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CFPB Staff Evaluations Show Sharp Racial Disparities
American Banker (03/06/14) Witkowski, Rachel

The Consumer Financial Protection Bureau has infuriated those it regulates by its use of statistical differences in loan terms offered to different ethnic groups to sue financial institutions for unintentional racial biases. According to data obtained by the American Banker, however, the bureau may be committing the same offenses. The data show that CFPB managers consistently and distinctly rated white employees higher during evaluations than African American or Hispanic employees. White employees were twice as likely to receive the highest grade, which includes the receipt of bonuses and pay increases, than other groups.

The data show that the agency rated approximately 1,100 employees in 2013, with 74.6 percent of whites receiving ratings of 4 or 5 versus only 65.5 percent of Asians, 65.2 percent of Hispanics and 57.6 percent of African Americans receiving the same grade. While the statistics themselves do not signify that CFPB managers are discriminating against employees, they indicate that racial disparities can be found just as easily within the bureau as they are within the consumer finance industry.

According to an annual employee survey, only 36 percent of employees said they were satisfied with their opportunities to advance within the bureau. Current employees, who spoke on the condition of anonymity, noted that their reviews were based far less on their performance and more on their personal aspects. Several even expressed concern that management would “retaliate” against employees who filed official complaints. Current and former CFPB staffers highlight low morale, significant turnover and cronyism within the industry as part of their overall unhappiness with their work situation at the agency. More than 115 official grievances have been filed with the National Treasury Employees Union (NTEU) since August 2013, citing allegations of unequal pay and unfair performance reviews.

The CFPB has said previously that they continue to work to create a positive and effective working environment. The bureau has not responded directly to the release of the survey and data results.

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CFPB Should Limit Debt Collection Rulemaking to Debt Collectors

On Feb. 28, AFSA submitted a letter to the CFPB in response to the Bureau’s Advance Notice of Proposed Rulemaking (ANPR) on debt collection. The ANPR asked for comment on the debt collection system, consumer experiences with the debt collection system, and how rules for debt collectors might protect consumers without imposing unnecessary burdens on industry. It included over 150 questions on debt collection.

AFSA explained that the CFPB should limit the rulemaking to debt collectors because: (1) Congress did not intend for creditors to be regulated like debt collectors, (2) creditors operate differently than debt collectors, (3) there is not sufficient data to justify a rule, and (4) the CFPB should give the current system more time before issuing a rule. AFSA also stressed that the CFPB has only very limited authority to issue rules to creditors regarding debt collection. In addition, AFSA emphasized the importance of using clear definitions of “creditor” and “debt collector” in a rule.

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Inside the Beltway
Latest House Bill Aims at Curbing CFPBs Authority
SubPrime (03/03/14) Zulovich, Nick

United States House Bill 3193, known as the Consumer Financial Freedom and Washington Accountability Act, passed the House on March 3. The bill would change how the Consumer Financial Protection Bureau (CFPB) operates and the way it is structured. First, it would replace the director with a five-member panel appointed by the president and confirmed by the Senate. Second, itl would subject the bureau to the regular appropriations process and make the CFPB a stand-alone independent agency. Third, it would prohibit the bureau from using a consumer’s private and personal financial information without consent. Lastly, it would set the basic pay scale of CFPB employees according to the standard General Services (GS) scale.

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National and State News
Bustos Leads 68 Lawmakers in Demanding Investigation of Payroll Card Abuse
Aledo Times Record (03/05/14)

A group of Illinois legislators, led by Congresswoman Cheri Bustos, is demanding that the Consumer Financial Protection Bureau (CFPB) take a closer look at what she calls the growing abuse of payroll cards. Sixty-eight lawmakers voiced support for Bustos’ call, which refers to employers issuing debit cards in lieu of traditional paper checks or direct deposits. These payroll debit cards may have associated fees and charges.

Bustos and her allies argue that the third-party financial institutions that issue the cards do not adequately disclose the fee structure, which reduces the take-home pay of low and middle income earners. “During the ongoing economic recovery, we can’t allow working families to be squeezed any more than they currently are,” Bustos said in a letter to CFPB Director Richard Cordray. Bustos asked Cordray to ensure that employers are following federal regulations by giving employees options on how they can receive their check and by disclosing fees. Investigations into the use of payroll cards are ongoing in Pennsylvania and New York.

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New Lenders Spring Up to Cater to Subprime Sector
The Wall Street Journal (03/05/14) Dugan, Ianthe Jeanne and Demos, Telis

Consumers that have been neglected since the financial crisis are finding it much easier to get credit thanks to subprime personal loan companies expanding their reach in recent months. Consumer lending peaked at $87 billion in 2006 before plummeting to $28 billion in 2010. In October 2013, the number was $36 billion, representing a comeback for both borrowers and lenders, according to Equifax data.

Finance companies have moved into areas where people may be suffering from reduced credit profiles or where consumer’s credit scores took serious hits. While banks are hesitant to return to the market, subprime lenders have moved in to serve the needs of millions of people who have less than perfect credit. Even labels are changing; many companies have stopped referring to their customers as subprime and have taken up terms like “near prime” or “emerging prime.”

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Oklahoma House Approves Measure to Ban City Vacant Property Registries
The Oklahoman (03/04/14)

Oklahoma House Bill 2620, which would ban city vacant property registries, passed on March 4. The bill was pushed by industry groups after Oklahoma City passed an ordinance that required owners of vacant property to pay monthly inspection fees. The bill now will advance to the Senate for approval. House Bill 3363 is also being considered by the Okla. legislature, which would more accurately define “abandoned and neglected property.”

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Merchants in 3 States Sue over Bans on Swipe-Fee Surcharges
Bloomberg News (03/05/14) Smythe, Christie

Merchants in California, Florida and Texas filed lawsuits on March 5 challenging the states’ credit card surcharge prohibition laws. The laws allow merchants to charge lower prices for cash purchases, but bar them from charging higher ones for credit. Ten U.S. states currently have surcharge prohibitions in place. The challenges to the prohibitions stems from the $5.7 billion settlement approved last year between Visa and MasterCard and merchant groups over swipe fees, which are charged when consumers use credit cards. A settlement with American Express, which also would permit merchants to surcharge customer, received preliminary approval in February.

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Student Loans Entice Borrowers More for Cash than a Degree
The Wall Street Journal (03/02/14) Mitchell, Josh

For many Americans, student loans are not being used for getting a degree – they have become a low-cost option for paying rent, making ends meet and having a little spending money. Because the federal government does not require payments while students are in school, many Americans who are caught in the weak job market are taking classes, with no expectation of getting a degree, simply to take out the low-cost student loans for cash. Federal officials do not have data on how much of the $1.1 trillion student debt burden is going to personal expenses, but they do point to the rise of online education as part of the cause. A report by the U.S. Department of Education’s Inspector General found that $5,285 in loans, on average, was disbursed to 42,000 students who did not log credits.

The share of students taking out the maximum $12,500 loan amount has also increased since 2011-12 from 60 to 68 percent. Analysts suggest that a large portion of that increase is going to personal expenses. The federal government permits students to borrow more money to cover living expenses, and universities are prohibited from denying borrowers even if they believe they are over-borrowing.

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Experian Automotive Leasing Boom Continues
F&I Showroom (03/05/14)

A new report from Experian Automotive showed that consumers are consistently choosing to lease vehicles. According to the State of the Automotive Finance Market report, 28.4 percent of all new vehicle finance contracts were for leases in the fourth quarter of 2013. The figure brings leasing to its highest level since 2006. The Experian report also found that the average financed amount for a new vehicle in the fourth quarter of 2013 was $27,430, up from $26,691 from the same period a year earlier. Average credit scores for both new leases and loans decreased as well, highlighting the trend that financing is becoming easier to get for all segments of the economy. “We are still seeing remarkable stability in the automotive finance industry, even as lenders continue to ease slightly on credit standards to provide loans and leases,” said Melinda Zabritski, senior director of automotive credit for Experian Automotive.

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March 6, 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.