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FSOC Pledges to Disclose More amid Criticism by Lawmakers
American Banker (05/07/14) Borak, Donna

The Financial Stability Oversight Council (FSOC), which has been criticized over its transparency policies, issued a two-page statement during its meeting on May 7 reiterating its right to have closed-door meetings on market sensitive issues and supervisory actions, but claiming that it will improve efforts to provide more information about the meetings.

"The council is continually examining how it can open more of its work to the public by balancing its priority to be transparent with its central mission of monitoring emerging threats to the financial system," said Treasury Secretary Jack Lew.

Transparency came up as a result of pressure from Capitol Hill. Rep. Scott Garret (R-NJ) sought to attend an FSOC meeting on March 27 and was told that he could not, which prompted him to call the council a black box. "When independent financial regulators meet to formalize new rule proposals, those meetings are almost always open to the public and members of Congress," Garrett said. "I don't see why FSOC should be any different."

Garrett also recently introduced a bill that would force FSOC meetings into the open. Regulators have argued that some meetings must be kept closed because they must be free to speak about confidential information and data concerning individual firms. The council pledged to allow seven days’ notice of any meeting, including information and reasons about why it was closed door and release minutes of the previous meeting immediately before its next, although the minutes may be subject to redaction.

The FSOC, which was created by the 2010 Dodd-Frank Act, highlighted some of its upcoming priorities, including housing reform and alternative reference rates such as Libor and short-term wholesale funding.

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Installment Lending Highlighted in University Symposium for Attorneys General

On May 1-2, AFSA staff participated in the George Mason University Law and Economic Center’s symposium on Financial Services Regulation. The conference was designed to educate state attorneys general and their staff on key financial services regulation and litigation. Installment lending was highlighted in several of the meeting’s sessions. AFSA Executive Vice President Bill Himpler participated in a panel on non-bank lending where he emphasized the differences between installment loans and payday loans. In another session, George Mason University Law Professor Todd Zywicki stressed how regulations such as APR limits on installment loans harm consumers by making credit more expensive and harder to obtain. Other session topics included the Consumer Financial Protection Bureau’s (CFPB) mortgage servicing rules, expansion of the Fair Debt Collection Practices Act to creditors, the effect of regulations such as rollover limits and maximum loan amounts, and top complaints about financial services from military families.

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AFSA Announces New Board Member

The AFSA Executive Committee unanimously approved Kent Younce, Executive Vice President, Government Relations and Public Relations, Security Finance, to fill the vacancy created by the departure of Charlie Harris on the AFSA Executive Committee and Board of Directors. Younce has been a member of the AFSA State Government Affairs Committee since 2008.

Younce began his career with Security Finance in January 1965 as an Assistant Manager in Jefferson City, Tennessee. In January 1966, he was promoted to manager of the LaFollette, Tennessee, office and in September 1971 was promoted to Supervisor for the State of Oklahoma. Younce continued to receive numerous promotions over the years.  In June 2007, he was promoted to his present position.

In addition to his role with AFSA, Younce serves on the Board of Directors for the Georgia Industrial Loan Association, Board of Governors for the Louisiana Finance Association, Executive Board for the Oklahoma Consumer Finance Association, and has served as the Legislative Chairman and Board Member for the Tennessee Independent Finance Association for more than 30 years.

He currently serves as a Commissioner on the Tennessee State Elections Commission and is serving his second five-year term as a member of the LaFollette Utilities Electric, Water and Waste Water Board.

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AFSA SGA Produces White Paper on Prepaid Payroll Cards

AFSA’s State Government Affairs Committee issued a white paper on April 8 focusing on state and federal regulation of prepaid payroll cards. The paper discusses the usefulness of these products, which are commonly used by the government and the private sector, particularly for the unbanked and underbanked. The paper details the Consumer Financial Protection Bureau (CFPB)’s payroll card bulletin and payroll card standards developed by consumer advocates and industry. The paper also describes several lawsuits alleging card fees resulted in pay less than minimum wage.

The white paper reports on regulation of payroll cards in state wage payment statutes, focusing on the position of regulators in Connecticut, Hawaii, Nebraska, and Rhode Island. It also delves into state attorneys general investigations, including New York AG Eric Schneiderman’s investigation into large employers in response to claims of automatic enrollment and excessive and undisclosed fees. State legislation is also covered in detail. Forty-seven bills in 23 states as well as the U.S. Congress have considered provisions relating to prepaid payroll cards during the current session.

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Inside the Beltway
CFPB to Abide by GAOs Recommendations after Audit
SubPrime Auto Finance News (05/05/14)

During a recent audit of Consumer Financial Protection Bureau (CFPB) activities, the Government Accountability Office (GAO) identified two significant deficiencies in the CFPB’s internal controls over financial reporting. The two areas included internal controls over year-end accrual processes to ensure that accounts payables and property and equipment transactions were properly and accurately recorded.

The GAO made four new recommendations “intended to improve management’s oversight and controls in these areas and reduce the risk of misstatements in CFPB’s accounts and financial statements.”  CFPB Director Richard Cordray agreed with the GAO’s recommendations and indicated that “we will continue to implement corrective actions to resolve and mitigate the significant deficiencies identified.”

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Rift over Affordable Housing Complicates GSE Debate
American Banker (05/06/14) Finkle, Victoria

Stakeholders in the housing finance reform fight continue to push Senate Banking Committee Chairman Tim Johnson (D-SC) and Ranking Member Mike Crapo (R-ID) to keep low-income and minority families in mind as they craft and change the legislation that will reform the government sponsored enterprises Fannie Mae and Freddie Mac. The rift between the sides on the issue of affordable housing continues to widen, as the two senators continue to tweak the bill to expand their current coalition of 12 supporting members to quickly take the bill to the floor.

On May 5, 200 housing organizations and 33 national groups sent a letter to six Democrats that had not yet signed onto the bill, urging them to do so. The legislation was abruptly held back from markup on April 29 after Johnson and Crapo noted they wanted to continue to garner support for the legislation. Many analysts point to the need to craft policies that will assist struggling homeowners now as opposed to focusing solely on ensuring mobility down the road. Still other groups, those mainly focused on homeownership and civil rights, have come out against the legislation, citing the lack of fair access to credit requirements in the proposed bill. Several key Democrats have yet to come down on one side or another, including Sens. Jack Reed of Rhode Island, Charles Schumer of New York, Robert Menendez of New Jersey, Sherrod Brown of Ohio, Jeff Merkley of Oregon and Elizabeth Warren of Massachusetts.

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Consumer Watchdog Pushes Banks to Post Privacy Policies Online
The Hill (05/06/14) Devaney, Tim

The Consumer Financial Protection Bureau (CFPB), in attempt to make data-sharing activities and bulletins more accessible, is pushing financial institutions to post privacy disclosures online as opposed to sending paper copies via mail. “Consumers need clear information about how their personal information is being used by financial institutions,” said CFPB Director Richard Cordray. “This proposal would make it easier for consumers to find and access privacy policies, while also making it cheaper for industry to provide disclosures.”

The announcement came May 6 as the CFPB considers a new rule that is intended to improve transparency and save the industry “millions of dollars a year.” The disclosures referenced in the rule describe how the customers’ personal information is used, what information is shared with third parties and with whom. The bureau estimates a savings to financial institutions of approximately $17 million a year, realized by the cessation of mailing disclosures. Consumers still would be able to opt-in to receive their disclosures in paper form.

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National and State News
Mortgage Lenders Count on Docs to Keep Subprime 'Responsible'
American Banker (05/05/14) Sinnock, Bonnie

Many mortgage originators are reaching farther into the subprime market as the space continues to expand, but also continually seek ways to ensure that they are doing so “safely.” Many companies are turning to plentiful and accurate documentation of the loans to solve this problem. The term subprime originated both from borrowers who have less-than-prime credit and from loans that are backed by high loan-to-value ratios with very little documentation. Providing more documentation allows for a safer loan structure, according to many in the industry.

Stricter lending requirements and documentation will hold lenders to standards that will make subprime mortgage lending safer and force lenders to ensure a borrower’s ability to repay, said Jack Kahan, a residential mortgage specialist at Standard & Poor's. Stricter standards and automation will help verify the integrity of the loans offered, according to Phil Huff, CEO of Platinum Data Solutions.  Lenders have begun turning more to higher loan-to-value ratios than lower credit scores. Currently, LTVs are averaging 87 to 89 percent. Analysts note that lenders need to be wary of rising LTVs, since declining home prices drastically hurt loan performance during the housing bubble.

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May 8, 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.