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Appeals Court Signals Support for Fed in Interchange Suit
American Banker (01/17/14) Borak, Donna

During a hearing before a three judge panel of the US district court of appeals on January 17, the court appeared to take to heart many of the Federal Reserve Board’s arguments regarding its rule capping interchange fees. Retailers filed suit against the rule in 2011 and in July of last year, the court agreed with the retailers that the Fed was too flexible with the fees set and was far higher than what Congress had originally intended when writing the legislation.

During the hearing on the 17th, counsel for the retailers argued that the Dodd-Frank law did not give the Federal Reserve discretion to include costs that were not specifically listed in the law. The judges immediately dismissed the argument and asked counsel to proceed to its next point.

Under the Dodd-Frank law, the Fed was empowered to set a debit interchange limit that is "reasonable and proportional to the cost incurred by the issuer with respect to the transaction." It also instructs the central bank to not include "other costs incurred by an issuer that are not specific to a particular debit transaction." Based on the Fed’s interpretation of the law, it decided to include costs for things like computer software, fraud prevention, and processing fees.

In a July 2013 ruling, Judge Richard Leon found that the caps should be closer to 12 cents per transaction, siding with the merchants.

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Inside the Beltway
Sallie Mae Braces for $70 Million Hit from CFPB, Federal Regulators
InsideARM (01/21/14) Levy, Stephanie

The nation’s largest student loan company announced on January 21 that it is prepared to spend $70 million to settle with the Consumer Financial Protection Bureau (CFPB), the US Department of Justice, and the Federal Deposit Insurance Corp. (FDIC) over allegations that is violated several federal consumer protection laws. The three regulators allege that Sallie Mae, which services student loans for the Department of Education – and will continue to do so under a recent contract renewal – engaged in discriminatory lending practices, overcharged members of the military, and wrongfully processed borrowers’ monthly payments on their student debt.

CFPB is charged with regulating the debt-collection market place and has previously gone after large banks and debt buyers.

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Department of Treasury Plots Tarp Endgame
American Banker (01/21/14) Witkowski, Rachel

Charmian Uy, the Department of the Treasury’s chief investment officer for the Troubled Asset Relief Program (TARP) believes that the program, historically, will ultimately be viewed in a favorably light. Most Americans view TARP as a bailout fund for banks and automakers, but as the TARP program begins to wind down, Uy believes that time will provide key perspective for Americans. Last year saw the last sale of shares in General Motors under the TARP plan and only 86 banks out of the 700 that initially joined are still part of the Capital Purchase Program. In total, the Treasury has brought in just over $433 billion, which is $10.8 billion more than the $422.2 billion that is disbursed to companies. Uy views this as a success.

Critics of the TARP program often point out that the program lost nearly $10 billion in the process of disbursing the money. Uy is quick to note that the purpose of the program was to stabilize the market, save jobs, and ensure that consumers have access to credit. She argues that paying just $10 billion to achieve that goal is worthwhile.

Uy also notes that while the Treasury would like to move judiciously to sell its TARP funds, it is not in a fire sale situation. Uy says that most banks and companies have simply paid back voluntarily – those that have gone to auction have gone exceedingly well too.

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Donít Expand HARP; Treasury Official
PoliticoPRO (01/22/14) Prior, Jon

An Obama administration official this week is quoted as saying that the Home Affordable Refinance Program (HARP), which was launched in 2009 to help struggling borrowers who owe more on their mortgage than their home is worth, should be not expanded. The program applies to loans backed by Fannie Mae and Freddie Mac and allows consumers who qualify to refinance their mortgage into a lower interest rate loan.

Consumer groups have pressured the Federal Housing Finance Agency (FHFA) and its head Mel Watt. A representative from the Department of the Treasury, during remarks given at a conference, said that the department believes no changes or expansions are necessary. The decision ultimately lies with Watt and the FHFA, but industry analysts note that the Treasury position will be given a lot of weight.

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National and State News
Auto Loan Originations Rose in 2013
American Banker (01/22/14) Todd, Sarah

According to a new report released this week by Equifax, lenders originated 20.2 million auto loans between January and October of 2013, representing an 11.6 percent increase from the same period in 2012. The increase translates to more than $405 billion in new loans and makes up 49 percent of all non-mortgage consumer credit.

The report also notes that auto lenders continue to make loans to a larger group of individuals and delinquencies have continued to drop. Additionally, the report shows that 30 percent of auto loan originations are subprime.

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Bitcoin Backers Seek FDIC-Style Insurance
American Banker (01/22/14) Adler, Joe

Industry analysts have identified one of the biggest hurdles to Bitcoin becoming more mainstream—the lack of FDIC-like insurance. Now, entrepreneurs from the Bitcoin market space are beginning to offer consumers protection against the loss of their currency. On January 9, A London-based wallet service company called Elliptic, began offering its customers insurance through Lloyd’s of London. A US-based company called Inscrypto is currently beta testing a method to allow consumers to insure their bitcoins through derivatives trading. Other strategies include devices that allow offline access to bitcoins or protection similar to that given to investment securities.

FDIC-style insurance, industry watchers maintain is likely many years away for Bitcoin and similar products because there is no pathway to regulation as there is for other financial products. Companies aren’t willing to wait, however, for regulation to catch up. Some of the top wallet services in the world have begun to protect consumer’s bitcoins from theft or loss, including safe deposit boxes and offline storage devices – these strategies are known as “cold” storage methods. In addition to these, Elliptic offers consumers traditional insurance that protects consumers if these processes should fail.

Ultimately, industry analysts note, what will drive the development of insurance products for bitcoin is necessity – if consumers are losing bitcoins or having them stolen with great frequency, insurance products will surface.

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Morrissey Makes Case for Payday Lending Reform
Waterloo Cedar Falls Courier (01/21/14) Chrippes, Cristinia

The city council of Waterloo, Iowa is taking up the fight against payday loans that has begun to spread rapidly throughout the state. Councilmember Pat Morrissey, who is leading the charge against what he describes as “predatory lenders,” has joined with Iowa Citizens for Community Improvement (CCI) to meet with Consumer Financial Protection Bureau (CFPB) Director Richard Cordray to press their case to the federal regulator. “It has economic overtones; it has social justice overtones; it has protections for the vulnerable written into it,” Morrissey said. “This is a people-oriented issue."

Both Morrissey and the leader of CCI, Matthew Covington, voiced their optimism after meeting with Cordray. The two note that they will continue to work together to pass local zoning ordinance that restrict where payday lending stores can operate. A state-wide bill concerning payday lenders has also surfaced in the legislature and is expected to garner wide support.

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T-Mobile's 'Mobile Money' Blends Prepaid and no-fee Checking
Endgadget (01/22/14) Lawler, Richard

T-Mobile has launched a service called MobileMoney that fits into its motto of being more than just a phone carrier. The financial product combines a branded prepaid Visa card with a mobile app to allow T-Mobile customers to deposit checks into their MobileMoney accounts. They can also withdraw money from ATMs and reload the cards at T-Mobile stores. Non-T-Mobile customers would pay a small fee to use the services but current customers can use the service with no fees at all. T-Mobile Chief Marketing Officer Mike Sievert argues that a product like MobileMoney could save consumers as much as $1,500 a year in fees.

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Wells, U.S. Bank, Fifth Third, Guaranty Bank Exit Deposit Advance Business
American Banker (01/17/14) Wack, Kevin

Several banks have opted to cease a lending product that was designed to compete with payday loans over pressure from federal regulators. Wells Fargo, US Bank, Fifth Third Bank and Guaranty Bank of Wisconsin will all stop offering deposit advance services to consumers in the next several weeks. Several of the companies noted that the need for responsible, small dollar credit remains necessary.

Regulators alleged that the deposit advance product offered by the banks looked and operated too much like payday loans, carrying high interest rates and requiring full payment within a short period of time. Consumers usually agreed to repay the amount in full from their checking account, linked to the loan. The Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corp. (FDIC) issued guidance in November that required the banks to underwrite the loans based upon a consumer’s ability to repay without rolling the loan over.

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U.S. Existing Home Sales Rise Modestly in December
Reuters (01/23/14) Chadbourn, Margaret

A new report issued by the National Association of Realtors (NAR) noted on January 23, that home resales in the US rose slightly after three straight months in the negative. Sales of previously owned homes gained one percent in December to 4.87 million units. The total sales in 2013 panned out to be the strongest in seven years due to a steady rise in household formation. The median existing home price was $198,000 last month, up 9.9 percent from December of 2012.

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January 23, 2014

Forward To A Colleague

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