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Investors Withdraw Appeals Against California Eminent Domain Plan
Reuters (05/16/14) Forgione, Sam

Pacific Investment Management Co., Blackrock and other investors have withdrawn their appeal of a ruling that dismissed their case against Richmond, Calif. which aimed to use eminent domain to seize underwater mortgages and restructure the loan. Investors decided to withdraw the appeal because the eminent domain plan in Richmond did not materialize, but counsel for the investors groups noted that the appeal would be immediately re-filed if the plan began to move forward again.

In September of 2013, US District Court Judge Charles Breyer ruled that the case against Richmond was premature and dismissed the case. In the seven months since the dismissal and the filing of the appeal, the city has not advanced its plan to seize mortgages. The seizure plan stems from private investment firm Mortgage Resolution Partners (MRP), which Richmond partnered with to underwrite the new, seized loans. The suit by the investors noted that if the eminent domain plan moved forward, the result would likely be drastically higher down payment requirements for the Richmond area and equally high interest rates.

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Inside the Beltway
CFPB Moved Slowly to Fix Evaluation Disparities: Lawmakers
American Banker (05/21/14) Witkowski, Rachel

During a House Financial Services oversight subcommittee meeting on May 21, House lawmakers sharply questioned the Consumer Financial Protection Bureau’s (CFPB) response to the problems with their employee rating system and allegations of discrepancies in ratings between employees of different race, gender and age. The bureau hired Deloitte to examine the results of its employee survey and delivered its final product in September 2013. House members, however, appeared to be uncomfortable with the fact that the CFPB did not acknowledge problems at the bureau until March 2014. "Why did the CFPB continue to defend its performance ratings system when it had such a damming report from a revered consulting firm?" asked Rep. Patrick McHenry, the chairman of the committee.

Lawmakers also questioned three CFPB employees who were subpoenaed to appear. Liza Strong, director of the CFPB's employee relations unit, noted that she “vaguely remembered” being interviewed for the study. Ben Knop, the executive vice president for the local National Treasury Employees Union chapter of the CFPB, said the bureau did not start backing away from the rating system in question until the issues became public.

Several Democrats on the committee asked that the subcommittee press onward beyond the CFPB to other agencies. Republicans and leadership have pledged to do so but that the issues at the bureau are disturbing and highly unusual.

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CFPB to Compensate Employees After Discrimination Review
PoliticoPro (05/19/14) Davidson, Kate

In an effort to put charges of employee discrimination and abusive work environments behind them, the Consumer Financial Protection Bureau (CFPB) announced on May 19 that it will compensate employees for disparities the bureau discovered in its review process. The employees, who were evaluated in 2012 and 2013, will receive a payout of approximately $5.5million. The settlement will compensate any employee that received a 3 or 4 on their assessment in the past two years as if they had received a 5, which is the highest mark. Employees who received a 1 or 2 will not be eligible, nor will top leadership. The bureau also agreed to a two-tiered grading system over the next two years as opposed to the numbered approach, in conjunction with its union.

Director Richard Cordray noted in an email to employees that, “By self-identifying and self-correcting these issues, we are holding ourselves accountable to the same standards of fairness that we expect of our regulated entities.”

The disparities came to light in March after an internal audit by the CFPB discovered that white employees were consistently receiving higher ratings in employee assessments that minority employees. Following the discovery of the disparity, several members of Congress noted that the report raised serious concerns about the bureau’s management structure and work environment.

The bureau dismantled the system, but refused to respond to the House Financial Services Committee’s requests to send staff members to testify on the matter. Following the refusal, the committee unanimously voted to subpoena Stacey Bach CFPB’s assistant director for the Office of Equal Employment Opportunity; Liza Strong, the bureau’s director of employee relations; and Ben Konop, the executive vice president of the National Treasury Employee Union’s CFPB chapter.

The bureau report noted that groups who received markedly lower scores included individuals over 40 years of age, union members, remote employees, lower paid employees and Hispanic employees.

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Senate Confirms Stanley Fischer to be Fed Governor
The Boston Globe (05/22/14)

On May 21 in a 68-27 vote, the Senate confirmed former Bank of Israel governor Stanley Fischer to the Federal Reserve Board of Governors. He was appointed by President Obama to fill the void left when Janet Yellen was tapped to become the chair late last year. A separate vote is required and scheduled to confirm him as vice chairman of the central bank; he is expected to be easily confirmed.

Before being confirmed, Fischer served as chief economist at the World Bank’s and was also a top International Monetary Fund official. He received a doctorate in economics from MIT in 1969 and joined the faculty in 1973. He left the Bank of Israel on June 30 after helping the $258 billion economy manage the financial crisis. During his confirmation hearing in March, Fischer highlighted his experience working with Citigroup as formative saying, ‘‘Without that experience I would have come to it largely with an academic background without ever having seen the inside of a bank.”

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National and State News
Auto Loan Debt is Up 13% Since 2011 Report
American Banker (05/20/14) Broughton, Kristin

According to a new report by TransUnion, auto loan debt continues to rise as Americans trade in their old vehicles for new ones. The report, which was released on May 19, showed that the average debt per borrower increased to $16,862, approximately 4 percent, in the first quarter when compared to the same period in 2013. Over the last three years as a whole, auto loan debt has risen 13 percent.

As a result, the study found that the delinquency rate also ticked up slightly in the first quarter; the number of borrowers late by at least 60 days climbed to 1 percent up a half a point from the same period in 2013. Subprime delinquencies also ticked upward, increasing 41 basis points to 5.52 percent in the first quarter.

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Consumer Lawsuits Claim Banks Helped Payday Lenders Break Law
Consumer Lawsuits Claim Banks Helped Payday Lenders Break Law (05/20/14) Peters, Andy

In recent months, banks have taken steps to rid themselves of companies who use their services for illegal purposes, from selling guns illegally to online lending above a state’s usury rate. However, a recent batch of judicial rulings should also be putting banks on alert, according to several industry analysts; consumers argue that banks should have known that their payday-lending customers were doing things illegally. 10 banks and a credit union have been sued by consumers for allegedly helping online payday lenders break usury and other laws in several states and the cases are nearly identical. The suits name multiple banks and many have survived several legal hurdles.

According to several of the court rulings, the financial institutions have violated the anti-racketeering laws, federal banking regulations and industry standards when accepting and transmitting payments for payday lenders who are violating state usury laws. The banks and financial institutions named in the suits have denied the claims, but analysts warn that other institutions should be wary of the trend.

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Lawsky to Expand Servicing Probe, Streamline Mortgage Licensing
American Banker (05/20/14) Berry, Kate

On May 20, New York Department of Financial Services (DFS) head Benjamin Lawsky noted that the DFS would begin investigating more closely the relationship between nonbank servicers and their affiliated businesses because homeowners are “at risk of becoming fee factories.” He said that he will be looking at all nonbank servicers affiliated businesses to determine if they are charging fair prices and if their products are of sufficient quality. The Department also plans to remove several bureaucratic layers required to receive a mortgage license - both individual and at the branch location level - in New York and issue a new guidebook on maintaining mortgage licenses. Lawsky noted that his goal is to cut the current four month wait time in half for a NY mortgage license.

"The borrower…has little or no power in this relationship and is typically at the mercy of the servicer," he said. "Nonbank servicers have a captive (and often confused) consumer in the homeowner," Lawsky said reiterating the DFS’ belief that homeowners are at a disadvantage when dealing with servicers. He noted that not all companies are doing a poor job, but the ones that are, need to be held accountable and that he would rather see a “race to the top” instead of a “race to the bottom.”

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May 22, 2014

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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.