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GOP Threatens to Subpoena CFPB over Auto Lending
PoliticoPRO (03/07/14) Davidson, Kate

House Financial Services Committee Chairman Jeb Hensarling (R-TX) presented Consumer Financial Protection Bureau (CFPB) Director Richard Cordray with an ultimatum to turn over detailed information regarding the bureau’s investigation of the indirect vehicle financing model or face a Congressional subpoena. The CFPB warned lenders that they could be liable for violating fair lending if they accept contracts from dealers that use dealer reserve, which the bureau contends may intentionally or unintentionally discriminate against minority borrowers. The bureau, which issued guidance last year, has failed to detail how they determine whether an auto lender is discriminating, according to industry and lawmakers.

“An agency that professes to hold itself accountable to the American people should not withhold documents requested by its elected representatives in furtherance of a valid legislative purpose,” Hensarling said in his March 7 letter to Cordray. The letter also noted that if the information is not turned over by March 13, the committee will issue a subpoena to obtain the information. Doing so would be the first time the committee has sought information in such a way from the CFPB.

After the bureau’s first disparate impact enforcement action last year against Ally Bank, Hensarling requested that Cordray and his staff provide the particulars of the investigation. Hensarling later noted that he only received a broad overview, and the bureau has since refused to publically release the statistical analyses used as part of the Ally investigation. The refusal goes against Cordray’s promise to run an open and transparent agency, according to Hensarling.

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AFSA Letter on TCPA Focuses on Prior Express Consent

On March 10, AFSA submitted a letter to the Federal Communications Commission (FCC) regarding the Telephone Consumer Protection Act (TCPA). The letter was in support of a petition filed by United Healthcare Services, Inc. asking the FCC to clarify the applicability of the TCPA to informational, non-telemarketing autodialed and prerecorded calls to wireless numbers for which valid prior express consent has been obtained, but which, unbeknownst to the calling party, have subsequently been reassigned from one wireless subscriber to another.

AFSA wrote that sometimes wireless telephone numbers for which AFSA members have obtained prior express consent are reassigned from one subscriber to another. Thus, AFSA members may call a phone number for which they had obtained “prior express consent” to call, but reach a person who was reassigned that number and who had not given the consent.

Companies are now facing expensive class action lawsuits on the grounds that they did not have prior express consent to call the reassigned number. Penalties of up to $1,500 per violation of the TCPA have provided plaintiff’s attorneys with fodder for lawsuits that enrich the attorneys rather than compensate their clients. In several TCPA class actions, companies settled for millions of dollars.

AFSA strongly urged the commission to issue a declaratory ruling confirming that parties are not liable under the TCPA for informational, non-telemarketing calls to telephone numbers that have been reassigned without the caller’s knowledge, as long as the caller previously obtained valid prior express consent to place calls to that telephone number.

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SGA Publishes Paper on Use of Eminent Domain to Seize Mortgages

On March 10, AFSA’s State Government Affairs Committee published a white paper on municipalities’ considering utilizing their power of eminent domain to seize performing but underwater mortgages for the purpose of restructuring mortgage obligations. The paper reviews how the proposal would function in theory and highlights 17 municipalities in seven states – California, Illinois, Massachusetts, New Jersey, New Mexico, New York, and Washington – that have explored the idea, although most have decided not to move forward. The paper also discusses Richmond, Calif., a city that has gone so far as to send letters to mortgage servicers offering to buy mortgages at the actual value of the collateral property.

Using eminent domain in this way likely would have disastrous consequences on the housing market and restrict consumers’ access to mortgage loans. In addition to providing an overview of the serious consequences these eminent domain programs would have on the housing market, homeowners and local governments, the paper highlights constitutional arguments against the proposal and growing state and federal opposition to this use of eminent domain. The paper also reviews legislative efforts in several states to limit eminent domain power or amend state constitutions to bar municipalities from using its powers to seize and restructure underwater mortgages.

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Inside the Beltway
CFPB Fills Key Posts after Long Vacancies
American Banker (03/12/14) Collins, Brian

After an extended period with empty posts, the Consumer Financial Protection Bureau (CFPB) has filled key positions, including a chief economist, financial empowerment director and market liquidity researcher. Christopher Carroll has been named assistant director and chief economist at the bureau. Currently, he is a professor at Johns Hopkins University, where he will take a leave of absence.

The assistant director for financial empowerment position will be assumed by Daniel Dodd-Ramirez, who previously served as executive direct at Step Up Savannah, a program that supports low to moderate income families gain financial independence.

Jeffrey Langer will serve as the bureau’s assistant director of installment and liquidity lending markets, which operates within the bureau’s research, markets and regulations division. He succeeds Richard Hackett, who left the bureau last summer. Langer previously served as senior counsel for Macy’s department stores.

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CFPB Takes Aim at 'Zombie' Foreclosures
American Banker (03/12/14) Berry, Kate

Numerous municipalities across the country have used ordinances to control vacant and blighted properties that remain after homeowners leave the premises during the foreclosure process. Often times, banks are left to maintain and pay taxes on the property. However, occasionally, the bank determines the value of the property is too low to complete a foreclosure, leaving the homeowner to maintain it. The Consumer Financial Protection Bureau (CFPB) charges that homeowners may be completely unaware that they have the responsibility to maintain their home.

The CFPB is planning to begin to examine the phenomena, which it calls “zombie” properties. "There is direct borrower harm if a borrower believes a foreclosure on their property has been conducted and they are no longer responsible, and months or years later find out that they are, that there was never a foreclosure and they have large financial responsibilities that they never knew about," said Lauren Maggiano, the bureau’s servicing and secondary markets manager. Industry analysts note that more than 250 letters and phone calls are distributed on average to a home entering or in foreclosure. A homeowner, whose foreclosure has stalled however, may receive no disclosure at all.

The CFPB alleges that it found that it was “extremely common” for servicers to charge off low-balance loans and not notify homeowners to that affect. Maggiano noted that she has several ideas to remedy the issue, including creating a national definition of abandonment, speeding the foreclosure process to transfer vacant homes to potential owners and creating a national registry of such homes.

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CFPB to Scrap Employee Evaluation System
PoliticoPRO (03/10/14) Davison, Kate

Following a March 6 article by the American Banker citing an internal report that showed white employees were consistently rated higher than African American and Hispanic employees, the Consumer Financial Protection Bureau (CFPB) is backing away from the employee evaluation system highlighted in the report. “The CFPB will move away from its current performance management system,” said spokeswoman Jennifer Howard. “We have agreed to work together with the union on a system that is consistent with our shared commitment to excellence, equality and fairness.”

Lawmakers, including House Financial Services Committee Chairman Jeb Hensarling (R-TX), and Reps. Patrick McHenry (R-NC) and Shelley Moore Capito (R-WV), asked the CFPB to turn over more detailed information about its review process. Director Richard Cordray told employees in an agency-wide email that the bureau is taking steps to strengthen its performance evaluation system, most notably by bringing in an outside firm.

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Op-Ed: When 'Disparate Impact' Bites Back
The Wall Street Journal (03/09/14) Rubin, Ronald L.

The Consumer Financial Protection Bureau (CFPB) got a painful lesson in disparate impact theory this week, writes former bureau enforcement attorney Ronald Rubin in the opinion piece. On March 6, American Banker reported that the CFPB’s employee performance review process was chock full of the same type of disparate-impact statistics that the agency accuses the industries it regulates of committing. For example, 20.7 percent of white employees received high marks, but only 9.1 percent of Hispanic employees received the same. According to disparate impact, policies or activities that disproportionately affect minorities can be declared discrimination regardless of intent.

Based on his experiences working for the CFPB, Rubin finds it doubtful that bureau management could be discriminating against its workers, although the statistic equal discrimination. The guidance issued by the CFPB last year charging that women and minorities paid markedly higher rates for auto loans disregarded many possible non-discriminatory factors such as different income levels, multiple showrooms operated by different dealers and different vehicle models purchased more often by certain groups.

The guidance issued by the bureau would be of little concern if it were not for the implied threat of investigation. Issuing guidance in this way allows the bureau to sidestep the normal administrative rulemaking process. Despite the fact that the Dodd-Frank Act specifically exempts car dealers from CFPB jurisdiction, the bureau presses on.

The lesson the CFPB must learn from its own disparate impact experience is this: “Statistics are complicated. Numbers don’t lie but people can often misinterpret them. Effect does not necessarily equal cause.” The most important question is whether the bureau will reconsider its commitment to the disparate impact doctrine after witnessing its flaws firsthand.

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National and State News
Lawsky’s Office Starts Taking Applications for the ‘BitLicense’
The Wall Street Journal (03/11/14) Vigna, Paul

N.Y. Department of Financial Services Superintendent Benjamin Lawsky announced on March 11 that his office is accepting proposals and applications for BitLicenses, which would allow Bitcoin exchanges to operate within the state. The licensure of exchanges would mark the first government oversight of the digital currency market space.

“The recent problems at Mt. Gox and other firms further demonstrate the urgent need for stronger oversight of virtual currency exchanges,” Lawsky said. Though the license itself does not yet exist, the DFS is expected to announce a framework later this year and allow for an open comment period of 60-90 days.

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Should States Fast-Track Foreclosures
DS News (03/07/14) Robins, Colin

A study published by the Federal Reserve Bank of Cleveland found that speeding up the process of foreclosure for vacant properties could result in states saving considerable sums. The study looked at Ohio and Pennsylvania, both of which use judicial foreclosure, and noted that they could save somewhere in the neighborhood of $24 million each by fast-tracking foreclosures. Because properties are left vacant for extended periods, they are more subject to vandalism, break-ins and damage. Additionally, health and safety hazards are a concern. Fast-tracking the foreclosure process allows potential homeowners to move in more quickly.

The report noted that changing from a judicial to a non-judicial system can be challenging, as lawmakers strive to maintain the fine balance between meeting the needs of creditors and protecting the interests of consumers.

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Exeter Finance Corp. Welcomes New Members to Executive Team and Board of Directors
PR Newswire (03/11/14)

On March 11, Exeter Finance Corp., a specialty auto finance company based in Irving, Texas, announced that Steve Zemaitis and A.J. Wagner have joined the company’s executive team and board of directors, respectively.  Zemaitis has been in the subprime auto finance industry for nearly 20 years. He previously served as the chief credit officer and executive vice president of pricing  & analytics with Santander Consumer Holdings USA. With Exeter, he will play a key role developing strategy to maximize profitability and evaluate new growth opportunities.

Prior to his retirement in 2007, Wagner served as vice president of Ford Motor Company and the president of Ford Motor Credit North America. Currently, he is the president and CEO of AJ Wagner & Associates, LLC, a financial services consultancy company. He will serve on the board as an independent director along with Susan McFarland, who was appointed in April 2013.

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March 13, 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.