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Auto Industry Contribution to US GDP Is Way up from 2011, when Fears of Double-Dip Recession Made Consumers Wary
International Business Times (07/30/14) Young, Angelo

July 30 economic numbers from the Department of Commerce reveal the large impact the vehicle industry has had on the overall U.S. economic recovery. When compared with the second quarter of 2011, new and used motor vehicles and auto parts have raised the economy by nearly one percent. In the second quarter of this year, the American automotive market provided 0.42 percent of annualized growth to the overall economy. Record low lending rates have helped spur the American auto market as well as the economy as a whole. The total sum of loans has risen to nearly $902 billion, representing a 29 percent leap from three years ago, when the nation barely avoided a double dip recession.

Some have wondered whether the rise in auto lending foretells a vehicle lending bubble as occurred in the housing sector in 2007. Private equity firms have begun offering significant capital to lend to subprime borrowers in the auto space at higher interest rates. American Financial Services Association president and CEO Chris Stinebert rejects the idea that a bubble is forming. “An increase in subprime loans means that more working-class Americans have transportation when that could be the difference between having a job or not,” Stinebert wrote in response to a New York Times article attacking subprime auto loans.

Whether subprime loans are good or not, Federal Reserve data back up Stinebert’s claim; delinquencies of 90 days or more have declined by more than a third since 2011 and auto lending sales are set to increase by at least ten percent year over year in 2014.

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Privilege Bill Passes Important Hurdle

On July 29, the U.S. House of Representatives passed H.R. 5062, the “Examination and Supervisory Privilege Parity Act,” by a voice vote with broad bipartisan support. The bill was sponsored Reps. Ed Perlmutter (D-CO) and Andy Barr (R-KY), who are both members of the Financial Services Committee. This issue has been a long-time legislative priority for AFSA.

The bill would amend the Dodd-Frank Act to ensure that privilege is maintained when nonpublic, proprietary information is disclosed to federal and state financial regulators by non-depository consumer credit companies.

In 15 states, nonbank consumer finance companies are regulated by some agency other than the state bank supervisor. Because these companies do not fall under the jurisdiction of a state bank commissioner, they are denied the confidence of the express legal protections found in the Federal Deposit Insurance Act when disclosing privileged materials to their regulators.

The bill would close this gap to extend equal protections to non-depositories when disclosing privileged materials to their regulators. It also seeks to minimize regulatory burden by ensuring that federal and state financial regulators coordinate their respective examinations.

AFSA is working with Senate staff to promptly enact a companion bill.

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AFSA/UNC Program Cultivates Future Leaders

Thirty-five aspiring leaders from 13 AFSA member companies learned valuable business skills at the 2014 AFSA/UNC Leadership Development Program, which was held July 16-22 at the University of North Carolina in Chapel Hill. With challenging case studies and lively discussions, role-playing and team-building exercises, the participants had the opportunity to hone their leadership, strategic thinking and performance skills and think outside the box. This fast-paced program allowed the participants to immerse themselves in innovative principles of management and leadership through class discussions, case analyses, professional presentations, negotiations, experience change simulation and the outdoor team-building exercise. The participants also had an opportunity to network with new acquaintances.

George Walker, with Mariner Finance , LLC, was elected class representative by his peers. At the closing ceremonies, George summed up the week’s activities and their impact.

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Inside the Beltway
How FDIC's Withdrawal of 'Hit List' Affects Operation Choke Point
American Banker (07/28/14) Blackwell, Rob

On July 28, the Federal Deposit Insurance Corporation (FDIC) abruptly withdrew its list of high-risk merchants to assist banks in identifying businesses that may require additional scrutiny. The FDIC said the list was misunderstood as evidenced by banks and others perceiving it as a blanket ban.

The FDIC is attempting to remove itself from the front lines of the transaction processing fight, particularly in light of Operation Choke Point and the outcry it has received. House Oversight Committee Chairman Rep. Darrell Issa (R-CA) said in a June 9 letter to the FDIC that its guidance on “high-risk” businesses effectively transforms it “into an implicit threat of federal investigation.” The FDIC is hoping to distance itself entirely by dropping the list. Industry analysts note, however, that since the list has been in circulation among FDIC regulators and enforcement examiners for nearly three years, they will not be so quick to drop its precepts.

The Consumer Financial Protection Bureau (CFPB) is watching closely as the FDIC and Department of Justice come under fire. The bureau is set to release its long-overdue payday rules and is eyeing several other rulemakings that could prove troublesome for the agency.

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Rapid Buildup of CFPB Led to Employee Allegations of Bias: Cordray
American Banker (07/30/14) Witkowski, Racel

In an effort to meet mandates required of it following the Dodd-Frank Wall Street Reform and Consumer Protection Act, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray told Congress that agency culture was overlooked. Cordray’s remarks came in his first appearance exclusively regarding racial disparities at the bureau. "Because of the speed with which we tried to build this new agency, we have found that we did not get everything right for our own employees. One especially sore spot was the system for reviewing and assessing the performance of CFPB employees," Cordray said in testimony before the House Financial Services' subcommittee on oversight and investigations.

Since the discovery of the disparity in March by the American Banker, the bureau has scrapped its evaluation system and remediated $5 million to affected employees. During his testimony, Cordray noted that the agency is conducting listening sessions with its Office of Minority and Women Inclusion, transitioning to a new two-tier evaluation system and taking several other steps in conjunction with the employee’s union.

But Republican lawmakers called the steps taken so far insufficient. "Changing employee ratings, topping off pay, hiring consultants, and holding listening sessions around the office does nothing to hold your managers accountable, and so they are wholly inadequate," said Rep. Patrick McHenry (R-NC).

McHenry added that the Government Accountability Office has agreed to investigate the bureau’s personnel management and organizational structure based on a request he made with House Financial Services Chairman Jeb Hensarling (R-TX) and Rep. Shelley Moore Capito (R-WV).

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National and State News
Checking in from Home Leaves Entry for Hackers
New York Times (07/31/14) Perlroth, Nicole

In a new report, the Department of Homeland Security (DHS) warns that remote access programs – the same ones used nationwide by employees to work from home – can easily be exploited by hackers to gain access to login credentials. Once inside a system, hackers can gain access to a multitude of information, from proprietary documents to consumers’ banking information stored on a company’s servers.

The new report provides insight into what retailers – and other companies – are facing as they wage battle with hackers who are increasingly gaining access to systems without being detected. The report also is intended to remind retailers and companies that the typical network, even at the enterprise level, is generally just a bundle of connected computers as opposed to a bristling fortress. In short, everyone is vulnerable and steps must be taken to safeguard both company and consumer information.

Hackers look for vulnerabilities within remote access software used by retail employees. Once inside the network, hackers deploy malicious software called Backoff that is designed to steal payment card data from in-store registers each time the information passes through servers. The numbers are then sold on the black market. Generally, hackers target software gaps in systems that are, by their very nature, trusted by the retailer. In the Target breach last year, hackers targeted the heating and cooling systems of the retail giant. The malware program also logs keystrokes, PIN data and address information, if it is entered, and reports it back to hackers.

The report recommends that companies should limit the number of people who have access to certain systems and incorporate longer, harder-to-crack passwords in their daily operation. Additionally, systems should be segregated – payment systems should, at no time, be able to communicate directly with other security systems or building operation systems at the store or corporate level. The report recommended that retailers and financial institutions should work together to ensure consumers’ information is protected.

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Dahlheim Named CEO of VW Credit
Automotive News (07/30/14) Henry, Jim

Christian Dahlheim was named CEO of captive finance company VW Credit Inc. on July 30. Dalheim has been serving as the interim CEO. The company was previously led by Andrew Stewart, who left on July 15 to become head of U.S. operations at TD Auto Finance. VW Credit provides financing for Volkswagen and Audi, as well as Ducati Motorcycles. It also offers floor plan lending. Dahlheim previously served as executive vice president & chief financial officer for VW Credit, Inc. and regional manager, Europe and International, for Volkswagen Financial Services AG. He has been with the company since 2005.

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July 31, 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.