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The CFPB's Crowded Agenda for 2014
American Banker (12/31/13) Witkowski, Rachel

The Consumer Financial Protection Bureau (CFPB) has a very crowded agenda for 2014. Financial institutions already face a slew of new regulations to comply with, and the bureau has quite a bit more on its plate this year. New rules regarding qualified mortgages, including the ability to repay rule and the qualified mortgage rule, take effect on Jan. 10. Lenders and industry watchers remain concerned at how these new rules will affect the market and the availability of mortgages. Those within the industry and the agency are expecting a rocky start to the year as both try to contend with the new rules.

With the mortgage rules finalized, the CFPB will begin to focus on other areas. It began doing so in late 2013 when the agency started looking into the practices of online and payday lenders; the bureau will deepen its investigation in 2014. The bureau is also expected to write new rules for debt collection and take enforcement actions against collectors it deems are violating consumer protection laws. The agency is focused on collectors that harass and intimidate consumers. Many in the collection agency welcome the coming regulation to weed out bad actors.

The biggest concern in 2014 will be the impending action by the CFPB over the indirect auto lending market. The agency has been looking closely at how dealers are compensated by lenders that arrange financing for consumers. The bureau has warned that it will use disparate impact to gauge whether lenders are making loans on a discriminatory basis.

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Inside the Beltway
CFPB Could Make Moves on Medical Debt
PoliticoPRO (12/23/13) Davidson, Kate

The Consumer Financial Protection Bureau (CFPB) has begun looking at how it can reign in the medical debt collection market. The Internal Revenue Service is expected to finalize its Affordable Care Act (ACA) rules in the next several weeks, and the CFPB will follow suit with several new rules on how hospitals and medical providers are to treat those who are having issues paying their debts.

State laws govern medical debt collection, but no federal law existed until the ACA was passed. Unlike banks and financial institutions, medical providers have no clear rules for charging off debt or reporting to credit bureaus. The ACA makes a number of changes to how medical debt is collected. Providers must wait a certain period of time before they can submit lack of payment information to credit bureaus. Nonprofit hospitals must make a “reasonable effort” to put patients on payment plans if they are unable to pay full balances. Several other rules that would apply to third-party debt collectors who work for hospitals are pend final approval.

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Consumer Bureau May Speed up Exam Feedback
The Wall Street Journal (12/23/13) The Wall Street Journal

Consumer Financial Protection Bureau (CFPB) deputy director Steve Antonakes said in an interview that the agency is attempting to speed up the reporting of examination results to 120 days. In some cases, the results of examinations took up to 12 months to get back. The bureau uses examinations to let companies know if they are properly complying with consumer protection laws and rules, and failure to comply with exam results and suggestions can result in fines.

Antonakes noted that the agency now has 330 examiners, which will help speed up the process and will allow institutions that get a clean report to go several years without needing a reexamination.

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National and State News
Opinion: Dodd-Frank Unleashes Predatory Mortgage Regulations
American Banker (12/31/13) Katz, Diane

The Consumer Financial Protection Bureau (CFPB) is getting ready to radically change the mortgage market on Jan. 10, 2014, as the ability to repay rule goes into effect. The direct result of this rule – and the many others that lay atop it – will be more costly products, fewer options and the erosion of economic freedom for Americans, according to Diane Katz, a research fellow in regulatory policy at the Heritage Foundation.

Creditors began reconfiguring their business practices months ago in preparation for the new regulations. Financial institutions have hired consultants, compliance staff and lawyers and have invested in costly new training programs and duplicative new forms and web systems or specialists to navigate the nearly 3,500 pages of rules. Worse still, lenders are not immune from prosecution.

The new rule offers some flexibility to lenders on how they deploy these procedures and how they attain the safe harbor offered in the regulation, but the result will undoubtedly be the restriction of credit, Katz maintains. And debt-to-income ratio, a required part of both rules, will bar most young, first-time homebuyers who are saddled with high student loan debt from the mortgage market.

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American Express to Pay $75 Million over Credit-Card Practices
The New York Times (12/24/13) Abrams, Rachel

The Consumer Financial Protection Bureau (CFPB) ordered American Express to pay more than $75 million over “illegal credit card practices.” The CFPB deemed that American Express charged improper fees and misled customers about ancillary products between 2000 and 2012. The bulk of the funds – $59.5 million – will be refunded to more than 335,000 affected consumers. The company also has been assessed a $9.6 million penalty by the bureau, $3.6 million to the Federal Deposit Insurance Corporation and $3 million to the Office of the Comptroller of the Currency. In addition, American Express must hire an independent third party to review the company’s ancillary products.

One of the practices that the CFPB found problematic involved fees and restrictions on the benefit payments of American Express’s “account protector,” which was marketed as a way for customers to wipe out their minimum monthly payment if they became unemployed or disabled. The bureau also said that American Express began charging consumers fees for its identity-fraud protection services before obtaining the necessary authorization to begin monitoring the consumers’ credit records. The bureau found that the company’s “Lost Wallet” product, which was intended to assist customer in Puerto Rico with canceling and replacing lost or stolen credit cards, was not adequately marketed in Spanish, meaning customers were not properly informed of the steps required to take advantage of the product.

American Express said it had taken steps to rectify the problems. “As previously reported, American Express continues to conduct internal reviews designed to identify issues, correct them and ensure that its products and practices meet a high standard of quality,” the company said.

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CarMax to Test Lending to Subprime Customers

CarMax Inc. plans to roll out a pilot project to lend to subprime borrowers. The company’s financing arm, CarMax Auto Finance, originated approximately $3.45 billion in loans during its previous fiscal year, which ended Feb. 28, 2013. In the third quarter, subprime borrowers accounted for about 18 percent of the company's business.

CarMax said it would lend about $70 million through the subprime program over the year. "Customers with challenged credit have become a meaningful part of our overall business ... so we feel like we owe it ourselves to get smarter about this space," CEO Tom Folliard said.

Investors are divided on how CarMax's decision to lend to subprime customers could impact the company. While some are concerned it will make the company too reliant on subprime borrowers to drive sales, others view it as a sound business move. "This is an opportunistic decision to improve finance profitability [and] I continue to believe that the automotive lending market remains healthy and lacks the over exuberance characteristic of the market prerecession," said analyst Jamie Albertine with Stifel Nicolaus.

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January 2, 2014

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