December 4, 2013 Newsletter
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December 4, 2013
 

SFIG News

Issue Spotlight

Recent Developments

 

SFIG NEWS
SFIG MEMBERSHIP SURPASSES 200!
The last week of November saw SFIG membership grow to 205 institutional members, a significant milestone in SFIG history. Membership growth shows no signs of abating, as new members, spurred by clear industry opinion showing its hand in support of the ABS Vegas conference, make their determination as to how to allocate their advocacy dollars in 2014. The highest growth membership category is investors, with high growth also seen in issuers and tech companies.

 

ABS VEGAS 2014 UPDATES

MICHAEL STEGMAN—FEATURED KEYNOTE SPEAKER ANNOUNCED FOR THE ABS VEGAS CONFERENCE
SFIG is pleased to announce that Mr. Michael Stegman, Counselor to the Secretary of the Treasury for Housing Finance Policy, will be the Featured Keynote Speaker at the ABS Vegas Conference.  He is responsible for coordinating the Department of the Treasury’s activities relating to the development of housing finance policy, and for assisting in the implementation of Treasury’s housing programs. Click here for a more detailed biography of Mr. Stegman.

 

REGISTER FOR THE ABS VEGAS CONFERENCE

ABS Vegas momentum continues to be incredibly strong, with nearly 130 sponsors to-date and more in process. We already have 2,500 participants registered, with over 900 investor and issuer participants.  Rooms at The Cosmopolitan are already sold out, with the overflow block of hotel rooms at the Aria also selling fast. Don’t miss the chance to be part of the structured finance industry’s largest conference. 

Click here for the conference agenda.  Click here to register for ABS Vegas 2014.

 

ISSUE SPOTLIGHT
AUTO LENDING AND FEDERAL ENFORCEMENT OF FAIR LENDING LAWS

In recent months, the treatment of certain auto lending practices under the fair lending laws has captured the attention of federal regulators and several members of the U.S. Senate and the U.S. House of Representatives.  The congressional interest follows the release by the Consumer Financial Protection Bureau (CFPB) on March 21, 2013 of a bulletin (CFPB Auto Bulletin) on auto lending and compliance with fair lending laws.

How Auto Financing Typically Works

Approximately 80% of car buyers choose to finance their purchases through optional, financing arranged by the dealer at the dealerships. The auto finance process at auto dealerships typically proceeds as follows: (i) a customer submits a loan application to the dealer; (ii) the dealer submits the loan application information to multiple potential lenders (including the auto manufacturer’s captive finance company, if any); (iii) each potential lender offers a “buy rate” (i.e. the interest rate such lender is willing to accept to purchase the retail installment sales contract from the dealer) and potential dealer compensation; (iv) the dealer sets the note rate for the consumer, funds the consumer’s auto loan and closes the auto sale; and (v) the dealer sells the retail installment contract at a discount to the chosen lender.  The note rate specified in the consumer’s contract may differ from the “buy rate” offered by the lender with the difference acting as compensation to the dealer for arranging the financing and the risks related to initially providing the financing arrangement that is later purchased by the lender.

Current Regulatory Environment

The regulation of the auto finance market is splintered, with multiple agencies responsible for various, and sometimes overlapping, aspects of the market.  Under the Dodd-Frank Act, examination and enforcement action with respect to the Equal Credit Opportunity Act of 1974 (ECOA) migrated from the FTC to the CFPB with respect to medium and large-sized banks, credit unions, and finance companies, but not auto dealerships.  The Board of Governors of the Federal Reserve System (Federal Reserve) also has ECOA authority, but that authority is limited to state member banks below $10 billion in assets.

Direct regulatory oversight of dealerships generally remains the purview of state agencies and the FTC, as dealerships are generally exempted from supervision by the CFPB under Section 1029 of the Dodd-Frank Act.  However, a dealer may be subject to the supervision of the CFPB under Section 1029(b) of the Dodd-Frank Act if such dealer:

operates a line of business— (A) that involves the extension of retail credit or retail leases involving motor vehicles; and (B) in which— (i) the extension of retail credit or retail leases are provided directly to consumers; and (ii) the contract governing such extension of retail credit or retail leases is not routinely assigned to an unaffiliated third party finance or leasing source.

The Dodd-Frank Act gives the FTC additional rulemaking authority with respect to dealerships. To that end, the FTC conducted a series of roundtable discussions during 2011 for auto industry stakeholders focused on dealership practices. Dealership compensation for arranging customer financing was a prominent topic at the roundtables, and consumer advocates and regulators expressed concern that dealership discretion with regard to establishing the contract rates may harm protected classes under the ECOA. 

However, following the roundtables the FTC took no action regarding dealership discretion with regard to establishing contract rates. On October 23, 2013 Senator Edward Markey (D-MA) wrote to the FTC (Markey Letter) requesting that it initiate an examination of reports of car dealers using potentially unfair or deceptive financing practices to sell cars and take all appropriate action to address these practices to protect consumers. The Markey Letter cited the FTC’s new powers under the Dodd- Frank Act “to protect consumers from unfair car financing practices” and encouraged the FTC to issue regulations to protect consumers.

The CFPB and the FTC entered into a “Memorandum of Understanding” (CFPB-FTC MOU) on January 20, 2012 that provides for the two agencies to cooperate in rule-making and information sharing related to consumer complaints and alleged wrongful practices involving consumer finance, which includes consumer auto finance. The agencies announced they will “coordinate efforts to protect consumers and avoid duplication of federal law enforcement and regulatory efforts.”

Similarly, the CFPB and the U.S. Department of Justice (DOJ) entered signed a “Memorandum of Understanding” (CFPB-DOJ MOU) on December 6, 2012 to strengthen coordination on fair lending enforcement and avoid duplication of federal law enforcement efforts. On November 14, 2013, a senior official at the DOJ, Steven Rosenbaum, said that the DOJ is teaming up with the CFPB to investigate possible discrimination in auto financing. Consistent with information disclosed in recent SEC filings by auto finance companies, he stated that, “[w]e have a number of ongoing joint investigations in the indirect auto-lending space.” The DOJ has broad authority to enforce the ECOA.

Overview of CFPB Auto Bulletin

The CFPB Auto Bulletin provides guidance about compliance with the fair lending requirements of the ECOA and its implementing regulation, Regulation B, for the alleged practice by auto lenders of increasing consumer interest rates and their own compensation with a share of the increased interest revenues.  The CFPB Auto Bulletin states that auto lenders are liable under the ECOA for pricing disparities among various classes of customers that may result from the lenders’ policies governing dealership compensation for arranging the financing of the customer’s vehicle.

As also emphasized by CFPB Director Richard Cordray in his testimony to the Senate Banking Committee on November 12, 2013, concerns regarding dealer compensation are not new for the auto industry or regulators. Regulators have investigated these practices in the past, and alleged ECOA violations by automotive finance companies were litigated extensively in the early 2000s. Director Cordray noted in his testimony to the Senate that the CFPB Auto Bulletin merely serves as a reminder to finance companies of liability under the ECOA.

The CFPB Auto Bulletin states that lenders purchasing loans from dealers are responsible for illegal, discriminatory pricing. It encourages lenders to establish a monitoring system or impose controls on the spreads between the contractual rates charged to consumers and lender’s “buy rates.” The foundation for the CFPB’s guidance wholly rests on a theory of liability called “disparate impact.”  The theory states that lenders can be sanctioned for actions that have a discriminatory effect — as demonstrated by statistical analysis, for example — even if they did not intend to discriminate. In April of 2012, the CFPB reaffirmed that the legal doctrine of “disparate impact” remains applicable as the CFPB exercises its supervision and enforcement authority to enforce compliance with the ECOA and Regulation B when the CFPB published “CFPB Bulletin 2012-4 (Fair Lending)” (CFPB Fair Lending Bulletin). The CPFB Fair Lending Bulletin provided guidance related to compliance with the fair lending requirements of the ECOA and its implementing regulation, Regulation B generally.

Overview of the CFPB’s Fair Lending Guidance For Auto Lending

The CFPB Auto Bulletin describes the CFPB’s understanding of the automobile lending industry, with a specific focus on the practice in which a lender allows a dealer to set, within certain parameters, a consumer’s interest rate and obtain a share of the payments (identified by the CFPB as “reserve” or “participation”). Such a pricing approach is recognized by the CFPB as a way of compensating dealers for the “value they add by originating loans and finding financing sources.” The CFPB notes that its supervisory experience confirms that several automobile lenders have established policies that permit dealers to engage in this type of “reserve” in a manner that is potentially discriminatory.

The CFPB Auto Bulletin expresses the CFPB’s belief that allowing dealers to engage in discretionary dealer reserve creates a significant risk that loan pricing disparities will occur on a prohibited basis such as race, religion, national origin, sex, marital status or age. Further, the CFPB cautions that lenders will be viewed as participants in any discriminatory pricing by dealers due to their role in the auto loan credit decisioning process.

The CFPB supports this view by noting that the ECOA, which prohibits discriminating against credit applicants on a prohibited basis, applies to “creditors,” which includes any assignees of an original creditor that participate in a decision to extend credit. The CFPB Auto Bulletin provides specific examples of lenders participating in the credit decisioning process, thereby becoming ECOA “creditors.” These examples include established practices in the auto lending market such as (i) lenders evaluating applicant information to establish a “buy rate” and (ii) lenders providing rate sheets to dealers. While the CFPB notes that some lenders have no participation in the credit process, the CFPB Auto Bulletin’s examples appear to relate to the most basic pricing and marketing functions of auto lending.

To address potential fair lending violations, the CFPB suggests that lenders that continue to offer discretionary pricing take steps to ensure they are complying with the ECOA and Regulation B. One suggested approach is for lenders to impose controls on dealer reserve and compensation policies.  Lenders also are advised to monitor and address the effects of those policies. However, the CFPB Auto Bulletin does not provide any suggestions on how lenders can actually monitor the effects of such policies, or how often monitoring should occur in order to demonstrate compliance. The CFPB Auto Bulletin’s other suggestion is for lenders to forgo discretionary dealer pricing altogether and instead pay dealers a flat fee per transaction.

CFPB Guidance Based on New Regulation B Interpretations

Although the CFPB Auto Bulletin contains significant interpretations of Regulation B, which implements ECOA, it was issued without following the Administrative Procedure Act (APA), which applies to federal agency rulemakings and thus not subject to the notice-and-comment process required of formal rulemaking. The CFPB Auto Bulletin introduces new interpretations of the ECOA and Regulation B that are not clearly derived from the text of Regulation B or its commentary.

For example, the CFPB Auto Bulletin suggests that a lender can be liable for a dealer’s discriminatory practices even if the lender had no actual knowledge of those practices. The CFPB Auto Bulletin gets to this result by interpreting an ambiguous provision in Regulation B, Section 1002.2(l), which states that a person shall not be considered a creditor “unless the person knew or had reasonable notice of the act, policy, or practice that constituted the violation before becoming involved in the credit transaction.” The CFPB simply states that some auto lenders “may be operating under the incorrect assumption that they are not liable under the ECOA for pricing disparities.” The CFPB proceeds to opine directly on Section 1002.2(l) by stating:

This provision limits a creditor’s liability for another creditor’s ECOA violations under certain circumstances. But it does not limit a creditor’s liability for its own violations — including, for example, disparities on a prohibited basis that result from the creditor’s own markup and compensation policies.

The CFPB Auto Bulletin suggests that these types of ECOA violations may be proved through a finding of “disparate impact.” However, “disparate impact” is often demonstrated using statistical data to identify disparities against a protected class of consumers, and the CFPB Auto Bulletin does not explain the type of data or data analysis that would be required to identify these disparities.  The CFPB Auto Bulletin also suggests that if the lender regularly participates in the credit decision process, a lender’s dealer compensation policies may, by themselves, trigger liability under the ECOA.

Congressional Reactions

Several Members of Congress submitted letters to the CFPB suggesting that the CFPB should have used the APA’s rulemaking process for its pronouncements related to auto lending.  The CFPB responded that because it issued “guidance” rather than a formal rule, a public comment period was not required.  As noted in a June 20, 2013 letter to the CFPB from House Financial Services Committee Republicans, as a result of the CFPB’s position, the public, including lenders, dealers, and consumers, have not had an opportunity to express their views on what the CFPB’s fair lending interpretation means in practice, nor have they had an opportunity to pose questions related to the standard’s application.  In addition, because the CFPB opted to issue guidance instead of a formal rule, there is no stated implementation period for lenders to conform their activities to the standards articulated by the CFPB.

The Guidance May Create an Uneven Playing Field Among Lenders

The CFPB Auto Bulletin may contradict numerous statements from CFPB officials that the CFPB intends to create a level playing field for all market participants, as the CFPB Auto Bulletin does not to apply to “small” lenders that are not subject to direct CFPB supervision, yet are otherwise subject to the ECOA and Regulation B.

The CFPB Auto Bulletin notes that it applies to both “depository institutions and nonbank institutions” that are within the CFPB’s jurisdiction, even though the CFPB has otherwise yet formally to extend its supervisory jurisdiction to nonbank auto lenders. However, the CFPB Auto Bulletin does not impose the same compliance requirements on smaller banks, credit unions and finance companies than it imposes on institutions large enough to fall under the CFPB’s primary supervisory jurisdiction. That is because the interpretation was not issued as a formal rulemaking, which would impose requirements on all creditors subject to the ECOA.

The CFPB Auto Bulletin also appears to encroach on the authority of the FTC with respect to auto dealers specified in the Dodd-Frank Act. By requiring lenders to police the reserve pricing practices of dealerships, the CFPB is arguably reaching through banks and other financial services providers to regulate the very automobile loan pricing practices of dealers that Congress expressly prohibited the CFPB from regulating in Section 1029 of the Dodd-Frank Act. 

“Disparate Impact” Theory of Liability

The fair lending standards expressed in the CFPB Auto Bulletin appear to mirror arguments that have been used by the DOJ and private litigants to enter into settlements with lenders and auto dealers even though such settlements are not binding legal precedent.

The CFPB Auto Bulletin’s primary concept—that lenders are liable for a dealer’s discriminatory actions based on lenders’ permissive policies that permits discretionary pricing—appears to come directly from arguments that the DOJ filed in an amicus curiae brief supporting the plaintiffs in Cason v. Nissan Motor Acceptance Corp. in July of 2000 (Cason Amicus Brief). In the Cason case, plaintiffs alleged that an auto dealer discriminated against African-Americans on a prohibited basis, and that Nissan was equally liable under the ECOA due to its permissive policies allowing dealers to engage in such discriminatory actions.  The case was later settled.

Since the Cason case, private litigants and the DOJ have brought several other actions relying on the “disparate impact” theory to allege that dealers and lenders have priced auto loans on a discriminatory and prohibited basis. Many of the major auto lenders entered into substantial settlements in lawsuits regarding these practices. Because most of these actions have been settled by consent, however, the “disparate impact” theory of liability has not been subject to extensive judicial review. 

Most recently the DOJ settled a fair lending lawsuit against Union Auto Sales, Inc., a California automobile dealer. The case against Union Auto was referred to the DOJ by the Federal Reserve following its fair lending examination of Nara Bank. The Federal Reserve found evidence that Nara Bank’s automobile lending program discriminated against non-Asian borrowers. Union Auto originated 21% of the loans in Nara Bank’s automobile lending program. The DOJ settled with Nara Bank in 2009.

Alternative Pricing Models Suggested by the CFPB

At the CFPB’s Auto Finance Forum on November 14, 2013, CFPB officials suggested three alternative pricing models that would allow dealers to make a profit without discriminating against certain consumers: (i) a flat fee per transaction, (ii) a fixed percentage of the amount financed, or (iii) other nondiscretionary approaches that market participants may devise that would work to address these concerns.  The CFPB says it is not promoting a particular option.  CFPB officials said that the CFPB would welcome any strategy that might mitigate fair-lending risks and that it is ultimately up to lenders to change the dealer compensation structure in a manner that does not violate the ECOA.

Click here for the text of the ECOA. Click here for Regulation B. Click here for the CFPB Auto Bulletin and the CFPB’s fact sheet on the CFPB Auto Bulletin. Click here for CFPB Director Cordray’s Remarks at the CFPB Auto Finance Forum. Click here for the CFPB-FTC MOU. Click here for the congressional letters and CFPB responses.

If you are interested in participating in SFIG’s Auto Finance Committee, please contact SFIG at sairah.burki@sfindustry.org.

 

RECENT DEVELOPMENTS

SENATE PANEL APPROVES YELLEN’S NOMINATION TO HEAD FED, CLEARING FIRST HURDLE

The Senate Committee on Banking, Housing, and Urban Affairs (Committee) approved the nomination of Janet Yellen to be the next head of the Board of Governors of the Federal Reserve System (FRB). The full Senate is expected to confirm Yellen's nomination, which would make her the first woman to lead the central bank.  Ms. Yellen passed by a 14-8 vote of the Committee.  She currently serves as the Vice Chairman of the FRB.

 

CONSUMER FINANCIAL PROTECTION BUREAU (CFPB) UNVEILS FINAL RULE THAT CONTAINS NEW INTEGRATED MORTGAGE DISCLOSURES

The CFPB unveiled the long awaited final rule that contains the Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act (RESPA), Regulation X, and the Truth-In-Lending Act (TILA), Regulation Z.

The final rule, labeled as the “Know Before You Owe” disclosures, applies to most mortgage loans, but explicitly exempts home equity lines of credit, reverse mortgages, mortgage loans secured by a mobile home or by a dwelling that is not attached to real property, and loans made by a creditor who makes five or fewer mortgages in a year. The new rule is effective, and new disclosures will be required to be given to consumers for applicable mortgage applications received on or after August 1, 2015.

Click here for a fact sheet about the “Know Before You Owe” disclosures.

 

US SENATE CHANGES RULES ON FILIBUSTERS ON MOST PRESIDENTIAL NOMINEES; REPRESENTATIVE MEL WATT EXPECTED TO BE CONFIRMED AS A RESULT

The United States Senate made a significant change to its rules of operation regarding use of filibusters.  This rule has now changed with respect to confirmations of Presidential nominees (except for nominees to the Supreme Court).  A filibuster is no longer an allowable tactic to block a nominee from being voted on.  This means in practical terms 60 votes are not necessary to bring a nominee to the floor for a vote.  The impact of this is that Representative Mel Watt’s nomination to head the Federal Housing Finance Agency may be brought to a vote as early as December and require only a simple majority for his confirmation.  If this occurs the issue of principal reductions on mortgage-backed securities may come up for debate as well as extending the Home Affordable Refinance Program (HARP).

 

NY ATTORNEY GENERAL COMMENTS OPPOSE USE OF EMINENT DOMAIN

On November 18, 2013, in response to recent remarks by New York City Councilwoman Melissa Mark-Viverito, New York State Attorney General Eric Schneiderman stated he would oppose proposed programs to use eminent domain to seize and restructure mortgage loans.

 

FEDERAL HOUSING FINANCE AGENCY (FHFA) MAINTAINS CURRENT MAXIMUM CONFORMING LOAN LIMITS FOR 2014
FHFA announced that the 2014 maximum conforming loan limits for Fannie Mae and Freddie Mac (GSEs) will remain at their current levels of $417,000 for single-family properties in most areas of the country, and up to $625,500 in certain high-cost areas. Click here for a link to the FHFA announcement.

 

OAKLAND CITY COUNCIL ADOPTS REVISED RESOLUTION ON EMINENT DOMAIN
On November 20, 2013, the Oakland, CA City Council held a meeting at which it unanimously adopted a revised resolution that “appreciates the City of Richmond’s leadership in efforts to assist homeowners at risk of foreclosure to remain in their homes.” Unlike an earlier draft, the resolution does not encourage the City of Oakland to explore adopting an eminent domain plan. Click here for revised resolution.

 

FHFA RELEASES REPORT ON COMMON SECURITIZATION PLATFORM AND CREDIT RISK SHARING

On November 25, 2013, FHFA issued a Progress Report on several initiatives. The report finds that significant progress has been made toward the development and initial testing of the Common Securitization Platform (CSP). The report also mentions recent risk sharing transactions conducted by the GSEs.  

Click here for the FHFA announcement and related progress report.

 

CFTC AND FDIC MEETING ON DECEMBER 10, 2013 TO CONSIDER PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH COVERED FUNDS

The Commodity Futures Trading Commission (CFTC) has scheduled a meeting on December 10, 2013 at 9:30am to consider, among other issues, “proprietary trading and certain interests in and relationships with covered funds.” Recently, Bart Chilton, a member of the CFTC who intends to step-down in the near future, had stated that the draft rule does not do enough to limit banks’ ability to engage in proprietary trading. “If we voted on it today, I’d oppose it,” he said. “It opens the door for proprietary speculative bets under the guise of hedging, exactly what Congress told us to avoid.”

The SEC's Democratic Commissioner Kara Stein and CFTC Chairman Gary Gensler had apparently also raised concerns about the strength of the rule. The Federal Deposit Insurance Corporation has also scheduled a meeting on December 10th to discuss “prohibitions and restrictions on proprietary trading and certain interests in, and relationships with, hedge funds and private equity funds.”  Sources indicate that the Federal Reserve and Office of the Comptroller of the Currency are also scheduling a vote on the final Volcker Rule on December 10th.

Click here for the CFTC announcement. Click here for the FDIC announcement.

 

FDIC’S HOENIG SUGGESTS POSSIBLE SOFTENING OF PROPOSED LEVERAGE RATIO REQUIREMENTS

Vice-Chairman of the Federal Deposit Insurance Corporation (FDIC), Thomas Hoenig, stated that he’d consider allowing banks to exclude cash from total assets when calculating their leverage ratios. Banks have been advocating for such an exemption, stating that, otherwise, they would have to replace cash with riskier, higher-yield assets. Additionally, banks often face an influx of deposits during a crisis, which could then significantly reduce their leverage ratios. However, Senators Sherrod Brown (D-OH), David Vitter (R-LA), and Carl Levin (D-MI) recently submitted a letter (Letter) to the Board of Governors of the Federal Reserve System (FRB), FDIC, and the Office of the Comptroller of the Currency advocating for a higher final leverage ratio than is currently proposed. Click here for the Letter.

 

U.S. SENATE AGRICULTURE COMMITTEE WILL NOT VOTE ON CFTC NOMINEES UNTIL 2014

With the departure of Commodity Futures Trade Commission (CFTC) commissioner Jill Sommers and impending departure of Chairman Gary Gensler and Commissioner Bart Chilton, the CFTC soon will be left with only two commissioners, Scott O'Malia, a Republican and Mark Wetjen, a Democrat. Although the CFTC has written most of the rules required by Dodd-Frank, having only two commissioners on the five-member panel could restrict the agency's ability to implement the reforms, including the Volcker Rule.

 

CFTC STAFF ISSUES TIME-LIMITED NO-ACTION LETTER ON THE APPLICABILITY OF TRANSACTION-LEVEL REQUIREMENTS IN CERTAIN CROSS-BORDER SITUATIONS

On November 26, 2013, the Commodity Futures Trading Commission (CFTC) issued a time-limited no-action letter (No-Action Letter) that provides relief to swap dealers (SDs) registered with the CFTC that are established under the laws of jurisdictions other than the United States (Non-U.S. SDs) from certain transaction-level requirements under the Commodity Exchange Act.

On November 14, 2013, the CFTC issued an advisory in response to inquiries from swap market participants regarding the applicability of the CFTC’s Transaction-Level Requirements in certain situations (Advisory). Subsequent to the issuance of the Advisory, concerns were raised by certain Non-U.S. SDs regarding compliance with the Transaction-Level Requirements, who represented that, in order to avoid market disruption for their non-U.S. counterparties, additional time would be necessary to come into compliance.

The letter issued will provide no-action relief to Non-U.S. SDs until January 14, 2014, subject to the limitations set forth in the letter. Click here for the No-Action Letter. 

 

REGULATORY AGENCIES PLACE TOUGHER RESTRICTIONS ON BANK PAYDAY LOANS

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) issued guidance to limit the risks of loans tied to consumers’ paychecks, government benefits or other income directly deposited into their bank accounts. “The OCC encourages banks to offer responsible products that meet the small-dollar credit needs of customers,” Comptroller of the Currency Thomas J. Curry said.  “However, deposit advance products share a number of characteristics with traditional payday loans, including high fees, short repayment periods, and inadequate attention to the ability to repay.  As such, these products can trap customers in a cycle of high-cost debt that they are unable to repay.  As a result, they pose significant safety and soundness and consumer protection risks.  Banks must understand and manage those risks, and this guidance clarifies our expectations for doing so.”

The guidance details OCC expectations for any OCC-supervised institution offering deposit advance products to address potential credit, reputation, operational, and compliance risks associated with the products. The guidance states that examiners will assess credit quality, including underwriting and credit administration policies and practices; reliance on fee income; compliance with applicable federal consumer protection statutes; management oversight; third-party relationships; the adequacy of capital; and the allowance for loan and lease losses.  The OCC will take appropriate action to prevent harm to consumers, ensure compliance with applicable laws, and address any unsafe or unsound banking practice or violations of law associated with these products.

The FDIC issued similar guidance. 

Click here for OCC guidance and here for FDIC guidance. 

 

BASEL TO PROPOSE TOUGHER CAPITAL REQUIREMENTS

Basel is expected to propose tougher capital requirements for banks’ securitizations, while seeking to shield higher-quality paper from overly cumbersome rules. The Basel Committee on Banking Supervision will sign off on draft proposals at a meeting in Hong Kong starting December 3, 2013, according to two people familiar with the plans who asked not to be named because the process is private.

 

ISSUANCE OF NEW RULES TO PROTECT CONSUMERS AND ENHANCE MARKET TRANSPARENCY

The regulatory agencies charged with implementing Dodd-Frank announced several new actions this week:

  • CFTC Announces Weekly Swaps Report: Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler announced the initiation of the CFTC Weekly Swaps Report. The weekly report will provide the public with a detailed view of the swaps marketplace that before the Dodd-Frank Act was an opaque market. Today’s report currently covers the interest rate and credit asset classes that comprise about 90% of the approximately $400 trillion swaps market. The report provides three views of the swaps market: the gross notional outstanding value, the weekly transactions measured by dollar volume, and the weekly transactions measured by ticket volume. For each asset class, the report provides detailed breakdowns of the swaps market by product type, currency (six major currencies), tenor, participant type, and whether swaps are cleared or uncleared. Click here for the Weekly Swaps Report.
  • CFPB Takes Action Against Payday Lender For Robo-Signing: The CFPB took its first enforcement action against a payday lender by ordering Cash America International, Inc. to refund consumers for robo-signing court documents in debt collection lawsuits. The CFPB also found that Cash America – one of the largest short-term, small-dollar lenders in the country – violated the Military Lending Act by illegally overcharging servicemembers and their families. Cash America will pay up to $14 million in refunds to consumers and it will pay a $5 million fine for these violations and for destroying records in advance of the CFPB’s examination.  Click here for the CFPB press release. 
  • FDIC, OCC and the Federal Reserve Release a Regulatory Capital Estimation Tool for Community Banks: The Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Federal Reserve Board released an estimation tool to help community banks understand the potential effects of the recently revised regulatory capital framework on their capital ratios. The revised framework implements the Basel III regulatory capital reforms and certain changes required by the Dodd-Frank Act. Click here for the estimation tool.

 

SFIG COMMITTEES AND TASK FORCES

SFIG has a number of Committees and Task Forces meeting and working on many topics of interest to the securitization industry.  Please visit our website for more information, including how to join.

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SFIG is pleased to share this edition of its newsletter with our members, as well as our supporters in the structured finance community.  To ensure that you receive future editions of the newsletter, please visit our website (www.sfindustry.org) to learn about membership opportunities.

SFINDUSTRY.ORG

Contact Information

Richard Johns for all matters

Kristi Leo for Investor related matters

Sairah Burki for ABS Policy related matters

Sonny Abbasi for MBS Policy related matters

 

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