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Industry Amicus Supports Challenge of Disparate Impact
On March 26, the D.C. District Court granted the financial services trades’ motion for leave to file an amicus brief in the insurers associations’ case challenging the Department of Housing and Urban Development’s (HUD) disparate impact rule. The case is American Insurance Association and National Association of Mutual Insurance Companies v. HUD. AFSA joined with the Consumer Mortgage Coalition, the Independent Community Bankers of America, and the Mortgage Bankers of America to file the amicus. The insurers are challenging HUD’s rule stating that disparate impact theory will apply in assessing whether a company has complied with the Fair Housing Act. A favorable decision in this case could substantiate the industry’s argument that disparate impact theory does not apply under the Equal Credit Opportunity Act.
Ability to Repay Highlighted at Senate Hearing
On March 26, the U.S. Senate Banking Subcommittee on Financial Institutions and Consumer Protection held a hearing to discuss small-dollar loans and alternative financial products. Senators debated regulatory and legislative measures to temper payday loans and other short-term credit that consumer advocates have characterized as unscrupulous. The witnesses included several academics, a consumer advocate and an online installment lender. AFSA submitted written testimony for the record and attended the hearing.
While the hearing maintained a focus on payday loans, senators notably failed to differentiate payday from more affordable options, such as installment loans, although one witness attempted to highlight that distinction. Some committee members defended the necessity of alternative forms of short-term credit, highlighting a “vibrant competitive market” for consumers who do not have access to mainstream financial institutions.
Subcommittee Chairman Sen. Sherrod Brown (D-OH) observed that consumers are more regularly turning to payday loans and other small-dollar credit products that leave them in a cycle of debt with triple-digit interest rates. He said payday loans often constitute a form of predatory lending, where lenders aggressively market to prospective borrowers who are unable to afford the credit being offered, and he suggested that rollovers are typically more profitable than the initial loan. Sen. Brown encouraged robust consumer protections by urging the CFPB to place limits on costs, demand longer payment terms, and confirm the ability of borrowers to repay the principal. Brown has proposed legislation to encourage more savings and wealth-building among consumers.
Sen. Pat Toomey (R-PA), the subcommittee’s ranking member, questioned the witnesses about the importance of considering a borrower’s ability to repay. The industry witness, NetCredit Director Stephanie Klein, responded affirmatively that ability to repay is critical. Toomey praised the competitive market for small-dollar credit because it provides alternatives for financially underserved consumers, and noted that opponents of short-term lending alternatives would prefer to regulate these companies out of business, have the government take over the industry, or allow the government to dictate prices.
AFSA Continues to Push FCC to Provide TCPA Relief
AFSA sent a letter to the Federal Communications Commission (FCC) on March 24 generally supporting a petition for rulemaking filed by ACA International. Among other things, the petition asks the FCC to (1) confirm that not all predictive dialers are categorically automatic telephone dialing systems; (2) confirm that “capacity” under the Telephone Consumer Protection Act (TCPA) means present ability; and (3) establish a safe harbor for autodialed wrong number non-telemarketing calls to wireless numbers.
CFPB Releases Payday Loan ReportPoliticoPRO (03/25/14) Davidson, Kate
The Consumer Financial Protection Bureau (CFPB) issued a report on March 25 on the payday loan industry, detailing serious flaws within the industry. The review found that four out of five payday loans are rolled over or renewed within two weeks and that the loans are made to borrowers who end up paying more in fees than the original amount borrowed. Even in states with “cooling periods” between loans, the CFPB report found that consumers were renewing loans quickly. Twenty-two percent of borrowers renew their loans six times or more and just 48 percent of all new payday loan borrowers are able to pay back the full amount without a renewal.
“We are concerned that too many borrowers slide into the debt traps that payday loans can become,” said CFPB Director Richard Cordray. “As we work to bring needed reforms to the payday market, we want to ensure consumers have access to small-dollar loans that help them get ahead, not push them farther behind.”
The report was developed over a 12-month period and is the CFPB’s second on payday lending. The first was issueed in April 2013 and outlined how payday loans can trap consumers in a cycle of debt.
Ruling Lines up Possible Swipe Fee fight at SCOTUSPoliticoPRO (03/21/14) Davison, Kate
A federal appeals court on March 21 upheld a Federal Reserve rule that capped interchange fees, determining that the Fed interpreted the 2010 Dodd-Frank Act’s “convoluted” language as best as it could. The court also found that the rule rests on “reasonable constructions” of the Durbin amendment. Late last year, U.S. District Court Judge Richard Leon ruled that the Fed overstepped its bounds by capping the rate too high. His decision was overturned.
The fight may now head to the circuit court, which would generally leave the decision up to the Supreme Court, which decides whether or not to take the case. Sen. Dick Durbin (D-IL), whose amendment required the Fed to write the rule capping interchange fees, disapproved of the court’s ruling. The amendment required the Fed to set interchange fee caps on debit card transactions, but left the rate and the particulars to the central bank. Merchants contend the calculations the Fed used to come up with the cap artificially inflated it, which Judge Leon agreed with.
In the federal appeals court decision, the judges noted that the merchants did not provide a compelling argument. The judges ordered the Fed to reconsider how they incorporate transaction monitoring costs into their fee calculation, but this minor issue was not enough to affect their ruling.
Waters Unveils Housing Finance PlanPoliticoPRO (03/27/14) Lee, MJ and Prior, Jon
Rep. Maxine Water (D-CA), the top Democrat on the House Financial Services Committee, unveiled a plan to reform the housing finance system and do away with government sponsored enterprises (GSE) Fannie Mae and Freddie Mac. Her plan would replace the GSEs with a new government agency to oversee a guaranteed loss fund on certain mortgages and an industry-owned cooperative that would package loans into securities for investors. That cooperative is what differentiates Waters’ plan from Senate Banking Committee Chairman Tm Johnson (D-SD) and Sen. Mike Crapo’s (R-ID) plan. In many other ways, the plan is very similar.
Waters’ plan brings in ideas from other plans proposed by Rep. Carolyn Maloney (D-NY) in her bid to get other Democrats behind it. Besides the Johnson/Crapo plan, Water’s mortgage reform bill will be competing with a more centrist approach forthcoming from John Delaney (D-MD) and Jim Himes (D-CT). Their plan would permit more government participation and have Ginnie Mae back mortgage bonds after private investors take a first five percent loss.
House Financial Services Committee Chairman Jeb Hensarling’s (R-TX) own reform bill passed out of committee last year, but is unlikely to receive a floor vote. The Johnson/Crapo bill will likely come up for a committee vote in the next few weeks.
Card Issuers up Ante with Free Credit Score DataAmerican Banker (03/24/14) Wack, Kevin
Following a pronouncement by the Consumer Financial Protection Bureau (CFPB) in late February that “strongly encouraged” card companies to offer consumers their credit score for free, many companies have begun investigating doing so. Previously, consumers had to pay a monthly fee to see their credit scores. Companies that have been providing scores for free already are looking to differentiate their offering from the newcomers to the market space by offering score change notifications and other alerts.
Companies that provide the scores note that generally they do not have to sign new contracts with the card companies they work with or charge higher rates as they have been reworking existing agreements.
TCPA: It Is Time to Provide ClarityOfficial FCC Blog (03/25/14) O’Reilly, Michael
The Telephone Consumer Protection Act (TCPA) was passed in 1991 to protect consumers from unwanted phone calls and faxes. Congress, on most accounts, successfully walked the fine line between protecting consumers from junk calls and faxes and allowing legitimate businesses to reach out to consumers. However, as the courts and the Federal Communications Commission (FCC) continue to interpret the TCPA and the modes of communication change, the rules have become unnecessarily complex and increasingly unclear. Innovative new products and offers are not being delivered to consumers because of these unclear guidelines. Consumers and businesses deserve and need clear rules of the road, writes FCC Commissioner Michael O’Reilly in this blog post.
TCPA lawsuits have increased by 30 percent over the last year, and the FCC has a large backlog of comments and complaints. “It is very troubling that legitimate companies feel they have to ask the government for its blessing every time they need to make a business decision in order to avoid litigation,” O’Reilly says.
The FCC needs to take a hard look at the inventory of petitions as soon as possible, answer critical questions and provide clear, concise guidance to companies and consumers, according to O’Reilly. The review needs to include what it means to initiate a call, where there is liability for reassigned numbers, whether consent is inferred from social norms, and where smartphones fit into this entire framework. The FCC also needs to look at its own precedent; its former rulemakings have served to make the road more complex. The commission must hold bad actors accountable, but must work quickly to clear the backlog of petitions and make sure that well-meaning companies are not unduly punished, O’Reilly concludes.
KAR Announces New COOAuto Remarketing (03/20/14)
On March 20, KAR Auction Services announced that Don Gottwald will fill the newly created chief operating officer position with the company. Gottwald previously served as the chief executive officer of Automotive Finance Corp. (AFC), which is a subsidiary of KAR, since 2009. John Hammer also will be promoted to chief executive officer and president of AFC. He previously served as COO. Current KAR CEO Jim Harlett will focus on growth and creating shareholder value.
Harlett praised Gottwald, stating that he was “the obvious choice for the new role.” Gottwald will oversee all business functions and direct strategic and operational leadership of the businesses.
March 27, 2014
AFSA Newsbriefs is a weekly executive summary of AFSA initiatives and consumer credit articles. AFSA Newsbriefs is free for members. Send an email to [email protected] 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.