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Massachusetts Sues Fannie, Freddie over Foreclosure Policy
Yahoo Finance/Reuters (06/02/14)

On June 2, Massachusetts filed a lawsuit against Fannie Mae and Freddie Mac alleging that they violated state law by blocking foreclosure buyback programs. The programs, which are intended to help residents, allow a non-profit organization to buy the foreclosed property from the homeowner, then resell it to the original owner at an agreed upon, affordable price. Massachusetts argues in their brief that the mortgage giants, as well as the Federal Housing Finance Agency (FHFA) also named in the suit, have violated a 2012 state law that prohibits creditors from blocking similar plans. The lawsuit alleges that the FHFA, as well as Fannie and Freddie have policies in place that prohibit such programs.

Massachusetts Attorney General Martha Coakley said that she approached the mortgage companies about the program on several occasions to attempt to remedy the situation without a lawsuit, but was unable to reach a resolution.

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AFSA Supports Amendment Limiting DoJ Use of Disparate Impact

AFSA and several financial services trade associations sent a letter asking all members of the House of Representatives to support Rep. Scott Garrett’s (R-NJ) disparate impact amendment to H.R. 4660, the Commerce, Justice, Science, and Related Agencies Appropriations Act for Fiscal Year 2015. The amendment would prohibit any funds made available by the act from being used for litigation in which the Department of Justice (DOJ) seeks to prove illegal discrimination based on the disparate impact theory. The amendment passed the House 216-190 on a nearly party-line vote.

The letter emphasized that all of the organizations and their member companies view illegal discrimination in housing and lending as morally, ethically, and legally abhorrent and do not tolerate it in any size, shape or form. The letter went on to state, “Under the disparate impact theory, even when a lender takes every step to prevent discrimination and treats all consumers fairly and equally, a neutral policy can serve as a basis for very serious and harmful claims in the absence of intentional discrimination. Smaller lenders, in particular, will find it difficult to manage this type of litigation risk. Left unchecked, disparate impact enforcement could increase the cost and undermine the availability of credit throughout the economy.”

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Inside the Beltway
CFPB Faces Hard Choice on Regulating Auto Title Loans
American Banker (05/29/14) Wack, Kevin

In late May, the Consumer Financial Protection Bureau (CFPB) quietly delayed its forthcoming rule governing payday loans, which it had expected to begin drafting in March 2014. The delay was forced by questions surrounding whether the bureau should expand those regulations to cover other types of loans that do not rely on a borrower’s paycheck for repayment, such as auto title loans. Consumer advocates have charged that the loans are equally as destructive as payday loans, but the bureau, which claims that it makes its rulemakings based on data, has yet to release any studies on the effects of auto title lending. Analysts note that the lack of a paper trail could backfire on the bureau.

Auto title loans are not underwritten and not based on a borrower’s ability to repay, but instead are based purely on the value of the borrower’s vehicle as collateral. Loan sizes average around $1,000 and interest can be as high as 300 percent annually. Congressional Democrats recently urged CFPB Director Richard Cordray to take a closer look an auto title loans in a letter sent to the bureau. Consumer advocates, in turn, have stepped up pressure on Congress to act.

Bureau officials have not spoken much publicly about title loans, but have noted that they draw a comparison between the loans and their payday counterpart. Additionally, the bureau has stated that its regulations need to be uniform, so as not to pump up another product when closing down another. During a 2013 Senate hearing, David Silberman, an associate director at the CFPB, said, "A competitive, fair marketplace can't work if not everyone is governed by the same set of rules. So we would attempt to look holistically at all products to make sure we're not squeezing air out of one part of the balloon to another."

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Civil Rights Commissioner Wants Answers from CFPB on Discrimination Charges
Washington Examiner (06/03/14) Pollock, Richard

Commissioner Peter Kirsanow of the US Commission on Civil Rights wrote to Consumer Financial Protection Bureau (CFPB) General Counsel Meredith Fuchs on June 3 that he is concerned that "employees of the bureau are engaged in systematic discrimination against women and minorities." The discrimination claims are currently under investigation by a House Financial Services subcommittee as well. Kirsanow requested internal reports in discrimination as we as an itemized list of Equal Employment Opportunity complaints from the bureau.

His letter to Fuchs highlighted the testimony by Misty Raucci, a private investigator hired by the CFPB to investigate the claims, on April 2 noting that her testimony backed up that of Angela Martin. Martin works as an attorney at the bureau and claimed that she was discriminated against and when she filed a complaint, faced retaliation for doing so. The US Commission on Civil Rights is an eight member commission which currently has four Democrats, one independent, two vacancies and Kirsanow, the only Republican.

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National and State News
Audit Finds Los Angeles Foreclosure Registry 'Never Operated Effectively'
89.3 KPCC (06/03/14) Bergman, Ben

According to an audit released on June 3, the city of Los Angeles’ nearly four year old foreclosure registry program was severely flawed and “never operated effectively.” City Controller Ron Galperin announced his findings, noting that the plan was implemented too late to achieve its goal of reducing blight in neighborhoods during the financial crisis.

According to the report, the city failed to collect fees and fines which were meant to abate property management issues. Additionally, the controller found that the program required lenders to register too early in the process, before they could legally enter or occupy the property, meaning that they were unable to effect maintenance on it. Finally, the registry itself was flawed at its foundation, meaning applications went entirely unfiled and fees went uncollected.

Galperin recommended replacing the entire system with a geo-coded map of all properties in all stages of the foreclosure process, including those which have been identified as a nuisance. Additionally, the report notes that fees should be collected and information is appropriately disseminated to responsible parties, something that he claims was impossible under the old system.

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Retailers Want to Take Swipe Fee Case to Supreme Court
PoliticoPRO (06/02/14) Davidson, Kate

Retailers will seek a ruling from the Supreme Court on the Federal Reserve rule capping debit card swipe fees, several retail groups announced on June 2 as they requested a one-month extension to officially petition the court. In July 2013, a federal judge ruled in favor of the merchants, saying that the cap was too high and violated the Durbin amendment of the 2010 Dodd-Frank Act. The D.C. Circuit of Appeals overturned that decision on March 2014 and stated that the Federal Reserve managed writing the rule the best that it could with the language presented.

Many parties are likely to file amicus briefs on the case if it is accepted by the Supreme Court, including retailers, the banking industry and several other sectors of the economy. Analysts note that the fact that the two lower courts were so split on the issue make it more likely that the high court will take up the case.

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Visa Unveils Prepaid Card Standards
PoliticoPRO (06/03/14) Davidson, Kate

In conjunction with the Center for Financial Services Innovation and the Pew Charitable Trusts, Visa announced on June 3 that it will unveil a new set of voluntary standards for prepaid cards that will include enhanced and simplified disclosures, as well as limits on fees. The new program will require all fees to be included in a flat monthly fee and consumers cannot be charged for overdraft or declines. Customers also would not be charged for inactivity, customer service, in-network ATM usage or balance inquiries, as well as a host of other services.

On the disclosure front, Visa announced that fees will now appear in a box on all packaging to make them clearer before purchase. The company also will provide a quick-use guide to educate consumers on how to use each product at the lowest possible cost. Finally, the card will be insured by the Federal Deposit Insurance Corporation or the National Credit Union Association and be covered under Visa’s zero liability policy.

The Consumer Financial Protection Bureau (CFPB) is expected to unveil new rules for prepaid cards in the coming weeks.

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Current Auto Loan Balances Reach New High at $884B
SubPrime Auto Finance News (06/04/14)

A new Equifax National Consumer Credit Trends Report showed that outstanding loan balances on new vehicles have increased to a record high of $884 billion in April of 2014, thanks in part to the increasing price of vehicles at retail. Serious delinquencies represent less than one percent of outstanding balances, representing the lowest level in five years and through February, new credit has totaled $69.6 billion. According to the Equifax report, this marks an eight year high.

According to market data, consumers have opted for small and midsize crossovers as opposed to small and midsize vehicles in April. Average transaction prices dropped slightly as well. The average price for a light vehicle in the United States is $32,307 according to Kelly Blue Book data which is an increase of $365 from the same time period last year.

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June 5, 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.