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AFSA Supports End Operation Choke Point Act

U.S. Rep. Blaine Luetkemeyer (R-MO) introduced H.R. 4986, the “End Operation Choke Point Act” on June 26. A few weeks later, on July 15, the House Financial Services Committee held two hearings on Operation Choke Point. The first explored the problems associated with the government’s use of banks as instruments against legal businesses that regulators find objectionable. The second was a legislative hearing to consider Rep. Luetkemeyer’s bill, which received favorable bipartisan consideration.

On July 24, AFSA submitted a letter of support to Luetkemeyer, stating, “We applaud your efforts to provide a safe harbor for banks and credit unions legally providing legitimate businesses with access to critical financial services as well as a vehicle to end what is a dangerous and unprecedented use of bureaucratic authority.” The letter draws attention to the fact that traditional installment loans have become collateral damage of Choke Point, noting that AFSA members offer “the safest, most responsible, affordable and time-tested form of small-dollar credit available to Americans.”

Operation Choke Point is a controversial program spearheaded by the U.S. Department of Justice (DOJ) that aims to combat mass-market fraud, in particular in online lending, by cutting off access to payment systems. More than 80 banks have cut ties with payday lenders due to “coercive regulatory pressure,” according to a suit brought by the payday industry. Choke Point threatens banks with prolonged examination processes and punitive measures. A few banks have begun to reconsider their relationships with installment lenders, forcing some AFSA members to establish new banking arrangements to meet their business needs.

The House of Representatives has already approved language put forward by Rep. Luetkemeyer to prohibit DOJ from using taxpayer funds to carry out Choke Point. The Luetkemeyer amendment was adopted on a voice vote and included in H.R. 4660, the FY 2015 Commerce-Justice-Science Appropriations bill, which passed 321-87 on May 30.

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AFSA SGA Publishes Debt Collection White Paper

On July 18, AFSA’s State Government Affairs Committee published a white paper  on debt collection and the various ways state legislation and regulations are approaching these practices. The paper highlights how states are applying laws that have traditionally focused on third-party debt collectors to creditors, including recent efforts requiring creditors to comply with debt validation notice requirements. It also covers state legislative developments that impose restrictions on communications with debtors and time-barred debt collection.

The paper also reviews various debt collection complaints and forthcoming rules from the Consumer Financial Protection Bureau (CFPB). The paper emphasizes the importance of protecting consumers from abusive and deceptive debt collection practices. It also makes clear that lawmakers must take into account the root causes of alleged problems with debt collection laws, such as understanding the costs and benefits of the laws as well as the potential reduction in access to credit if laws intended for third-party debt collectors are applied to creditors, which have entirely different business models and incentives.

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Inside the Beltway
Barney Frank Rejoins the Fray in Defense of Reform Law
American Banker (07/23/14) Finkle, Victoria

Former Congressman Barney Frank (D-MA) returned to testify before the House Financial Services Committee on July 23, on the fourth anniversary of the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act. He was clearly supportive of the landmark legislation that he was instrumental in passing, but was also critical of the way in which many regulators are interpreting the bill, as well as the stance Sen. Elizabeth Warren (D-MA) has taken toward separating banking and other activities.

The biggest concern Frank highlighted was regulators’ efforts to align the qualified mortgage and qualified residential mortgage rules, which he disagrees with. "I believe this is a grave error, and contrary to the assertion that it would best carry out the statutory intent, significantly repudiates it," Frank said.

Frank also took aim at Sen. Warren’s proposal to reinstate Glass-Steagall, which separates commercial and investment banking activities. "I think the things I talked about as the problem were the invention of financial derivatives without backing, credit default swaps, insurance not being regulated like it should be regulated [and] securitization of mortgages. Glass-Steagall wouldn't have stopped any of that," Frank said.

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CFPB Expands Complaint Portal to Prepaid Cards, Debt Settlement, Pawn Loans
PoliticoPRO (07/21/14) Davidson, Kate

On July 21, the Consumer Financial Protection Bureau (CFPB) announced that it will begin accepting complaints on prepaid cards, debt settlement services, credit repair services and pawn/title loans. In addition, the CFPB intends to propose a rule outlining general protections for prepaid cards in the coming months.

“Today we are taking another important step to expand the Bureau's handling of consumer complaints,” said CFPB Director Richard Cordray. “By accepting consumer complaints about prepaid products and certain other services we will be giving people a greater voice in these markets and a place to turn to when they encounter problems.”

The bureau frequently uses the complaints it receives to guide its regulatory and enforcement process.

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CFPB, FTC File Nine Lawsuits against Deceptive Foreclosure Firms
CFPB, FTC File Nine Lawsuits against Deceptive Foreclosure Firms (07/23/14) Swanson, Brena

The Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC), along with 15 states, are filing multiple lawsuits against several companies and individuals that offered foreclosure prevention services that the plaintiffs claim were false. The complaints contend that the companies collected illegal advance fees. The nine-lawsuit sweep is an attempt by the states and the federal agencies to win compensation for victims.

The companies and individuals are charged with violating Regulation O, which makes it illegal for mortgage assistance relief providers to request payment from a consumer before a mortgage modification has been made with the lender. Some of the defendants also are charged with violating the deceptive practices portion of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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National and State News
New Home Sales Tumble in June at Fastest Rate in Nearly a Year
Reuters (07/24/14)

New home sales fell by 8.1 percent since July 2013, according to the Commerce Department. The seasonally adjusted rate stands at 406,000 units. May’s sales were revised downward to 442,000 units from 504,000. Economists attribute an increase in mortgage rates and a shortage of properties for sale. Analysts note that the housing sector continues to rebound, but likely will continue to lag the economy for the foreseeable future.

The inventory of new houses on the market increased to 197,000 units, marking the highest level since October 2010. If the houses sell at June's pace, it would take 5.8 months to clear the existing supply of houses on the market.

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Cash America International Ready to Exit the Payday Loan Business
Dallas Morning News (07/21/14) Schnurman, Mitchell

In recent years, Cash America has expanded its business from pawn shop lending to payday loans, made online and in foreign countries, and car title loans. According to the company, payday loans generate five percent of its revenue, down from a high of nearly 20 percent. As regulatory pressure grows, Cash America is seeking to head back to its roots, seeking to spin off its consumer loan origination and move back into pawn shops.

Payday loans, sold as a short-term fix, often trap consumers in a cycle of debt. An average Texas payday loan for $300 costs more than $701 in fees and interest. Cash America and another Texas-area payday company, Ace Cash Express, already have been slapped with an enforcement action by the Consumer Financial Protection Bureau (CFPB). New payday rules are just around the corner from the federal watchdog. British payday lenders are feeling the pinch as well. The country has completely reformed its payday industry and will soon institute a rate cap. The Financial Conduct Authority, which regulates the businesses, estimates that as many as one third of the payday companies in the United Kingdom did not register to operate under the new regulatory structure.

Cash America’s spinoff, called Enova International, generates just over half of its revenue from UK consumers. It tried to make the spinoff of the unpopular products before, back in 2012, but market interest was weak. A split seems more likely this time. Separating from Enova will lift some of the stigma that has developed over Cash America regarding payday loans as it attempts to swing its business back into the pawn shop market. Enova also has made adjustments. In the first quarter 2014, the company’s share of payday and installment lines of credit were about even, whereas payday loans made up 93 percent of Enova’s business five years ago.

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Texas Targets Retailers Charging Debit-Card Fees
American Banker (07/23/14) Wack, Kevin

The Texas Department of Banking took action on July 23 against 14 merchants that it alleges were charging debit card fees to customers, violating a ten-month old state law that prohibits them. The retailers, according to the complaint, were operating under erroneous information from the processor, which was not named.

The businesses that charged the fee all appear to be small hospitality establishments and were ordered to offer refunds to customers who could prove they paid it. The 2010 federal law that caps fees banks can charge merchants did not cap fees for smaller financial institutions – those with less than $10 billion in assets.

Merchants are bound by the card network rules, which say that merchants cannot charge surcharges to attempt to recoup the fees. As part of a settlement last year, Visa and MasterCard both agreed to stop prohibiting such fees. However, more than ten states have bans on surcharges.

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July 24, 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 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.