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April 19, 2007
Interchange Fees Pivotal for Customers, Merchants
States Join Congress in Fight Against Credit-Card Fees
Fannie and Freddie Polish Image With Subprime-Loan Purchases
Report Urges Title Industry Competition
High Court Sides With Banks on Mortgage Rules
Democrats Eye Bill as High Court Backs OCC
Regulators, Execs Agree on Goal of Keeping Distressed Borrowers in Homes, FDIC Chairman Says
B&C Frenzy Hits Congress
Sallie Mae Agrees to $25B Takeover
Bankruptcy Filings Plunge in Calendar Year 2006
Baby, Have These States Got Some Plans for You
Did Revolving Door Lead to Student Loan Mess?
Leasing Is Up
GMAC, Austrian Outfit Sign Deal
Hyundai Motor May Bring Auto Finance Arm to India
More Than 30,000 Nonprime Homeowners Now Enrolled in First-of-Its-Kind Program to Help Them Manage Credit
AFSA's Response to the Watters v. Wachovia Decision
Witnesses at Foreclosure Mitigation Hearing Say Market Working
NCSL Spring Meeting in Washington DC This Week
AFSA Says Re-Opening the Bankruptcy Code is Not the Answer
AFSA's 2007 Vehicle Finance Conference Featured in F & I Management Technology Magazine
Interchange Fees Pivotal for Customers, Merchants
Sunday Times (South Africa) (04/18/07)
Interchange fees can be valuable to consumers and merchants alike, according to Louis von Zeuner, the executive director in charge of retail banking at South African banking group Absa. In remarks before South Africa's Competition Commission, von Zeuner noted that consumers enjoy benefits such as interest-free periods and affordable card fees because of interchange fees. Merchants, meanwhile, benefit from guaranteed payments and increased sales, he said. Von Zeuner warned that the removal of interchange fees could have a negative effect on consumers. He noted that cardholder fees would likely increase as they did in Australia after that country reviewed interchange fees, while higher risk consumers would have less access to credit. In addition, the removal of interchange fees could lead to the removal of card functionality as the payment guarantee, which in turn would lead to increased fraud costs for merchants, von Zeuner said.
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States Join Congress in Fight Against Credit-Card Fees
Convenience Store News (04/16/07)
Seventeen bills tightening credit-card companies' practices are up for consideration in 10 states. Proposals in various states include legislation restricting interchange fees on sales tax of retail transactions, obliging companies to offer full disclosures regarding interchange fees, and banning "chargebacks." In Washington, the Senate Banking Committee and Permanent Subcommittee on Investigations have announced they intend to conduct hearings on interchange fees before the year's end.
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Fannie and Freddie Polish Image With Subprime-Loan Purchases
Wall Street Journal (04/19/07) P. A3; Hagerty, James R.; Paletta, Damian
Announcements from Fannie Mae and Freddie Mac that they will purchase subprime mortgages to help curtail rising defaults have bolstered their reputations among federal lawmakers at a time when legislation to strengthen their oversight is nearing approval. House Financial Services Committee Chairman Barney Frank (D-Mass.) is among the lawmakers underscoring the usefulness of the GSEs' mortgage holdings, and observers believe reform legislation may not impose portfolio restrictions as a result. Freddie Mac Chairman and CEO Richard Syron expects the company to begin subprime purchases in July, with a total of $20 billion in such loans snapped up during the next few years. Fannie Mae anticipates buying tens of billions of dollars' worth, noting that purchasing refinance loans would assist more than 1 million homeowners facing higher adjustable-rate mortgage payments.
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Report Urges Title Industry Competition
ForexTV (04/19/07)
A report released this week by the Government Accountability Office challenges the cost of title insurance for consumers, who pay the premium as just one part of much bigger real estate transaction. As it stands, the business of verifying that property is free and clear of unpaid taxes, liens, and other claims to ownership is dominated by five heavyweights: Fidelity National Financial Inc., First American Corp., Stewart Information Services Corp., LandAmerica Financial Group Inc., and Old Republic International Corp. Title insurance fees vary from state to state, ranging from several hundred dollars into the thousands; and the GAO study reports that investigative work by federal housing officials and state regulators have unearthed industry practices "that appear to reduce price competition and could indicate excessive prices." The U.S. agency concludes that regulation of the title insurance sector needs to be tightened, with an eye toward improving customer choice.
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High Court Sides With Banks on Mortgage Rules
Washington Post (04/18/07) P. D1; Barnes, Robert; El Boghdady, Dina
The U.S. Supreme Court has ruled in favor of national banks in a lawsuit filed against Wachovia Mortgage by Michigan financial and insurance services commissioner Linda Watters, who barred the company from writing loans in the state after it declared that its status as a wholly owned subsidiary of Wachovia Bank meant it had to abide only by federal--not state--regulations. The decision means that the mortgage-lending units of national banks are to be governed by the Office of the Comptroller of the Currency, rather than by state regulators. Consumer groups are calling for federal legislation that puts oversight into the hands of states, which they believe are better equipped to protect consumers. However, the banking industry says the ruling will aid compliance, as they will not have to adhere to numerous, differing state laws.
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Democrats Eye Bill as High Court Backs OCC
American Banker (04/18/07) Hopkins, Cheyenne
House Financial Services Committee Chairman Barney Frank (D-Mass.), along with other advocates, aims to tighten standards for federal lending to ensure that the Office of the Comptroller of the Currency (OCC) fulfills its role as consumer protector. While most legislators are now resigned to the OCC's power of preemption, Rep. Luis Gutierrez (D-Ill.) plans to continue the fight by reintroducing legislation from 2005, a bill that would restrict the OCC's ability to preempt state consumer laws and force national banks into compliance with state consumer laws. These efforts come in response to a recent Supreme Court decision to exempt operating subsidiaries from state consumer protection laws.
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Regulators, Execs Agree on Goal of Keeping Distressed Borrowers in Homes, FDIC Chairman Says
Canton Repository (Ohio) (04/17/07) P. D2
Federal Deposit Insurance Corp. Chairman Shelia Bair and representatives from the Treasury Department, Federal Reserve, and Securities and Exchange Commission met this week with lenders, investment bankers, and Fannie Mae and Freddie Mac executives to discuss ways to help cash-strapped mortgage borrowers avoid foreclosure. Bair suggested lengthening low-interest-rate periods as one possible solution to assist borrowers in keeping their homes. "It's going to be a very challenging task," she said. "We're not going to be able to save everybody." Even so, Bair indicated that regulators, Wall Street firms, and lenders agree that providing assistance to sidestep foreclosure benefits all parties involved.
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B&C Frenzy Hits Congress
National Mortgage News (04/16/07) Vol. 31, No. 29, P. 1; Collins, Brian
Increasing subprime foreclosures are prompting Congress to devise a legislative solution for homeowners' late payments, while industry organizations are working feverishly on a private industry remedy. A Joint Economic Committee report reveals that delinquencies and foreclosures on subprime adjustable-rate mortgages (ARMs) are increasing, and 1 million of these soaring ARMs will reset in 2007 while an additional 800,000 will reset in 2008. The report suggests numerous courses of action, including a proposal for the Federal Housing Administration to manage a relief fund. The National Association of Consumer Bankruptcy Attorneys (NACBA) claims that the existing code protects mortgage lenders, although it does not permit bankruptcy judges to lower the interest rate or principal amount so that homeowners can come out of bankruptcy with affordable payments. The Consumer Federation of America and the Center for Responsible Lending has teamed with NACBA in calling for banking changes. The American Financial Services Association, however, opposes such changes, contending it would hurt the lender's security interest in the loan. "The last thing the real estate industry needs right now is more uncertainty," notes AFSA President Chris Stinebert.
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Sallie Mae Agrees to $25B Takeover
Associated Press (04/16/07)
Sallie Mae, the country's largest provider of student loans, will sell the organization to investor groups for approximately $25 billion, pending shareholder and regulatory approval. Paying $60 per share, private equity firms J.C. Flowers and Friedman Fleischer & Lowe will own slightly over 50 percent of the company, with the remainder split between Bank of America and JPMorgan Chase. Reports of the deal prompted SLM Corp. shares to rise 15 percent Friday. The independent board members of Sallie Mae have approved the sale unanimously, and advise shareholders to do the same. Sallie Mae, which initiated $23.4 billion of student loans in 2006, will continue to originate loans upon closing; Bank of America and Chase will continue running their student lending businesses, as well. Sallie Mae's sale comes on the heels of a $2 million settlement paid by the company to resolve a state investigation into kickbacks in the student loan industry.
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Bankruptcy Filings Plunge in Calendar Year 2006
The Administrative Office of the U.S. Courts News Release (04/16/07) Redmond, Karen
In calendar year (CY) 2006, bankruptcy filings fell by 70 percent in the federal courts, according to a news release from the Administrative Office of the U.S. Courts. One factor was the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which was passed in 2005, making CY 2006 the first complete 12-month period covered by the act. During that time, a total of 617,660 bankruptcies were filed, the lowest number since CY 1988. Non-business debts comprised the majority of the filings; only 19,695 of the bankruptcy filings involved business debts. The last quarter of CY 2006--which is also the Judiciary's first quarter of 2007--reported the highest number of filings during the year, 177,599, though the number is still nearly three-quarters less than the number of filings from fiscal year 2005's first quarter. Bankruptcy filings hit an all-time high in the federal courts in CY 2005.
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Baby, Have These States Got Some Plans for You
American Banker (04/16/07) Jackson, Ben
Two states, California and Illinois, are considering legislation that would open and seed savings accounts for each child born in the state. The bill in the California Senate would use state funds to put $500 in a savings account for every newborn. Advocates maintain that the accounts would open up college and homeownership opportunities for needy Californians. Supporters realize that the program's price tag will deter many, but hope to build support and gather feedback over the next few years. In Illinois, both houses have passed bills to create a child savings task force. Currently, eight states encourage families to save money for their children by offering incentives like matching deposits.
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Did Revolving Door Lead to Student Loan Mess?
Wall Street Journal (04/13/07) P. B1; Hechinger, John; Chaker, Anne Marie
The U.S. Education Department has come under fire for allowing federal financial aid to be abused, and the current scandal involves the use of inducements such as stock and other payments by student loan companies to obtain college loan business. Former staffers say oversight of federal financial aid is lax, because there is a revolving door between the department and the industry. During the Bush years, at least eight top department officials have come from student-loan or related organizations or have left to take jobs in the industry. "It's hard for a program staffed mainly by folks in the industry to impartially conduct oversight of the industry," says Thomas Culligan, education policy aid for Rep. Tom Petri (R-Wis.). However, Katherine McLane, a spokeswoman for Education Secretary Margaret Spellings, believes the private-sector expertise enables the department to be more efficient and serve borrowers better. She also says default rates on student loans have fallen since President Bush took office, and adds that the student loan office is no longer on the Government Accountability Office list of government programs at high risk for "fraud, waste, abuse, and mismanagement." Student loan abuse is expected to be the focus of a hearing this month by Rep. George Miller (D-Calif.).
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Leasing Is Up
CNBC News (04/13/07) LeBeau, Phil
Research shows that the leasing of domestic cars and trucks is on the rise, with the percentage of cars and trucks leased in the United States up 17.3 percent in the fourth quarter of last year. Leasing rose after the Big Three automakers curbed their interest rate incentives for new cars.
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GMAC, Austrian Outfit Sign Deal
American Banker (04/12/07) Berry, Kate
GMAC and Raiffeisen-Leasing International have signed a joint business venture pact to provide GMAC-brand financing and leasing products to nine Eastern and Central European nations. Over the next two years, the companies will unveil vehicle financing products and services that will support regional General Motors dealers, though GMAC itself is not physically present in the involved countries. The Austrian company, based in Vienna, is primarily owned by Raiffeisen International, with a 25 percent stake owned by an Austrian bank cooperative. GMAC is owned in almost equal parts by GM and Cerberus Capital Management of New York.
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Hyundai Motor May Bring Auto Finance Arm to India
Business Line (04/11/07) Giriprakash, K.
Hyundai Motor may establish Hyundai Capital Services, its auto-financing unit, in India to serve the country's growing customer base. Interest rates in India are currently climbing, which could hinder car sales, especially in comparison to the car-sale boom of recent years. To mitigate the effect of the rising interest rates, Hyundai has unveiled a short-term financing promotion, offering interest rates of 8.99 percent to Santro buyers, down from the 16 percent market rate. Hyundai Motor, domestic finance companies, and the car dealers will share the program's burden. Hyundai can introduce similar programs tailored to client needs throughout the year if it has an auto financing arm in India, sources explain.
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More Than 30,000 Nonprime Homeowners Now Enrolled in First-of-Its-Kind Program to Help Them Manage Credit
Wells Fargo News Release (04/12/07)
Wells Fargo & Co. says that over 30,000 nonprime homeowners are currently enrolled in Steps to Success, the initial comprehensive program of its type to assist mortgage clients in better overseeing their credit to help attain economic success. The education initiative offers no-cost tools and advice to meet the needs of mortgage-loan clients who have imperfect, or not long-established, credit or have other reasons to select a nonprime loan. Available to all clients who close on a nonprime real estate loan, Steps to Success was introduced nationally in October 2006. The program provides simple-to-read credit reports with personal credit scores, one right away and one in a year. It also offers a toll-free number to contact credit education specialists who offer advice on interpreting the credit report and how to handle any problems with it. In addition, Steps to Success provides customer-friendly financial education help via Wells Fargo's Hands on Banking, a nationally known economic literacy program about forming credit, budgeting, and other financial tactics which is available on the Internet, or which can be offered through CD-ROM or in printed curriculum for free. Lastly, the program provides data about automatic banking services and payment products that have been shown to be worthwhile tools in enabling clients to become responsible money managers.
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AFSA's Response to the Watters v. Wachovia Decision
In response to the Supreme Court's ruling in the Watters v. Wachovia case, AFSA issued the following comment to the media: "[The] 5-3 ruling by the U.S. Supreme Court in favor of Wachovia Bank brings to closure a long-simmering debate as to whether a federal regulator has jurisdiction over the state-run subsidiaries of nationally chartered financial institutions. Lenders on either side of the debate now have the clarification they need to move forward with their operations." AFSA's Law Committee has been monitoring this case closely.
The Court held that Wachovia's mortgage business, whether conducted by the bank itself or through the bank's operating subsidiary, is subject to OCC's superintendence. Furthermore, the Court ruled that the Tenth Amendment argument put forth by Linda Watters is unavailing. Because regulation of national bank operations is Congress' prerogative under the Commerce and Necessary and Proper Clauses, the Amendment is not implicated here.
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Witnesses at Foreclosure Mitigation Hearing Say Market Working
On April 17, AFSA staff attended the House Financial Services Committee hearing focusing on foreclosure mitigation efforts being employed by the lending and investment community. The committee heard from the federal regulators as well as from the CEOs of Fannie Mae and Freddie Mac. While the witnesses were unanimous in their assessment that a significant portion of hybrid ARMs have yet to reset, they did note that servicers are proactively reaching out to borrowers to discuss their options well in advance of the reset date.
When queried about whether the market is working effectively to minimize the number of borrowers facing foreclosure, the witnesses were unequivocal in their response that it is. At the same time they noted that the rise in securitizations over that last several years has made it more difficult for some borrowers to utilize workout options to prevent foreclosure. Dan Mudd, CEO of Fannie Mae encouraged committee members to let the market take the lead in mitigation efforts, law enforcement to deal with fraudulent activity and charitable non-profits to develop local solutions that meet the needs of their local communities.
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NCSL Spring Meeting in Washington DC This Week
AFSA staff will attend the National Conference of State Legislatures (NCSL) Spring Forum in Washington, DC from April 19-21. The conference will feature discussions on a number of important issues for the lending industry, including interchange fees, foreclosures, title insurance, data protection, and implementing the Real ID law. For a complete committee agenda, please click this link.
AFSA has worked with NCSL for several years on a variety of projects and hosts a financial literacy booth and financial services dinner every year at the NCSL Annual Meeting. AFSA is also an active member of the Electronic Payments Coalition, which works to fight restrictive Interchange legislation at the state and federal levels.
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AFSA Says Re-Opening the Bankruptcy Code is Not the Answer
On April 12, AFSA issued a statement from Chris Stinebert, President and CEO, regarding the joint consumer group recommendations for new bankruptcy reforms. In the statement, AFSA noted that although it fully supports efforts to address rising foreclosures, a re-opening of the U.S. Bankruptcy Code is not the answer. In particular, AFSA believes the Code's provision protecting a lender's security interest in a Chapter 13 debtor's principal residence must be maintained.
The Bankruptcy Code's provision preventing court modifications to home mortgage loans provides lenders with the predictability and uniformity they need to continue to make loans to deserving borrowers. The last thing the real estate market needs right now is more uncertainty.
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AFSA's 2007 Vehicle Finance Conference Featured in F & I Management Technology Magazine
The article on the 2007 Vehicle Finance Conference in F & I Management Technology Magazine emphasized the numerous and informative panels that were made up of many high-level executives, including several Chief Executive Officers. The article also mentioned the keynote address given by former White House Chief of Staff and Secretary of Transportation, Andrew H. Card. Click here to read the article.
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Abstract News © Copyright 2007 INFORMATION INC.
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In This Issue:
AFSA Newsbriefs is a weekly executive summary of AFSA initiatives and consumer credit articles. For more information,
please contact newsbriefs@afsamail.org.
AFSA's mission is to protect and improve the consumer credit business, maintain a positive public image, and create a legislative climate in which reasonable credit regulation can and will be enacted. The Association operates in the public interest, encourages and maintains ethical business practices, supports financial education for consumers of all ages, and provides other assistance in related fields on an as-needed basis. The American Financial Services Association has provided services to its members for over ninety years. The Association's officers, board, and staff are dedicated to continuing this impressive legacy of commitment through the addition of new members and programs, and increasing the quality of existing services.
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