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Cordray Tackles Prepaid Cards, Disparate Impact at Contentious Hearing
American Banker (06/18/14) Witkowski, Rachel

Consumer Financial Protection Bureau (CFPB) Director Richard Cordray faced tough questions from the House Financial Services Committee during a June 18 hearing on the bureau’s semi-annual report Cordray spoke extensively about prepaid cards, an upcoming study on fair lending issues in auto finance, and allegations of employee discrimination at the bureau.

"What people don't understand right now is those [prepaid] cards are not protected by any of the consumer financial protection laws currently," Cordray said. "That's a hole in the fabric. We will be not just doing a report, but we're going to be putting out regulations that will provide new protections for those cards." Cordray highlighted the need for clear, disclosures and clamp downs on overdraft fees.

The bureau’s use of disparate impact theory in indirect auto financing has come under pressure from congressional leaders on both sides of the aisle. Lawmakers have attempted to gather more information on the methodology used to determine discrimination has occurred. Director Cordray announced  that the bureau would be issuing a white paper later this summer on its proxy methodology.

The Financial Services Oversight and Investigations Subcommittee held a hearing on June 18 as well, looking at accusations of retaliation and employee discrimination within the bureau. During the full committee hearing, Cordray took responsibility for the bureau’s internal problems and assured lawmakers improvements would be made.

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AFSA SGA Forum Connects Industry and Regulators

The 16th annual AFSA State Government Affairs & Legal Issues Forum drew large attendance from both industry and regulators. The forum was held in conjunction with the National Association of Consumer Credit Commissioners (NACCA) Annual Meeting in Albuquerque, New Mexico. Sessions covered a wide range of topics, including  the Consumer Financial Protection Bureau’s consumer complaint database, whether a consensus is emerging on what safe, small dollar credit looks like, a conversation with new NMLS Ombudsman Bob Niemi on his role and upcoming system developments, and the always popular session on hot topics.

The forum updates members on key legislative and regulatory issues while providing an opportunity to meet with regulators during joint educational sessions. One of the conference’s goals is to promote greater cooperation and more fluid working relationships between industry and its regulators. Next year’s forum will be held June 3-4 in Atlanta, Georgia.

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AFSA Hires Membership and Meetings Manager

AFSA welcomes Alexa Newell as the association’s Membership and Meetings Manager. Her primary responsibilities will include maintaining the membership database as well as meetings setup and registrations. Alexa has a background in membership and meetings support and has worked with several associations in the Washington, D.C. area. Most recently, Alexa worked at the American Council of Engineering Companies as Education and Publications Coordinator. Members may contact Alexa with any questions concerning membership or meetings at 202-767-7305 or anewell@afsamail.org.

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Joint Trades Ask Supreme Court to Take Another Disparate Impact Case

On June 16, AFSA and several other trade associations submitted an amicus brief asking the U.S. Supreme Court to rule on whether the Fair Housing Act (FHA) goes beyond prohibiting disparate treatment and creates liability for actions performed without any intent to discriminate simply because they may have a disproportionate effect on protected classes. In each of the last two terms, the Supreme Court took up petitions raising the same issue presented in this case, Texas Department of Housing and Community Affairs, et al. v. The Inclusive Communities Project, Inc. The other two cases, Magner v. Gallagher and Township of Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc., were withdrawn prior to oral argument. This current case appears less likely to settle, assuming the court accepts it.

The associations stressed that they are committed to supporting the FHA and strongly oppose disparate treatment of individuals. The brief stated that the court’s guidance is necessary so businesses subject to the FHA “can determine the proper focus for compliance. The petition presents the court with the opportunity to provide such guidance, an opportunity that was denied when the Magner and Mount Holly petitioners withdrew their cases from consideration.”

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Inside the Beltway
Watt Faces Tough Affordable Housing Question
PoliticoPRO (06/16/14) Prior, Jon

Mel Watt, who took over as director of the Federal Housing Finance Agency (FHFA) in January 2014, will soon have to wade into the politically divisive issue of affordable housing, as the current proposal for Fannie Mae and Freddie Mac expires at the end of the year. Watt is expected to announce his goals on the subject by July. The difficult issue will be walking the line between managing the needs of the two entities over the short term and making it easier for low and middle income borrowers to get mortgages, all while ensuring that losses to taxpayers are kept to a minimum.

Sens. Elizabeth Warren (D-MA) and Sherrod Brown (D-OH) elected not to support a bipartisan housing finance bill in part because it eradicated Fannie and Freddie’s affordable housing goals. Republicans, on the other hand, point to the government’s intervention in the marketplace as a leading cause of the financial crisis in the first place. Advocates have argued that Watt is empowered to do more without harming Fannie and Freddie’s financial health.

In its annual strategic plan released earlier in 2014, the FHFA noted that Fannie and Freddie could likely do more to promote affordable housing. Consumer advocates have already begun an aggressive campaign to convince Watt of their position. Former acting director Edward DeMarco, they argue, was too focused on protecting the taxpayer. Previously, the GSEs purchased a number of mortgage bonds from private banks. Now, they will be expected to work closely with state housing agencies and nonprofits, as well as local banks, in order to better serve the community. The arrangement, which would rely on down-payment assistance, special discounts on fees and new programs, would allow more borrowers to get a mortgage, but would keep the risk away from taxpayers.

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Lawmakers Question Cordray on Mortgage Database
PoliticoPRO (06/18/14) Davidson, Kate

During a House Financial Services Committee hearing on June 18, Consumer Financial Protection Bureau Director Richard Cordray downplayed the breadth and depth of the bureau’s collection of mortgage data. . Cordray stated that the agency’s mortgage database does not contain personally identifiable information, which is scrubbed from the data before it ever reaches the bureau. The CFPB plans to collect a five percent sample of mortgage data.

The National Mortgage Database,  which is being developed in conjunction with the Federal Housing Finance Agency, will be developed from “off the shelf” information purchased from  commercial sources, meaning information such as social security numbers, religion and bank account numbers will be attached when the data is purchased. However, the data will be cleaned before it reaches the bureau’s staff. “None of our employees who work with the database will have any of the information available, and we don’t need it,” Cordray said. “That would not be appropriate.”

Members of Congress on both sides of the aisle voiced skepticism over the plan and, specifically, how long the data would be held at the bureau. Rep. Spencer Bachus (R-AL) questioned why the data could not be purchased with the sensitive information already removed. Cordray responded that it was possible, but cost more. Rep. Michael Capuano (D-MA) noted that he does not object to the collection of the data, but would object strongly to its wide availability and questions why the bureau would need to keep the raw data – in this case for up to 20 years - once it completes its analysis. Capuano, a supporter of the agency, voiced distrust of any government agency keeping sensitive data for such a long period of time.

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National and State News
SunTrust to Pay Nearly $1B over Foreclosures, Mortgage Practices
American Banker (06/17/14) Witkowski, Rachel

On June 17, SunTrust Mortgage reached a $968 million settlement with several federal agencies and 49 state attorneys general (AGs) over allegations that the company violated laws governing foreclosures and mortgage origination and servicing. The settlement, reached with the Justice Department, Consumer Financial Protection Bureau and the Department of Housing and Urban Development, in addition to the AGs, resolves claims that arose after SunTrust allegedly robo-signed mortgage documents and illegally foreclosed on consumers.

The settlement requires the company to pay $500 million in relief to struggling borrowers, $418 million to the Justice Department, $40 million in restitution and $10 million in fines to the government. The federal agencies said that they will use a model similar to what was used in the 2012 National Mortgage Settlement in order to determine relief payments to consumers. The $500 million in relief payments primarily will go to reducing principal amounts and lowering interest rates.

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B of A Joins N.Y. Plan for Online Lending Crackdown
American Banker (06/16/14) Wack, Kevin

Bank of America (B of A) agreed to use a database created by the New York Department of Financial Services (DFS) to weed out illegal lenders, becoming the first bank to do so. The database contains more than 50 online lenders that state officials contend are lending illegally into the state. The goal, says DFS, is to shut the lenders out of the financial system, specifically when they seek to automatically withdraw funds from borrower’’ accounts by partnering with banks. The state hopes other banks will follow B of A’s example.

In an agreement with DFS, Bank of America assented to using the database to check whether merchant customers are making illegal loans as well as to alert the lender’s bank when B of A notes that a blacklisted online lender is attempting to make a withdrawal. The bank also will draft a report for DFS on online lenders in the state. The list of firms that are blacklisted by the NY DFS is not yet available.

New York has taken the strongest stance toward alleged illegal online lending, targeting both the companies themselves and the payment systems they use to gather money from consumers. Last August, DFS Superintendent Benjamin Lawsky instructed 117 banks to take steps to stop lenders’ access to the payment system. The latest move continues the state’s proactive streak against illegal online lending and comes as federal officials continue to implement Operation Choke Point, which is intended to keep online payday lenders out of the system entirely.

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Ohio Senator Proposes Crackdown on Payday Following Supreme Court Ruling
Cleveland.com (06/18/14) Pelzer, Jeremy

Ohio Senate Assistant Minority Leader Charleta Tavares (D-Columbus) said that she will introduce legislation to stop payday lenders from offering high-interest, short-term loans, following a ruling by the Ohio Supreme Court that lenders can continue to use a legal loophole to lend in the state, despite a voter-approved cap. The court found, in part, that the loophole’s use could continue because lawmakers did nothing to stop lenders from circumventing the 28 percent fee and interest rate cap, as well as the state’s prohibition on two-week loans.

"The intent of the members of the legislature was to protect consumers from predatory and unreasonable loan practices," Tavares said. "Allowing payday operators to find a way around our intent and continue to take advantage of and hurt those who are economically challenged in our community is unethical and immoral." The bill is expected to face an uphill battle in the legislature.

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June 19, 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.