 2014. Both moves highlight the power available to state regulators and their interest to use it.

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Inside the Beltway
CFPB Criticizes Student-Loan Lenders for 'Auto Defaults'
The Wall Street Journal (04/22/14) Zibel, Alan, Stech, Katy, and Andriotis, Annamaria

In a report issued on April 22, the Consumer Financial Protection Bureau (CFPB) criticized student lenders that demand full repayment of a loan after a co-signer dies or files for bankruptcy protection, a phenomenon the bureau is dubbing “auto defaults.” The student loan ombudsman at the CFPB, Rohit Chopra, declined to say if the bureau would be pursuing cases against lenders that operate in such a way, but industry analysts note that such a feature is common practice in many types of loans.

In the 2012-2013 academic year, 91 percent of student loans were given to students with co-signers, up from nearly 78 percent in 2008-2009. Student lenders noted that since the loans are unsecured, clauses like these are one of the only ways they can ensure that the debt is repaid. Industry analysts observed that recent graduates are much less likely to obtain a co-signer release from a student loan company than an individual who graduated several years previously.

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CFPB Launches Pilot Program for Electronic Mortgage Closings
American Banker (04/23/14)

Citing complexity and little time for review, the Consumer Financial Protection Bureau (CFPB) introduced a new pilot program dubbed eClosings that would give consumers the ability to electronically review and sign mortgage closing documents. The agency stated that they have received a high volume of complaints from consumers that the closing documents are far too complex and that they do not have adequate time to review them before having to sign. "These new homeowners leave the closing table with a whole new level of anxiety, as they find themselves wondering what was buried in the stack of paper that may create some nasty surprises in the years ahead," said CFPB Director Richard Cordray during a field hearing in Washington.

The goal, according to Cordray, is to investigate whether electronic closing documents reduce errors and give consumers peace of mind. However, some industry analysts noted that the eClosings system could be a hotbed for fraud, particularly against consumers who may not understand all the inner workings of mortgages.

The program is part of the bureau’s “Know Before You Owe” plan and will be launched in the next several months, starting with several companies that already offer electronic closings.

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National and State News
Housing Market's Foiled Spring
The Wall Street Journal (04/23/14) Lahart, Justin

The slumping figures in home sales are taking their toll on the industry, but the situation may not be nearly as bad as it seems, according to many industry analysts. A new Commerce Department report found that new home sales hit an annual rate of 384,000 in March, down nearly 15 percent from the previous year. In addition, home sales in the south and west, where weather was not a factor, also suffered. Several other factors are affecting the stagnating market: homes are becoming more expensive, loans remain relatively difficult to obtain, and weak growth in income does not provide extra cash for individuals to purchase a home.

Still, analysts note that housing data, particularly for the first quarter, tends to be extremely volatile. Also, the high home prices primarily affect the south and west, meaning the northeast and midwest could see a drastic uptick in sales as the weather warms.

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Moody’s Caution Grows in Subprime
Subprime Auto Finance News (04/23/14)

According to a new report from Moody’s, subprime auto lenders may be letting off the throttle a bit, but are still steadily lending to consumers with less than perfect credit. The data for the report was collected by Experian.

Moody’s president and senior analyst Peter McNally explained that one of the key factors demonstrating   lenders’ caution is the increase in credit scores for used vehicle loans in the last quarter of 2013. Slow growth in the market segment by banks, credit unions and captives also points to a pullback. Rising interest rates signaled that lenders are becoming more cautious before agreeing to finance a vehicle. “Declining competition from non-traditional subprime lenders puts less pressure on independent finance companies to lend to weaker borrowers to maintain their lending volumes” McNally said.

Delinquencies are beginning to rise slightly, causing lenders to be more cautious. However, the Moody’s report and the Experian data behind it show that originations and new loan volumes likely will remain high at least through 2015 as conditions remain favorable for consumers to borrow and lenders to lend.

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Vermont Targets TV Stations, Search Engines in Online Lending Crackdown
American Banker (04/23/14) Wack, Kevin

Vermont has some of the toughest laws in the nation with respect to payday lending. Now, the state is unveiling a novel approach to cracking down on online lenders that may be offering their products in Vermont. On April 22, the Vt. attorney general’s office sent warnings to television stations and internet search engine providers that knowingly assisting unlicensed lenders by allowing them to advertise is against the law. The letters specifically asked both television and internet-search engine companies to stop running ads for lenders not licensed to operate in Vermont.  The AG's also published a 17-page report in which it estimated that 5,000-8,000 residents have obtained Internet loans.

The attorney general’s office also filed suit against a company that processed payments for unlicensed lenders and announced a settlement with another. Several other states have taken similar steps to stop internet payday lending and also are considering legislation that is similar to the Vermont law.

Vermont also is seeking assistance from the state’s banks and credit unions. In an April 22 letter, the attorney general’s office asked financial institutions whose customers use payday loan products to be especially vigilant for illegal or predatory loans.

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Wells Fargo Hires Two CFPB Experts on Mortgage Rules
American Banker (04/17/14) Witkowski, Rachel

Wells Fargo has hired two former Consumer Financial Protection Bureau staffers who played critical roles in writing new mortgage rules. Peter Carroll served as the bureau assistant director of mortgage markets and will became senior vice president of capital markets at Wells Fargo Home Mortgages. Lisa Applegate was the bureau’s mortgage implementation lead and will join Wells’ home lending capital markets group as the strategic quality manager. The hirings are part of Wells Fargo’s continuing efforts to offer effective guidance on policy matters.

The CFPB has named Abhishek Agarwal as the acting replacement for Carroll while it searches for a permanent successor. Applegate’s position may not be filled.

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April 24, 2014

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AFSA Newsbriefs

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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.