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Questions Surrounding Uber and Lyft Discussed in SGA White Paper

The AFSA State Government Affairs Committee’s August white paper covers Transportation Network Companies (TNCs), such as Uber, Lyft and Sidecar. This exploding industry has caused concern among municipalities and financial institutions as private drivers get behind the wheel in their own vehicles. The paper outlines the history of the leading TNCs and details several concerns with contract language, vicarious liability and other legal issues. The paper also covers the issues faced by the insurance industry, as TNCs and their drivers constantly face different exposures to risk.

The white paper also details how cities and municipalities have been dealing with the industry, as it displaces more traditional taxicab services. Current legislative activity on the topic is outlined as well.

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AFSA and Other Trades Petition FSOC

On Aug. 19, AFSA signed a joint trade petition to the Financial Stability Oversight Council (FSOC) asking for a rulemaking regarding the authority to require supervision and regulation of certain nonbank financial companies. The petition asked FSOC to amend its 2012 rule governing the process by which companies are designated as “systemically important financial institutions” (SIFIs). Currently, the standards and procedures for doing so are “vague and opaque.” Once companies are designated as SIFIs, they are placed under enhanced prudential supervision by the Federal Reserve Board of Governors.

The petition is intended to improve the quality of FSOC’s decision making and to assure the company going through the process a fair opportunity to understand the issues of concern and the facts on which FSOC is relying. Thus, the company can be afforded the opportunity to respond meaningfully and effectively. The petition also asked for increased procedural protections around the final SIFI determination and hearing. FSOC may respond to the petition in any of three ways: publish the petition for notice and comment, reject it, or simply not respond.

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Inside the Beltway
SEC Poised to Vote on Long-awaited Securitization Rules
PoliticoPRO (08/19/14) Temple-West, Patrick

According to sources familiar with the situation, the Securities and Exchange Commission (SEC) is likely to hold a vote in September on new disclosure rules for home mortgages, credit cards and auto loans that are packaged into securities and sold. The commission also is close to voting on rules for credit-rating agencies. Both rules will be voted on together. SEC Chairwoman Mary Jo White has been criticized in the past for not acting quickly enough to finish rules required under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Industry analysts and consumer advocates have long awaited the new rules, which will erase uncertainty in the asset-backed securities markets.

Industry players have raised concerns over consumer privacy in regards to the new disclosure requirements. The proposed requirements would have placed portions of a borrower’s credit score on the ABS instrument, which financial institutions say would open them to lawsuits. The SEC took steps in February to alleviate these concerns while still attempting to give investors more information about the debt vehicle they are purchasing.

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Bad Vendor Oversight Led to Auto Lender's Fine, CFPB Says
American Banker (08/20/14) Witkowski, Rachel

The Consumer Financial Protection Bureau (CFPB) made it clear that simply blaming software vendors for technical bugs is not a viable excuse. The bureau took action against First Investors Financial Services Group, a Texas-based subprime auto lender, fining it $2.8 million for allegedly failing to correct errors in its computer system, which resulted in borrowers’ credit profiles being harmed. Software that was purchased from a third-party vendor included inaccurate scoring data.

"Today's action sends a signal to all companies that supply information to the credit reporting agencies that they must have sound practices in place that protect consumers," said CFPB Director Richard Cordray. "Data furnishers have the legal duty to identify consumers accurately, correctly recount the consumers' payment histories, and keep their own information and record-keeping in order."

According to industry analysts, other financial institutions should be prepared for similar enforcement actions and investigations. The First Investors complaint alleged that the company understated the amounts customers were paying, especially when consumers made multiple payments in a month. Additionally, First Investors overstated the dollar amount by which many of its customers were past due.

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Justice Strikes $17B Settlement with BofA
PoliticoPRO (08/21/14) Prior, John and Temple-West, Patrick

On August 21, Bank of America (B of A) and the Department of Justice agreed to a nearly $17 billion settlement of federal and state allegations that it sold risky mortgage-backed securities. The agreement includes a fine of $9.65 billion and$7 billion in aid to homeowners who are struggling with mortgage payments. Several states and federal agencies are set to receive payments under the settlement.

B of A will pay $6.8 billion to Justice and $1.03 billion to the Federal Deposit Insurance Corp. California and New York each will receive $300 million under the agreement, followed by $200 million for Illinois, $75 million for Maryland, $45 million for Delaware and $23 million for Kentucky. The deal also includes a $245 million settlement with the Securities and Exchange Commission.

The bank attempted to argue that the fine amount should be much reduced because the alleged abuses occurred at Countrywide and Merrill Lynch before the firms were acquired by B of A in 2009. The deal is the largest settlement in history, surpassing deals with both JPMorgan Chase ($13 billion) and Citigroup ($7 billion). No criminal charges have been filed.

Critics of the deal argue that the large dollar amounts are misleading, especially since most of the settlement amount is not cash payments. Banks receive credit toward the settlement for modifying a consumer’s mortgage. The bank also can donate properties for redevelopment in communities and write new loans for creditworthy individuals who may have been shut out of the mortgage market.

Industry analyst note that the B of A deal is one of the last of the financial crisis. CEO Brian Moynihan agreed, saying, “We believe this settlement, which resolves significant remaining mortgage-related exposures, is in the best interests of our shareholders, and allows us to continue to focus on the future.”

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National and State News
S&P/Experian: Auto Defaults Stay Flat in July
SubPrime Auto Finance News (08/20/14)

The latest S&P/Experian Consumer Credit Default Indices data showed that auto defaults stayed flat. The July auto default rate came of 0.96 percent remained unchanged from June and came down from 1.03 percent a year prior. The July rate was only four basis points above its historical low. The national composite rate, which is a comprehensive measure of changes in consumer credit defaults, dropped one basis point from last month to 1.01 percent, remaining at its lowest level over more than 10 years of historical data.

The first mortgage default rate dropped to 0.88 percent, continuing a streak of nine consecutive months of declines. The bank card default rate also declined 16 basis points to 2.86 percent in July. “At just above 1 percent, default rates remain at historical lows. Mortgage default rates have been trending down while auto and bank card are a bit higher than their historical lows set in April and March,” said David Blitzer, managing director and chairman of the index committee for S&P Dow Jones Indices.

The jointly developed S&P/Experian Consumer Credit Default Indices are published monthly to accurately track the default experience of consumer balances in auto, bankcard, first mortgage lien and second mortgage lien. The indices are calculated based on data extracted from Experian’s consumer credit database, which covers approximately $11 trillion in outstanding loans sourced from 11,500 lenders.

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Subprime Auto Loan Growth Is 'Less Pronounced' in Context, Fed Analysts Say
Automotive News (08/20/14) Henry, Jim

Subprime auto loans are growing because that segment experienced the biggest decline during the economic downturn, according to four analysts from the Federal Reserve Bank of New York. The economists’ analysis “Looking under the Hood of the Subprime Auto Lending Market” was released the same day as the New York Fed’s Quarterly Report on Household Debt and Credit for the second quarter of 2014. “Since the trough” in the fourth quarter of 2009, “balances have risen across the board,” the group stated, “but the growth has been most pronounced among the riskier groups, which also experienced the most severe contraction during the credit crunch of 2007-09.”

According to the New York Fed’s report, total auto loan and lease originations in the second quarter were the highest in eight years at $93.1 billion, an almost-8 percent increase from the year-earlier period. In the same period, total auto loan and lease balances outstanding also increased to $905 billion, a 10 percent increase from a year ago. Subprime originations increased 7.9 percent year-over-year to $20.6 billion. That increase was just above the average growth for all auto originations, which rose 7.6 percent to $93.1 billion.

The four New York Fed analysts concluded that putting the increase in subprime auto lending in context with the overall rise in auto lending makes it “less pronounced.”

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New AFSA Member Welcome

AFSA welcomes five new Active Members: Marion Credit Company, National Finance Company, United Auto Credit Corporation, Westlake Financial Services and Whitebridge Financial, LLC., and four new Business Partners:BSC America, MicroBilt Corporation, The Private Bank, and Richard B. Maner P.C.

Founded in 1973, Marion Credit Company is a consumer finance company providing small loans and tax filing services with three offices in North Carolina. www.marioncredit.com
National Finance Company is a consumer finance company providing secured and unsecured personal loans since 1963, with 23 offices in North Carolina. www.nfcmoney.com
Established in 1996, United Auto Credit provides indirect auto financing in 49 states with headquarters in Southern California, and offices in Arizona, New York, Tennessee, and Texas. www.unitedautocredit.net
Westlake Financial Services is a technology-based, privately held finance company that specializes in the acquisition and servicing of prime to subprime automotive retail installment contracts. Headquartered in Southern California, Westlake funds contracts through a network of over 18,000 new and used car dealerships throughout the United States. www.westlakefinancial.com
Whitebridge Financial is an Ohio-based consumer finance company that specializes in providing competitive consumer finance programs that reach a wide spectrum of credit profiles, ranging from super prime to subprime. www.whitebridgefinancial.com
BSC America provides comprehensive asset management, sales and auctions. Chief lines of business include vehicle remarketing services, auto auctions, and floor plans. www.bscamerica.com
MicroBilt Corporation offers small business owners simple, cost-effective solutions for fraud prevention, consumer financing, debt collection, and background screening. MicroBilt also provides alternative credit data to businesses. www.microbilt.com
The Private Bank delivers banking solutions with 33 offices primarily in the Midwest serving the greater Atlanta, Chicago, Cleveland, Denver, Des Moines, Detroit, Grand Rapids, Kansas City, Milwaukee, Minneapolis and St. Louis metropolitan areas. www.theprivatebank.com

Richard B. Maner P.C. is a full service creditor’s rights law firm serving the mortgage banking industry for more than 21 years, specializing in foreclosure, bankruptcy, dispossessory, and settlement transactions.

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August 21, 2014

GoldPoint Systems
Life of the South
PassTime USA
Counselor Library
Allied Solutions
Northridge Software
Wells Fargo Preferred Capital
Carleton, Inc.
Black Book
ParaData Financial
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 newsbriefs@afsamail.org 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.