SHAPING THE FUTURE. CFPB HOLDING ITS FIRE

Transcription

1 1 of 5 10/23/2014 9:53 AM October 3, In This Issue: News from AFSA SHAPING THE FUTURE. AFSA SPEAKS OUT AGAINST PENTAGON PROPOSAL CFPB HOLDING ITS FIRE CFPB TARGETS PRICE DISPARITY APPEALS COURT REJECTS CLAIM TOGETHER. SHAPING THE FUTURE. The Alabama Consumer Finance Association focuses on being the leader and Pre-Eminent Trade Association representing the interests of licensed Alabama Consumer Credit Act (Mini-Code) and Alabama Small Loan Act lenders in the state. We believe the goals of the Association to be the

2 2 of 5 10/23/2014 9:53 AM common goals of our member companies and our combined efforts provide more benefit for less - with equal voice in Association affairs of ALL our member companies. Learn More AFSA Speaks Out Against Pentagon Proposal to Curtail Access to Credit On Sept. 26, the Department of Defense (DoD) issued Proposed Rules that would expand the types of credit covered by the Military Lending Act to include those subject to the Truth in Lending Act, except for loans secured by real estate or other property, such as a loan to purchase a vehicle. Installment loans, unsecured open-end lines of credit, and credit cards would be subject to the 2007 regulations, which placed a 36 percent interest rate cap on loans to servicemembers and their dependents. AFSA opposes this blanket expansion of the rate cap for service members and their dependents to installment loans, as DoD has not shown any evidence for doing so. In response to the proposed rules, AFSA issued a statement to the media reiterating its members' support for the men and women serving our country. "Servicemembers and their families should have access to a wide range of legitimate and fair credit opportunities to meet their needs," AFSA asserted. The association called into question how the DoD could extend the MLA to installment lending without providing any evidence of problems with traditional installment lending. "Before subjecting an entire industry to restrictive regulation, AFSA believes that more emphasis should be placed on promoting access to affordable credit for servicemembers," AFSA stated. AFSA's views have been included in several major media outlets, including Military Times, Bloomberg, The Washington Post, and American Banker. AFSA will continue to make the case for excluding installment loans from the Military Lending Act, as well as highlight the positive aspects of installment loans that differentiate them from other forms of small-dollar credit that can trap consumers in a cycle of debt. AFSA will submit a comment letter on the proposed rule, which is due Nov. 28. Members interested in contributing to AFSA's comment letter should contact AFSA Manager of Legal & Regulatory Affairs Celia Winslow at cwinslow@afsamail.org. CFPB Holding its Fire on "Abusive" Practices PoliticoPRO (10/01/14) Davidson, Kate Two things have been made clear since the inception of the Consumer Financial Protection Bureau (CFPB). First, the bureau rarely uses the "abusive" standard that it was given the power to interpret when it opened in July Second, when it does, it focuses on customers who are undereducated or are also under financial distress. The new standard was widely criticized by industry and Republican lawmakers as being too broad, although it was intended to complement other regulations already on the books. The bureau has the sole authority for enforcing the abusive standard and the actions taken thus far do not provide a defined path for how the CFPB will define abusive and enforce the rule. The bureau has only defined the abusive standard five times out of the several dozen actions filed. Instead, the

3 3 of 5 10/23/2014 9:53 AM CFPB has relied upon the unfair and deceptive standards, which are backed up by legal precedents. The few instances when the CFPB has used the abusive standard indicate that industry should pay attention to consumers who are invulnerable financial situations. The Dodd-Frank Wall Street Reform and Consumer Protection Act defines abusive as practices that interfere with a consumer's ability to understand a product or service or takes unreasonable advantage of their lack of understanding. The few CFPB enforcement actions that have featured the abusive standard did not begin until May 2013, when the bureau cited Florida debt-settlement firm CashCall, online lender ITT Education Services, payday lender Ace Cash Express, and debt collection firm Colfax Capital Corp. The bureau alleged that the actions committed by these companies were abusive as defined by the statute and the definition provided is enough. Many analysts and lawmakers disagree, arguing that the existing laws are enough to identify practices that harm consumers. CFPB Targets Price Disparity on Mobile Home Loans American Banker (09/30/14) Witkowski, Rachel On Sept. 30, the Consumer Financial Protection Bureau (CFPB) debuted its first study of the manufactured housing market, an area which the bureau said generally comes with higher interest rates and fewer consumer protections. Borrowers tend to take out higher priced mortgages, tend to have smaller net worths and live in rural areas. "These consumers may be more financially vulnerable and benefit from strong consumer protections," said CFPB Director Richard Cordray. "The Bureau is committed to ensuring that consumers have access to responsible credit in the manufactured housing market." Despite manufactured housing making up a small fraction of the overall housing sector, Director Cordray noted that the market space still deserves attention. Manufactured homes are often built off site and financed through chattel loans, as opposed to traditional mortgages, and only five chattel lenders exist today. The industry argues that the higher cost of chattel loans factor in the higher risk, but the bureau argues that the lack of consumer protection does not make up the difference. The bureau noted industry concern over underwriting standards due to take effect in January and will monitor the effect of its rules on manufactured housing. Appeals Court Rejects Claims by American Indian Payday Lenders New York Times (10/01/14) Silver-Greenberg, Jessica The U.S. Court of Appeals for the Second Circuit ruled on Oct. 1 that New York Department of Financial Services superintendent Benjamin Lawsky is able to regulate online lending businesses. The lawsuit was brought by several Native American tribes that argued Lawsky had overstepped his authority by attempting to regulate their business activity, which they argued takes place on reservations in Oklahoma and Michigan and thus, is protected. The tribes made loans to consumers with the state of New York online. A preliminary request for injunction was denied last year by a federal district court in Manhattan, and the October 1 ruling upholds that one, although the lawsuit is likely to continue in federal court. Lawsky has taken aim at payday lenders by using the state's rate cap of 25 percent in recent months. In August 2013, he sent cease and desist letters to 35 lenders that he accused of violating usury laws

4 CFA Regulatory Update - News from AFSA of 5 10/23/2014 9:53 AM in the state. The court ruling could make the broader fight by Lawsky against payday lenders that much stronger, as native groups argue that their sovereign status shields them from New York's legal reach. Department of Defense Announces Proposed Changes to Military Lending Act to Curb Certain Lendig Practices by Payday Lenders and Bradley Arant Boult Cummings LLP Financial Services Litigation & Regulatory Compliance Alert 10/2/2014 On September 26, 2014, the Department of Defense (DoD) announced proposed changes to its regulation implementing the Military Lending Act (MLA). The MLA, passed by Congress in 2006, provides active duty service members and their dependents with certain protections in a limited number of consumer credit transactions. The MLA, among other things, caps interest rates for covered loans at 36%, requires lenders to provide disclosures informing service members of their rights under the MLA, and prohibits mandatory arbitration in the event of a dispute. The MLA is implemented by the DoD and enforced by federal regulators, including the Consumer Financial Protection Bureau (CFPB). This is the latest in a series of actions by federal regulators and others to eliminate predatory lending practices targeting members of the military and their families. In September 2013, the CFPB released guidelines on how its examiners will identify consumer harm and risks related to MLA violations when supervising payday lenders. In November 2013, the CFPB took action against Cash America, a payday lender, for extending payday loans to service members and their families in violation of the MLA. The MLA currently applies to (1) closed-end payday loans of less than $2,000 with a maximum term of 91 days; (2) closed-end motor vehicle title loans with a maximum term of 181 days; and (3) closed-end tax refund anticipation loans. A creditor extending any such covered loan may not impose a Military Annual Percentage Rate (MAPR) greater than 36% to a covered borrower ("interest-rate limit"). Second, a creditor must satisfy certain other terms and conditions in connection with an extension of any covered consumer credit transaction, such as the requirement to disclose certain information, both orally and in a form the borrower can keep, before or at the time the borrower becomes obligated on the transaction or establishes the account and the prohibitions against mandatory arbitration and the assessment of prepayment penalty fees. In response to the restrictions under the MLA, some lenders modified their loan products to fall outside the scope of the MLA and continued to market and provide high-rate loans to service members. For example, a payday lender may avoid the 36% interest-rate limit under the MLA by simply adjusting the terms or conditions so the loan is either (1) not closed-end credit, (2) extended for a term longer than 91 days, or (3) extended for an amount in excess of $2,000. These simple changes allowed payday lenders to continue to provide high rate credit products targeted to service members that avoided the protections of the MLA. In an effort to limit these product changes and increase the protections under the MLA, the DoD proposal expands the definition of "consumer credit" to the broader definition used in the Truth in Lending Act-credit offered or extended to a covered borrower primarily for personal, family, or household purposes and that is (1) subject to a finance charge or (2) payable by a written agreement in more than four installments. Additionally, any charge considered a "finance charge" under Regulation Z, as well as certain other charges covered as "interest" under the MLA, would be

5 5 of 5 10/23/2014 9:53 AM included in the calculation of the MAPR. All forms of payday loans, motor vehicle title loans, refund anticipation loans, deposit advance loans, installment loans, unsecured open-end lines of credit, and credit cards would become subject to the protections under the MLA, including the interest-rate limit. Loans secured by real estate and purchase-money loans, including loans to purchase a motor vehicle, would continue to be excluded from coverage under the MLA. The proposal would also allow lenders to determine whether borrowers are covered under the MLA by checking their status in the existing publicly available online DoD database. Lenders who used the database to confirm the eligibility of borrowers would receive a safe harbor from liability under the MLA. The proposed regulation was published in the Federal Register on Monday, September 29, Comments are due to the DoD no later than November 28, Alabama Consumer Finance Association Together. Shaping the Future. Of Our Industry! STAY CONNECTED Forward this This was sent to terikramer@southernassociationservices.com by teri.kramer@alabamaconsumerfinanceassociation.com Update Profile/ Address Rapid removal with SafeUnsubscribe Privacy Policy. ACFA 122 East Battle Street Talladega AL 35160