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Cordray Defends Rulemaking Delays to Senate Panel
American Banker (06/10/14) Witkowski, Rachel

Although the Consumer Financial Protection Bureau (CFPB) is taking longer than expected to issue rules on prepaid cards, payday loans, and student loans, the agency’s director, Richard Cordray, told lawmakers at a Senate Banking Committee hearing that the CFPB would address many of those areas within the year.

Cordray said that the CFPB will miss its own tentative schedule to issue a rulemaking on prepaid cards in June, but is hoping to do so by the end of the summer. The area remains a “very high priority” for the bureau. Cordray said he expects the bureau will issue its final report on arbitration clauses this year, after which they would make a decision on potential rulemaking.

Some senators raised concerns about how and when the CFPB will move to regulate the short-term, small-dollar market, and urged Cordray to cover auto title loans and online lending in its payday lending rule. Cordray said the CFPB was working with the Department of Defense (DoD), which capped the interest rate payday lenders could charge military personnel and their families. Cordray called the DoD rule too narrow.
Sen. Mike Crapo (R-ID), the ranking member on the committee, advised Cordray to conduct a thorough cost-benefit analysis on each of its pending rules to avoid unintentionally pushing consumers into unregulated financial companies. "As the CFPB proceeds with rules targeting short-term and small-dollar credit, overdraft protection, auto financing, mortgage servicing and settlement, and arbitration, it must fully understand how these rules will affect the cost and availability of credit for consumers," Crapo said.

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AFSA Joins Amicus Challenging HUDís Use of Disparate Impact

AFSA joined other trades in an amicus brief supporting a challenge to the Housing and Urban Development’s (HUD) rule on disparate impact under the Fair Housing Act (FHA). The brief stated that the associations and their members vigorously support the FHA and strongly oppose discrimination. In the brief, the associations expressed “serious concerns that recognition of a disparate impact theory of liability under the Fair Housing Act, as asserted by … [HUD] in the Rule at issue would allow challenges to legitimate business practices that themselves raise no inference of unlawful discrimination.”
The case, Property Casualty Insurers Association of America v. HUD, is before the U.S. District Court for the Northern District of Illinois Eastern Division. PCIAA v. HUD is similar to another insurance industry challenge to the HUD rule in front of the U.S. District Court for the District of Columbia in which AFSA and other trades also participated as an amicus.
The motion for leave to file the amicus brief is pending before the court.

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AFSA Attends CFSI Conference

The tenth annual Center for Financial Services Innovation (CFSI) conference, Emerge, brought together innovators, technology experts, regulators and academics, and included sessions on borrowing, spending, saving and investing, and consumer voices. The conference has evolved from focusing on the underbanked to promoting financial inclusion.

Keynote speaker Dan Schulman of American Express discussed innovation in the company’s prepaid card offerings and highlighted a documentary, Spent: Looking for Change, that follows several financially underserved Americans.Schulman declared, “The answer is not banking the unbanked. It’s reimagining the possibilities.” Prof. Lisa Servon of The New School shared insights from her experiences working at a check casher and a payday lender’s call center.
Small-dollar loans were a hot topic at the conference, with sessions on finding common ground, meeting consumers’ need for high-quality small dollar credit, and discussing public policy challenges. CFSI’s Compass Principles were discussed at length.
AFSA staff and several member company executives attended the conference, held June 4-6 in Los Angeles. Staff participated in the preconference FinX: Consumer Financial Field Experience by performing transactions at alternative financial services providers. 

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AFSA, MBA Point out Flaws in Appraisal Management Companies Proposed Rule

AFSA and the Mortgage Bankers Association (MBA) sent a joint letter to the federal financial services regulators on a proposed rule that would establish minimum requirements for appraisal management companies (AMCs). AMCs perform a key function in the mortgage process by facilitating appraiser independence to ensure the quality of the appraisals. To this end, AMCs arrange and supervise the performance of qualified appraisers, insulating them from undue pressure. Mortgage lenders rely on AMCs for these purposes. 

While the proposed rule requires new standards for AMCs, which the associations support, the letter expressed concerns that the rule may unwittingly impede the operations of many AMCs. The rule establishes new standards, but it does not require states to adopt them. It also does not establish an alternative regulatory structure for AMC registration and supervision in states where the requirements are not adopted. Consequently, AMCs not owned and controlled by an insured depository (non-federally regulated AMCs) could be prevented from providing appraisal management services for federally-related transactions in states where such regulatory structures are not adopted. Unless the proposed rule is revised to allow AMCs to operate nationally, it will harm consumers and unduly increase their costs.

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SGA Committee Publishes White Paper on Consumer Complaints

On June 9, AFSA’s State Government Affairs Committee published its white paper on consumer complaints. The paper details the varying ways that state regulatory bodies and federal agencies collect, report and use consumer complaint information to inform their rulemaking activities. The paper takes a statistical look at complaints collected by the Federal Trade Commission (FTC) and includes a narrative discussion of the way the Consumer Financial Protection Bureau (CFPB) collects and uses complaint data. The paper also outlines activities in the consumer complaint reporting space  of several state regulatory bodies – from the office of attorney general to department of financial services – specifically looking at annual “top 10” lists released by state agencies.

The Consumer Complaints white paper is available on the SGA Resources section of the AFSA website.

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Inside the Beltway
Loosened Mortgage Rule Advances after SEC Drops Objection
The Wall Street Journal (06/10/14) Zibel, Alan and Ackerman, Andrew

A major concession by the Securities and Exchange Commission will allow the Qualified Mortgage Rule (QRM) to move forward. SEC Chair Mary Jo White has repeatedly expressed concerns with adopting a rule without a down payment requirement. Now White reportedly agreed to adopt the rule without a down payment requirement in exchange for including a provision to reevaluate the rule two years after its effective date and every subsequent five years.
The SEC is writing the QRM rule in conjunction with five other federal agencies. White faced pressure from officials at the other agencies, who argued that a significant down-payment requirement could harm the struggling housing market. Since issuing the first QRM proposal more than three years ago, regulators have been struggling to determine what makes a loan high quality and therefore exempt from the five percent risk-retention requirement. 
The revised approach, which is expected to be finalized in the next few months, would not require a down payment and would include a broad exemption for issuers of mortgage-backed securities from retaining a portion of the credit risk.


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National and State News
President Obama Expands Student Loan Repayment Break
Politico (06/09/14) Grasgreen, Allie

On June 9, President Barack Obama signed an executive order expanding eligibility for the administration’s Pay as You Earn program, which caps monthly student loan repayments at 10 percent of a borrower’s income and forgives any unpaid debt after 20 years. The program is expected to take effect by December 2015. The administration estimates the program would assist up to 5 million additional borrowers. The program’s cost is unclear; it will be determined in the regulatory process.
Obama said that Congress needs to make longer term changes to student debt and higher education costs. In the meantime, he took the action on his own because “a generation of young people can’t wait for Congress.”
Republicans have criticized recent measures for failing to help current students and ignoring the causes for the rising costs of college. “Today’s much-hyped loophole closure does nothing to reduce the cost of pursuing a higher education, or improve access to federal student loans,” said House Speaker John Boehner.
Obama announced two related initiatives to help vulnerable borrowers at risk of default. First, the Education Department will renegotiate contracts with federal loan servicers to bolster financial incentives for repayment support and lower payments for servicers when loans become delinquent or default. In addition, the Education and Treasury departments will launch a pilot program to assess the effectiveness of loan counseling resources offered by colleges and the government and test how to reach borrowers with a high risk of default.
Rep. Tom Petri (R-WI), who serves on the House Education & the Workforce Committee, criticized the executive order for not making the system any clearer. “I’m always hearing from students who need affordable payments, but don’t take advantage of these options because the system is too confusing and bureaucratic,” he said.

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What I Learned While Pretending to Be Unbanked
American Banker (06/05/14) Wack, Kevin

The three-day conference Emerge: The Forum on Consumer Financial Services Innovation featured an exercise where a handful of attendees were tasked with buying a prepaid card, purchasing a money order, cashing checks and conducting other non-traditional financial transactions. American Banker reporter Kevin Wack provided a first-hand account of his experience.
Wack noted that each transaction took longer than he would have thought, and fees quickly added up. “Some of what I saw surprised me, even though I frequently write about financial services for the unbanked,” he stated. Among the challenges he observed were problems with automating services such as check cashing and needing to provide a wealth of personal information before conducting fairly simple transactions. “In the end, the distance between the actual customers of these stores and gawking interlopers like me seemed vast,” Wack wrote.

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June 12, 2014

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AFSA Newsbriefs

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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.