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April 26, 2007
MasterCard, Justice Oppose Visa Fee
Consumer Groups Endorse Credit Card Bill
House Passes Bill to Protect Consumers From Gift-Card Losses
Home Equity Stalls
Democrats Ask Bernanke for New Lending Rules
Reverse Lending Opportunities--And Challenges
Cuomo Backs Student Bill
AGs Reach Deals With Three Universities Over Cozy Ties With Educational Lenders
Foolish Forecast: Rent-a-Center Reaches Out
Nonprime Auto Lending Reached $50 Billion in 2006
GM's Lutz Says Mortgage 'Meltdown' Hits Auto Sales
The President's Identity Theft Task Force Releases Comprehensive Strategic Plan to Combat Identity Theft
Judge OKs Auction of New Century's Loan Origination Business
Citi Volunteers Teach New York Students How to Save, Spend Wisely
Wells Fargo Goes Beyond Funding With New Home Equity Program
H&R Block Agrees to Sell Option One Mortgage to Cerberus
SER National and Chrysler Financial Launch 'SER Progreso'
AFSA Comments on Forthcoming GAO Foreclosures Study
AFSA Testifies Against ILC Bill in House
Congressional Spotlight on Subprime Mortgage Market
Congressional Committees Look at "Preferred Lender" Perks
AFSA to Respond to FRB Request for Comment
MasterCard, Justice Oppose Visa Fee
American Banker (04/26/07) Vol. 15, No. 80, P. 1; Jalili, H. Michael
MasterCard and Justice Department attorneys have told U.S. District Court Judge Barbara S. Jones that Visa violated her 2001 ruling regarding the two card associations preventing member banks from issuing cards on other networks. Justice Department lawyer Michael Dashefsky claimed Visa had "effectively locked its major issuers" while MasterCard called the company's fees "prohibitive." Due to legal contestation, Visa's policy of charging a fee on any of its signature debit card issuers whose network volume falls below a certain percentage has never been enforced. Visa representative counsel Robert Vizas from Arnold & Porter countered the charges, claiming MasterCard cannot cite any bank where the policy has cut competition. Jones has yet to make a decision on the motion.
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Consumer Groups Endorse Credit Card Bill
Pacific Business News (04/24/07)
Sen. Daniel Akaka (D-Hawaii) has introduced legislation to require credit card companies to plainly tell card holders the cost of slow repayment. The Credit Card Minimum Payment Warning Act of 2007 requires companies to include the total length of time and the additional fees it will take to pay off the consumer's balance if only the minimum payments are made. It has been endorsed by the Consumer Federation of America, the Consumers Union, the National Association of Consumer Advocates and the National Consumer Law Center, among others. "Our bill makes clear the adverse consequences of uninformed choices, such as making only minimum payments," Akaka said, "and provides opportunities to locate assistance to better manage credit card debt."
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House Passes Bill to Protect Consumers From Gift-Card Losses
Bend Weekly (04/20/07)
The Oregon House has passed a bill that prohibits retail businesses from charging service fees for the use of gift cards or allowing the cards to expire. Introduced by Rep. Carolyn Tomei (D-Portland), the bill is aimed at reducing the $7 billion in losses that such fees and expirations create for consumers who use the cards. Currently, such service fees can reduce the value of the cards by $1.50 to $2.50 per month, a cost that Tomei says is unnecessary given that the retail establishment already received payment for the full value of the card when it was bought. Because the retail business receives, for instance, $50 when a $50 gift card is purchased, the state has an interest in ensuring that the recipient will have a chance to use the card for $50 worth of product, Tomei argued.
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Home Equity Stalls
Wall Street Journal (04/26/07) P. D1; Simon, Ruth
Rising interest rates and the slowdown of the housing market have made homeowners cautious about cashing in on their equity. New data from Equifax Inc. and Moody's Economy.com reveals that total home-equity borrowing rose 9 percent over the 12 months ended in March, compared to an average annual growth of 21 percent over the past five years; and that borrowers owed $561 billion on their home-equity lines of credit last month, marking a decline over the last six months that represents the first decrease since 1999. "People are feeling uncertain about the value of their home and are feeling tapped out," confirms Doreen Woo Ho, president of Wells Fargo's consumer-credit group. The average rate on home-equity lines of credit has risen to 8.7 percent, up from 4.64 percent in April 2004; and rates on home-equity loans now average 8.1 percent, compared with 6.75 percent three years ago, reports HSH Associates.
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Democrats Ask Bernanke for New Lending Rules
News Observer (NC) (04/24/07)
Sen. Christopher Dodd (D-Conn.) and other members of his party on the Senate Banking Committee have asked the Federal Reserve to write new rules against predatory lending in the market for high-risk mortgages. In a letter to Fed Chairman Ben Bernanke, the Democrats called on the central bank to require lenders to consider a borrower's ability to repay before offering a home loan, to deem a lender's failure to earmark money for payment of taxes and insurance as unfair and deceptive, and to limit low-documentation loans. Quick action "would be extremely helpful in extending important consumer protections to homeowners and buyers," according to the Democrats. Last month, Bernanke said the Fed would review current lending rules.
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Reverse Lending Opportunities--And Challenges
American Banker (04/24/07) P. 1; Garmhausen, Steve
The U.S. reverse loan business holds the promise of tremendous growth in coming years, propelled by factors such as the increasing desire of seniors to age in place and the shakeout in the subprime lending niche--the latter of which is driving many brokers and correspondents into other submarkets. National Reverse Mortgage Lenders Association President Peter Bell reports that his group's member roster has doubled to 500 over the past couple of years; and he predicts that volume in the segment could ramp up from roughly 100,000 loans annually now to 1 million-plus within the next several years. Despite the enormous potential, experts say lenders will not be able to take advantage of reverse-lending opportunities without first overcoming negative preconceived notions that seniors have about the product--which allows borrowers aged 62 and up to tap into their equity and live out their golden years in their homes. "Insuring integrity is absolutely essential to the reverse mortgage market," according to Bell. "We are in a business where one bad apple does spoil the bunch."
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Cuomo Backs Student Bill
American Banker (04/26/07) Hopkins, Cheyenne
New York Attorney General Andrew Cuomo Wednesday backed legislation that aims to monitor and regulate preferred lists of student lenders. The bill, sponsored by House Education and Labor Committee Chairman George Miller (D-Calif.), would focus on restricting college lists of preferred student lenders to three unaffiliated lenders. The bill would require student lenders to disclose other affiliations as well as loan benefits to borrowers. Lenders would also be prohibited from giving gifts to school officials. Meanwhile, Cuomo has established a code of conduct with JPMorgan Chase and Bank of America.
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AGs Reach Deals With Three Universities Over Cozy Ties With Educational Lenders
Daily Report for Executives (04/24/07)
New York Attorney General Andrew Cuomo, Illinois Attorney General Lisa Madigan, and Missouri Attorney General Jay Nixon have announced that three additional universities have signed onto Cuomo's code of conduct agreement and will pay settlements. Washington University agreed to end its revenue-sharing agreement with Education Finance Partners of California even though it never received payments from the group, but the college did not admit wrongdoing in the matter. DeVry University will pay students $88,112, and Career Education Corp. will pay $21,200 into a fund to help educate parents and students about financial aid and college loans.
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Foolish Forecast: Rent-a-Center Reaches Out
Motley Fool (04/23/07) Duprey, Rich
The rent-to-own sector is encountering regulatory, legal, and consumer advocate attacks. The firms, however, keep prospering in spite of these problems due to the significant, unfulfilled economic needs of their clients. Rent-A-Center Chairman and CEO Mark Speese predicts more opportunities to expand the firm via acquisitions and by including financial services in addition to its primary rent-to-own business. Rent-A-Center will be incorporating check-cashing services and payday loans in over 400 of its 3,400 stores. Companies catering to the subprime sector are finding it beneficial to widen their variety of offerings. As such, payday lenders now operate pawnshops, and vice versa, and purchase buy here/pay here automotive dealerships. Internet payday lending is available, and Rent-A-Center is evolving to make itself a single-stop shopping experience for all of its clients' financial requirements. Aaron Rents, while a third smaller than Rent-A-Center, presently is maintaining its rent-to-own concentration, although it rents and sells office furniture for corporate customers, while Advance America is the biggest payday lender.
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Nonprime Auto Lending Reached $50 Billion in 2006
BankNet 360 (04/24/07) Bernard, Stephen
Roughly $50 billion of the loans that originated at auto dealerships last year were for nonprime customers, a new report by J.D. Power and Associates' Power Information Network has found. The report also found that nonprime loans included an average loan term of 61 months, a down payment of 11.6 percent, and loan-to-value ratios of 108.6 percent. Prime customers, by comparison, typically received loans with an average 56 month term, made a down payment of 17.4 percent, and had a loan-to-value ratio of 96.8 percent.
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GM's Lutz Says Mortgage 'Meltdown' Hits Auto Sales
Washington Post (04/23/07) Lindenberger, Michael
The U.S. mortgage industry crisis has impacted domestic car sales for April, General Motors Vice Chairman Bob Lutz stated on Monday. He added that he thought the entire automotive industry would witness the impact of the troubled housing finance sector. For the initial three months of 2007, U.S. auto sales declined 1.2 percent from a year ago. GM's head of North American operations, Troy Clarke, stated earlier in April that the company's American sales would be poorer during the second quarter due to the weaker economy, steep interest rates, and pressure on the subprime mortgage sector hurting demand for new cars. In March, GM said it expects results from GMAC to stay under pressure in 2007 due to higher defaults in subprime mortgages.
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The President's Identity Theft Task Force Releases Comprehensive Strategic Plan to Combat Identity Theft
PRNewswire (04/23/07)
The President's Identity Theft Task Force has released its plan to combat identity theft. The plan recommends a reduction in the unnecessary use of Social Security numbers by federal agencies; establishing national standards that require companies to safeguard personal data and to notify consumers when a data breach might pose a significant risk of identity theft; the implementation of a consumer education campaign by federal agencies; and the creation of a National Identity Theft Law Enforcement Center that would help law enforcement agencies coordinate their efforts. The plan also recommends legislative efforts such as amending identity theft laws to ensure that identity thieves who steal information belonging to corporations and other entities can be prosecuted; amending laws to permit federal prosecutors to criminally charge those who use malicious spyware and keyloggers; and amending the cyber-extortion laws to add additional types of cyber-extortion.
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Judge OKs Auction of New Century's Loan Origination Business
Lakeland Ledger (FL) (04/25/07)
After giving New Century Financial Corp. the nod last week to sell off its mortgage-servicing operation, U.S. Bankruptcy Judge Kevin Carey now has approved the process under which New Century can auction its loan origination business. The judge set a May 2 deadline for interested parties to submit their offers to New Century, which once boasted a claim as the No. 2 provider of home loans to risky borrowers. With Carey's blessing, the company is able to proceed with the sale of its Access Lending Corp. unit.
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Citi Volunteers Teach New York Students How to Save, Spend Wisely
Citibank News Release (04/24/07)
Citibank volunteers participated in the Eleventh Annual National Teach Children to Save Day in over 122 cities across the United States. The volunteers noted that personal finance education is necessary to help children learn about saving and spending early on. Citigroup Office of Financial Education Director Dara Duguay said, "In today's complex financial world, personal finance instruction is as important as reading, writing, and arithmetic." Sessions on saving, how interest can increase assets, and how one can create a budget were attended by over 11,000 students. Citibank also recently created a personal finance guide with steps for effective money management. The Citi Commonsense Money Guide for Real People shows consumers how to improve their financial well-being through a number of simple but effective steps.
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Wells Fargo Goes Beyond Funding With New Home Equity Program
Wells Fargo News Release (04/23/07)
Home improvement seems to be the leading cause driving homeowners to take out home equity loans and credit lines, according to a Harvard Joint Center for Housing Studies report. As consumers spend nearly $300 billion annually on these renovations, Wells Fargo has launched a program to abet the improvement process. The Wells Fargo Home Improvement Program will offer discounts from renovation retailers and manufacturers, toll-free access to third-party tradesmen and contractors for any pending questions, and warranty coverage extensions (unavailable in New York and Texas) when a Wells Fargo home equity access card is used. Doreen Woo Ho, president of Wells Fargo Consumer Credit Group, says, "Customers want us to provide simple solutions that ensure they get the most from their financing."
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H&R Block Agrees to Sell Option One Mortgage to Cerberus
Bloomberg (04/20/07) Cox, Adrian
Cerberus Capital Management LP has agreed to acquire Option One Mortgage Corp., the unprofitable subprime mortgage business of H&R Block. The accord calls for Cerberus to pay $300 million less than the value of Option One's tangible net assets, which were worth $1.27 billion as of Jan. 31. CEO Mark Ernst had hoped to sell Option One for $1.3 billion; but investors have urged him not to haggle over the sale price, considering that the value of subprime mortgage loans and lenders is plummeting.
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SER National and Chrysler Financial Launch 'SER Progreso'
DaimlerChrysler Financial Services Americas News Release (04/19/07)
SER-Jobs for Progress National Inc. and Chrysler Financial have partnered in a venture to promote financial literacy and personal finance among Latino families. A reported 40 million Latinos in the nation are unbanked, while the Texas Department of Insurance reveals credit scores in that population are 5 to 25 percent lower than that of whites. The program will include job fairs, dual-language luncheons, and workshops enabling participants to use technological tools to increase their knowledge of managing finances. Chrysler Financial representatives will be at events offering professional advice to families. "Our goal is to provide a program that is valuable to the Hispanic Community and a haven of resources that can truly affect lives. 'SER Progresso' has that potential," says Chrysler Financial Vice President William F. Jones Jr.
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AFSA Comments on Forthcoming GAO Foreclosures Study
House Financial Services Chairman Barney Frank (D-MA) and Ranking Republican Member Spencer Bachus (R-AL) sent an April 25th letter to the Government Accountability Office (GAO) requesting a study on rising foreclosures and the subprime mortgage market. "Developing workable solutions to the current problems in the subprime mortgage market is a high priority for Members of both Houses and both parties, and our Committee will be considering legislation on the subject in the coming months," stated the letter.
In a media statement commenting on the request, AFSA thanked Chairman Frank and Representative Bachus "for attempting to get an unvarnished assessment of the current state of foreclosures and where it falls in a historical context." Earlier this year, AFSA had called upon Congress to ask the GAO to conduct this research.
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AFSA Testifies Against ILC Bill in House
The House Financial Services Committee, chaired by Barney Frank (D-MA), held a hearing on April 25 to consider industrial loan companies (ILCs). Chairman Frank and Representative Paul Gillmor (R-OH) cosponsored a bill that would bar commercial firms from becoming ILC owners. John Douglas, former FDIC General Counsel, testified on behalf of AFSA in opposition to the Frank-Gillmor bill. AFSA remains fully confident in the ability of the FDIC to regulate ILCs and supports the competition they bring to the marketplace. This bill is essentially the same legislation introduced last year that requires new ILC parents to derive more than 85 percent of their revenue from financial activities. ILCs bought or chartered by a commercial firm from October 2003 to January 2007 could exist but not expand; however, those owned by a commercial parent before October 2003 would not be subject to any new restrictions.
Click here to view the AFSA testimony and press release.
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Congressional Spotlight on Subprime Mortgage Market
On behalf of its members, AFSA has been monitoring the activities of both the House and Senate committees overseeing the subprime mortgage market. On April 17, House committee chairman Barney Frank held a hearing and distributed a letter to fellow Democrats, detailing the fundamentals he plans to include in an anti-predatory bill. He wrote that legislation should guarantee that all borrowers are protected from predators; ensure that borrowers get "good" loans; and possibly include 'assignee liability' for lenders and investors proven "predatory." While he wants to preserve credit availability, Frank said lenders should not make loans they know the consumer cannot repay.
The Senate Banking Committee has held three hearings on problems in the subprime mortgage market, but Chairman Chris Dodd (D-CT) has remained uncommitted about specific legislation. He did, however, hold a summit of industry leaders and regulators to discuss ways to fix problems, urging that borrowers be given forbearance on loans approaching foreclosure. In addition, Charles Schumer (D-NY) has said he plans to introduce legislation that would create a new regulatory system for non-bank lenders and a suitability standard for all mortgages.
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Congressional Committees Look at "Preferred Lender" Perks
The Democratic chairs of both the Senate and House committees that oversee education--Senator Edward Kennedy (D-MA) and Representative George Miller (D-CA), respectively--have launched separate investigations into the perks that lenders give colleges in exchange for granting them "preferred lender" status. AFSA staff has been watching the situation and plan to attend committee hearings if and when convened.
Senator Kennedy asked 16 student lenders, including several big banking companies, to submit all records of communications and gifts given to colleges' financial aid staff members dating back to 2001. In addition, lawmakers have introduced multiple bills that would not only reduce lenders' ability to profit from student loans but also limit the incentives they could offer colleges for promoting a lender.
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AFSA to Respond to FRB Request for Comment
The Federal Reserve Board requested public comment on proposed amendments to five consumer financial services and fair lending regulations to clarify the requirements for providing consumer disclosures in electronic form. The five regulations are: Regulation B, which implements the Equal Credit Opportunity Act; Regulation E, which implements the Electronic Fund Transfer Act; Regulation M, which implements the Consumer Leasing Act; Regulation Z, which implants the Truth in Lending Act; and, Regulation DD, which implements the Truth in Savings Act. Click here to view all the regulations.
The comment period ends sixty days after publication of the notices in the Federal Register, which is expected soon. AFSA intends to submit a comment letter to the Board.
Any AFSA member who would like to offer comments or suggestions on the proposed amendments should contact Celia Messing by e-mail or by phone at 202-776-7300.
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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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