December 13, 2018
2018 edition: 99 / 104
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Congress may have accidentally freed nearly all banks from the Volcker Rule

A few double negatives buried in legislative text may have inadvertently freed nearly all U.S. banks from a regulation known as the Volcker Rule, which sought to curb risky behavior in response to the 2008 financial crisis.

The text in question comes from a package bill passed in May that pared back portions of the Dodd-Frank post-crisis financial regulatory framework. One of the many provisions of the bill offered an exemption from the Volcker Rule to smaller community banks that policymakers felt were burdened by the regulation, which limited banks' proprietary trading, or trading for their own accounts.

But sources tell Yahoo Finance that some of the largest U.S. banks are now thinking about challenging the interpretation of that May legislation in court, arguing that the bill could be read as also extending regulatory relief to banks far above $10 billion in assets.

If they succeed, this alternative interpretation could free nearly all U.S. banks from a heavily scrutinized post-crisis regulation that some see as an important safeguard against excessive risk-taking but one that opponents criticize as poorly designed and unduly burdensome.

'And' or 'Or'
In the spring of 2018, a number of moderate Senate Democrats teamed up with Senate Banking Committee Chair Mike Crapo (R-Idaho) and the Republican majority to pass a package bill paring back portions of Dodd-Frank, arguing that some of the rules placed an undue burden on smaller financial institutions. Read more at YAHOO FINANCE

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What to Expect From the New Head of the Consumer Financial Protection Bureau

Mulvaney's protégée, Kathleen L. Kraninger, is likely to follow the current deregulatory course

Kathleen L. Kraninger was confirmed Thursday by the Senate 50-49 to head the Consumer Financial Protection Bureau. She is likely to continue leading the federal agency with the same relaxed approach toward financial regulation and enforcement started by her immediate predecessor, John M. "Mick" Mulvaney, many observers say.

Consumer advocates are concerned that financial service companies accused of wrongdoing will continue to be pursued less aggressively.

For financial service companies and others, this means a more limited government, free-market approach and the continued reining in of an agency some thought had been overstepping its mandate.

The CFPB, established in 2010 in the wake of the financial crisis, is responsible for monitoring, supervising, and regulating consumer financial services, specifically those that deal with lending, credit, and debt. It also collects and analyzes data related to consumer financial services and is the only federal agency with a legal mandate to focus on consumer protection.

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Title loan companies grow, fend off regulation

After years of financial ups and downs, Gloria Whitaker needed some quick cash to help keep a roof over her head.

So she and her son, Devon, went to a TitleBucks store in Las Vegas and took out a $2,000 loan, pledging his gold 2002 Ford F-150 truck as collateral.

Whitaker, 66, said nobody verified that she, or her jobless son, could repay the loan, which carried interest of 121.545%. When she paid off the loan, she said, the company didn't give back the title to the truck. Instead, employees talked her into borrowing $2,000 more, she said.

"I had a hardship," Whitaker said. "I was between a rock and a hard place," which included a family illness.

In October, Whitaker filed a complaint with state regulators, who have accused TitleMax, which owns TitleBucks, of violating state lending laws and estimated that the company overcharged Nevada customers more than 6,000 times this year by nearly $8 million.

"Our position is that they are a bad actor," said George Burns, who heads the Nevada Financial Institutions Division. "We want them to conduct their business legally and not be taking advantage of the public." Read more at USA TODAY

Lending as a Service

Promoting fair, equitable, and nondiscriminatory access to credit: 2017 Fair Lending Report

Access to credit is a key to economic mobility and prosperity for consumers and small businesses alike. Our annual Fair Lending Report to Congress highlights how in 2017 we continued to focus on promoting fair, equitable, and nondiscriminatory access to credit in mortgage lending, continued fair lending supervision of servicing and small business lending, and embarked on new efforts to encourage innovation in expanding credit access.

As the report explains, in 2017 the Bureau:
  • announced enforcement actions to address discrimination by a bank in its credit card lending, and against a mortgage lender that failed to report accurate data about the applications it received and loans it made to consumers
  • monitored lenders and servicers for compliance with the anti-discrimination laws under the Bureau's jurisdiction
  • issued a "no-action" letter to a company that uses alternative, or non-traditional, data to make credit and pricing decisions to support innovation and enable people with limited credit history, among others, to obtain credit or obtain credit on better terms
  • led efforts to collaborate with other federal banking regulators to issue new guidelines on how examiners evaluate whether covered mortgage lenders are reporting accurate data
  • communicated information on fair lending to the public at large, including industry, consumer and civil rights group, and other stakeholders, through blog posts, Supervisory Highlights reports, and serving as presenters and panelists at a record number of events
Read at CFPB

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Treasury advises against 'postal banking' resurrection

The Treasury Department recommended against getting the U.S. Postal Service (USPS) involved in the banking business in a report exploring possible methods of generating more revenue for the USPS. The financial industry long has been among those opposed to postal banking services, which once were standard, whereas some politicians have voiced support for the idea.

Responding to an executive order from President Donald Trump, Treasury commissioned a task force to "identify a path for the USPS to operate under a sustainable business model, providing necessary mail services to citizens and businesses, while competing fairly in commercial markets," Treasury Secretary Steven Mnuchin wrote in an introductory letter included in the report.

The task force recommended that the USPS and Congress work in conjunction on ways to craft a sustainable business model for the USPS to avoid a "liquidity crisis liquidity crisis, which could disrupt mail services and require an emergency infusion of taxpayer dollars." The task force determined that this could be accomplished through a variety actions - such as strengthening governance of USPS, adjusting its pricing model, modernizing its cost allocation practices and reducing operating costs - but that the notion of commissioning the Postal Service to offer loans and depository accounts, as has been suggested by some, is not a viable option.

"Given the USPS's narrow expertise and capital limitations, expanding into sectors where the USPS does not have a comparative advantage or where balance sheet risk might arise, such as postal banking, should not be pursued," the report states. Read more at DODD FRANK UPDATE

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Check Into Cash Named Best Overall Payday Lender in USA

CLEVELAND, Tenn., Dec. 12, 2018 /PRNewswire/ -- Check Into Cash®, the national leader in alternative financial solutions announced today it has been named "Best Overall Payday Lender" by Top 10 Reviews for 2018, scoring 9.3/10 on the respected consumer site's rating system.

As a pioneer in the alternative and short-term financial services industry, Check Into Cash is the longest standing payday lender in the industry and currently operates almost 900 stores in 32 states across the country. Since the company's inception in 1993, Check Into Cash has branched out to include a variety of financial services under their umbrella, earning the title in their slogan - Your One Stop Money Shop®.

About Check Into Cash
Founded in Cleveland, Tennessee in 1993 by entrepreneur and philanthropist Allan Jones, the Check Into Cash brand is a state licensed and regulated small balance lender. Check Into Cash stores offer check cashing, Western Union® money transfers, prepaid U.S. Money Cards, and other convenient services as a complete One Stop Money Shop. Read more here

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Subprime personal loans will flourish in 2019 thanks to startups and Donald Trump

Americans are again splurging on subprime debt. The spigots are forecast to open even wider next year for personal loans, thanks to financing provided by fintech startups as well as the Trump administration's lighter regulatory touch on payday lending.

Subprime personal loan balances have been climbing since 2014 and are forecast to increase 20% next year, to a record $156.3 billion, according to credit-scoring firm TransUnion. The last three months of this year will be the biggest quarter ever for origination, accounting for some 5 million loans. "A lot of it is being driven by non-prime and subprime originations," said Jason Laky, TransUnion's consumer-lending business lead.

In the past, personal loans were mainly used by borrowers with weak credit who weren't able to get other kinds of financing, like credit cards or home equity loans. But now, a decade after the subprime credit bubble popped, personal loans are experiencing a revival thanks to digital startups that make it quick and easy to borrow money this way. Instead of going to a bank, which may have been wary of the unsecured (no collateral) form of lending, borrowers can now get money in seconds via their smartphone. Read more at QUARTZ

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The FCC Steps Up Efforts to Restrict "Robocalls". by Brownstein Hyatt Farber Schreck

Intrusive, unwanted calls are the Federal Communications Commission's top consumer complaint. As part of its efforts to combat robocalls, the FCC has released two draft orders that are slated to be approved at its next open meeting on Dec. 12.

The FCC Steps Up Efforts to Restrict "Robocalls"
Intrusive, unwanted calls are the Federal Communications Commission's top consumer complaint. As part of its efforts to combat robocalls, the FCC has released two draft orders that are slated to be approved at its next open meeting on Dec. 12.

The first order establishes a single, nationwide comprehensive reassigned number database. The second classifies texts messages as "information services," which will make it easier for wireless providers to continue to block scam or spam texts. Typically, few changes are made to draft orders when they are finally approved by the full commission.

Callers often dial numbers that they are unaware have been disconnected and reassigned to someone else. That call can subject the caller to liability under the Telephone Consumer Protection Act (TCPA) because the new number user has not consented to be called. The FCC plans to address this problem by creating a single, comprehensive database of numbers that have been permanently disconnected and are thus available for reassignment. Callers could then check if the number still belongs to the party they intend to call. Read more at Federal Communications Commission

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Competition rises among private lenders as banks exit

The gradual exit of banks from business lending due to increased global financial regulation is driving attractive opportunities in private credit, but increased competition among non-bank lenders is causing looser covenants and higher leverage, according to Justin Ferrier, managing director, Asian private credit, at global asset manager BlackRock.

US companies will need about $600 million dollars of refinancing over the next six years - a figure which dwarfs the dry powder available from US private equity firms, Ferrier recently told the Fiduciary Investors Symposium.

Much of the shortfall will need to come from private credit, in other words credit which is not publicly traded but bilaterally negotiated with lenders other than banks, he said. Similar trends can be observed in Europe, Australia and to some extent Asia.

"So for example in Asia, the private lending market, particularly the special situations market, was dominated by the global investment banks," Ferrier said. "Each of them ran a number of prop desks. Post-GFC, all of those investment banks have closed, creating a big gap in the market for private lenders."

In Australia, the exit of the nation's four major banks from many sectors, including construction financing has created a large volume of deals for private lenders, Ferrier said.

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Paul Volcker on Why Financial Regulation and Good Governance Are So Important

Over his 91 years, Paul Volcker, the former Federal Reserve chairman, has been asked to fix basically everything. If humans made a mess with money, there's a good chance that Volcker helped clean it up.

From runaway inflation in the late 1970s and the recession of the early 1980s to Latin American debt crises and the United Nations oil-for-food program, he was there. Volcker headed President Barack Obama's Economic Recovery Advisory Board to advise in the chaos of the financial crisis and its aftermath. Volcker even had a rule named after him in the Dodd-Frank regulatory overhaul, a rule that reined in banks' ability to take risks with customer deposits. Now, his Volcker Alliance is seeking to shore up public administration to return to the principle of "good governance" that he thinks is a foundation for a healthy society.

I visited him in his living room, sitting near a towering stack of books on a table and bookshelves behind, books that included Ray Dalio's Principles, Peter L. Bernstein's Against the Gods, and Jane Mayer's Dark Money. We talked about his own book, written with Christine Harper, Keeping At It, which was published at the end of October. Here are the highlights: Read more at BARRON'S

Dreher Tomkies LLP
Dreher Tomkies LLP is a law firm concentrating in the areas of Banking and Financial Services law.

Press statement by Mick Mulvaney, acting director of CFPB

I commend the U.S. Senate for confirming Kathy Kraninger as the next director of the Bureau of Consumer Financial Protection. Next week begins a new chapter of service in Kathy's career. The American consumer and our economy's financial sector will benefit from her commitment, expertise, and professionalism. This last year has been an important step in the history of the Bureau as we take our place among the most notable regulatory bodies of our country-and frankly the world. Like all transitions, it was not always as smooth as we would've all liked, but the Bureau has emerged stronger for it. I wish Kathy the best of luck, and I look forward to the next five years of her leadership. Read at CFPB

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