August 2, 2007
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A Message from AFSA President/CEO Chris Stinebert
Credit Card Summit Held for Issuers and Consumer Groups
Federal Reserve to Look at Mortgage Advertising
Wells Fargo to Limit Subprime Lending
Dealers, Customers Find Automaker Credit Cards Mutually Rewarding
Retailers Not Exactly Where Visa Wants Them to Be
House Dems' Cards Plans Emerge After Bank Talks
Contactless Payments Helped by Receipt Rules
Dodd Says His Panel Will Get Moving in the Fall
Industry Trying to Block Dip in Conforming Limit
Open House: Licensing Laws for Title Insurance Sales Agents
Student-Loan Probe Hits Sports
Committee Passes Sen. Dodd Bill to Help Students Afford College
Three New Co-Sponsors to Rent-to-Own Bill H.R. 1767 Announced
The Other Side of Payday Lending
Lender Settles With AG Over College Payoffs
America's Great Divide
Dealership Loans Good Option for Auto Buyers
On Paying for Cars With Cash
Cautionary Signs Cropping Up Regarding Future of Auto Loan Performance--S&P
A Message from AFSA President/CEO Chris Stinebert
As some of you may know, Mike Staten recently announced he is leaving George Washington University Financial Services Research Program/Credit Research Center (FSRP). For 19 years, he served as the Director of the FSRP and its predecessor, the Credit Research Center. Mike has accepted a new position at the University of Arizona, which is a tenured full professorship. He will hold the Take Charge of America Chair and serve as director of the Take Charge America Institute for Consumer Education and Research.
Mike will continue to do research and national outreach activities in the general area of consumer credit, but with a slightly different focus on personal financial behavior, financial awareness and financial literacy. AFSA wishes him all the best and hopes to work with him again in the future.
Given Mike’s departure, we will be discontinuing Spotlight, the electronic publication he wrote for several years. AFSA thanks the Overby-Seawell Company for sponsoring Spotlight this year. Although Spotlight will be missed, AFSA is making exciting changes to its member communications efforts with the goal of providing you more information that’s timely and pertinent. We look forward to your feedback.
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Credit Card Summit Held for Issuers and Consumer Groups
Representative Carolyn Maloney (D-NY), Chair of the House Financial Institutions and Consumer Credit Subcommittee, held an invitation-only roundtable on credit card billing practices on July 30. Six credit card issuers and ten consumer advocacy groups participated in the roundtable. No trade associations were invited to attend.
Chairwoman Maloney’s goal was to assist issuers in setting certain principles—or “best practices” —concerning billing and disclosures. Among the practices discussed were universal default, double-cycle billing, late fees, over-limit fees, payment allocation, and ‘pay to pay’ fees. Maloney did state she still plans on introducing legislation this fall that would ban certain practices. House Financial Services Chairman Barney Frank (D-MA) said he also plans on legislating on credit card procedures, such as payment allocation, retroactive rate changes and mandatory arbitration.
AFSA will continue to meet with Members of Congress as they look to address their concerns with the credit card industry.
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Federal Reserve to Look at Mortgage Advertising
Last week, AFSA staff attended a forum held a by the Urban Institute during which Sandra Braunstein, Director of the Federal Reserve Board’s Division of Consumer and Community Affairs, said the Fed planned to address deceptive advertising of mortgage products.
Speaking during a panel discussion, Ms. Braunstein said, “For instance, you see an ad that says ‘Get out of debt.’ But what they are doing is advertising loans. It seems a little contradictory. They mean ‘Get out of your debt and get into our debt.’”
During a presentation last May, Board Governor Randall Krosner said the Fed planned to use consumer testing on mortgage loan advertisements and documents. The proposed rules are expected to be published before the end of the year. AFSA will be in touch with its members about filing a comment letter when the proposed rules are published.
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Wells Fargo to Limit Subprime Lending
New York Times (07/27/07) P. C4
Wells Fargo says it will no longer offer subprime mortgages through brokers. Although bad loans have not been a big problem for the company, subprime wholesale lending simply is not worth the risk because of the "continued turmoil" in the mortgage sector, according to Cara Heiden, president of the company's home mortgage division. Wholesale subprime lending accounted for about 1.6 percent of Wells Fargo's $397.6 billion in mortgage lending last year. Wells Fargo will continue to sell subprime mortgages through its own sales force.
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Dealers, Customers Find Automaker Credit Cards Mutually Rewarding
Automotive Digest--Funding Weekly (08/01/07)
Automakers assert that exclusive credit cards benefit both carmakers and consumers. Credit cards issued by car manufacturers allow consumers to amass points that can be put toward maintenance, car parts, and other purchases. The process strengthens the consumers' loyalty to the franchise dealer and the brand, and establishes new profit centers. In 1992, GM became the first automaker to offer its own credit card. Since 2001, Chrysler cardholders have spent over $78 million with their cards and have received more than $9 million in rewards. Consumers with BMW or Mini credit cards can reallocate points to others and can give points to charities.
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Retailers Not Exactly Where Visa Wants Them to Be
eWeek (07/31/07) Schuman, Evan
Visa's latest figures on PCI compliance show small but steady progress in getting retailers to come into compliance with the data security standard. The figures showed that 40 percent of Level 1 retailers--a category that includes the nation's largest retailers--were compliant with PCI, up from 35 percent in May. Compliance among the somewhat-smaller Level 2 retailers rose from 26 percent in May to 33 percent in July. However, the figures also showed that 4 percent of Level 1 and Level 2 retailers have not written to Visa to say that they are not storing sensitive account information such as credit card security codes and PINs. That means that 42 major retail chains are not even claiming that they have stopped retaining card data. The findings worried Gartner Security Analyst Avivah Litan, who was particularly concerned about the Level 1 retailers who are retaining prohibited data. "Even if it's just 13, that's way too many," she said.
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House Dems' Cards Plans Emerge After Bank Talks
American Banker (07/31/07) Kaper, Stacy
Two Democratic members of the House Financial Services Committee, Reps. Barney Frank (D-Mass.) and Carolyn Maloney (D-N.Y.), announced yesterday that they are moving forward with legislation that targets credit card practices such as retroactive rate increases and mandatory arbitration. The announcement came after Maloney, who chairs the panel's financial institutions subcommittee, hosted a private roundtable with 10 consumer groups and six top issuers, including Citigroup, JPMorgan Chase, and Bank of America. Maloney said she would use information from the roundtable to develop a set of principles that would serve as a blueprint for legislation later this year. Details of those principles are still being worked out, though they should be released this week. However, a copy of the meeting's agenda gives some insight into what the principles may be. In the agenda, Maloney said that issuers should issue unsecured credit on terms the individual can repay, clearly explain account features, terms, and pricing, and provide customers with more control over their accounts, including the ability to opt out of a change to the card agreement. Not all of the congressional participants in the roundtable felt that legislation was necessary. Rep. Michael Castle (R-Del.), noted that several large issuers have changed practices on their own, and that proposed improvements to disclosures under the Federal Reserve Board's recent review of Regulation Z--which implements the Truth-in-Lending Act--might be enough to change the credit card industry's practices.
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Contactless Payments Helped by Receipt Rules
UsingRFID.com (07/30/07)
Beginning Aug. 6, retailers will no longer be required to provide a receipt for debit card purchases under $15. According to the Smart Card Alliance, the change--which was made by the Federal Reserve--will benefit both consumers and merchants by making smaller transactions quicker and more cost effective. In addition, the change will make it possible for more card acceptance terminals to be installed in unattended areas.
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Dodd Says His Panel Will Get Moving in the Fall
American Banker (08/02/07) Kaper, Stacy
Following Congress' August recess, Senate Banking Committee Chairman Christopher Dodd (D-Conn.) believes a number of bills related to the mortgage industry could move forward. Among these are legislation to extend the terrorism risk insurance program and bills to revamp the national flood insurance program and the government-sponsored enterprises. Dodd says his panel also will consider a measure to reform the Federal Housing Administration, noting that expanding the number of subprime borrowers eligible for the agency's loans could eliminate some of the problems currently plaguing the market. A proposal to beef up oversight of mortgage brokers might make it to the agenda as well. Dodd says, "The staffs intend to work over the August break to iron out whatever differences exist here, and my anticipation would be that soon after we come back we are going to have a markup of some of these bills and begin consideration of these matters on the floor."
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Industry Trying to Block Dip in Conforming Limit
National Mortgage News (07/30/07) P. 2
The National Association of Realtors, the National Association of Home Builders, and other groups are lobbying against changes in how the conforming loan limit--the maximum mortgage amount that Fannie Mae and Freddie Mac can purchase--is calculated. The Office of Federal Housing Enterprise Oversight has proposed a new formula that would accommodate a lower conforming loan limit as homes lose value, allowing the ceiling to drop the following year after a decline in residential prices. The industry groups, however, argue in a joint letter to Congress that any decrease in the conforming loan limit--which currently rests at $417,000--would prove "detrimental" to the economy, home buyers, and the housing industries. Other bodies--including the American Financial Services Association, the Consumer Mortgage Coalition, the Financial Services Roundtable, and Freddie Mac itself--have expressed similar concerns about OFHEO's proposal.
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Open House: Licensing Laws for Title Insurance Sales Agents
Bend Weekly (07/27/07) Woodard, Jim
California is among the states considering legislation to license title insurance sales agents, a move supported by the California Land Title Association because it would clarify marketing rules and help to prevent kickback violations. If passed, registration with the California Department of Insurance would be mandatory for all title insurance agents. American Land Title Insurance Association Executive Vice President James Maher says licensing is required in most markets, though laws differ as to whether the title insurance agency or sales representative must be licensed and whether applicants must complete testing, bonding, and background checks. According to Maher, "The two most prominent reasons for any licensing requirement for title insurance agents are to assure competence in serving clients and financial integrity."
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Student-Loan Probe Hits Sports
Associated Press (08/02/07) P. D3
New York Attorney General Andrew Cuomo is expanding his investigation of college loan practices to Division I athletic departments. As a part of the inquiry, 39 universities were issued subpoenas covering any documents related to interactions between athletic departments and Student Financial Services Inc., also known as University Financial Services. Cuomo and his team will be scrutinizing these relationships, looking for any preferential treatment of the lender suggested by team names, mascots, and colors.
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Committee Passes Sen. Dodd Bill to Help Students Afford College
US Fed News (08/01/07)
The Senate Committee on Banking, Housing, and Urban Affairs has passed a bill intended to regulate the $85 billion private student loan industry. The Private Student Loan Transparency and Improvement Act includes a number of provisions requiring lenders to provide students with adequate time and information to choose the best loan option for them. These requirements include a 30-day post approval window intended to give students extra time to shop before making a final decision, and an obligation to notify applicants if they qualify for a lower-rate federal loan. The bill also forbids lenders from offering any kind of financial or material incentives to universities or advisory board members in return for preferential treatment. In addition to these new obligations, the act includes a mandate for the General Accounting Office to initiate an in-depth analysis of the criteria lenders use to establish loan pricing and availability for students from different schools, including graduation rate, accreditation, and default rate.
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Three New Co-Sponsors to Rent-to-Own Bill H.R. 1767 Announced
RTOHQ (07/31/2007)
The Consumer Rental-Purchase legislation has gained three new co-sponsors in Reps. Sanford Bishop (D-Ga.), Jim Jordan (R-Ohio), and Ralph Hall (R-Texas). Bishop, a member of the House Appropriations Committee who is in his eighth term, is co-sponsoring the rent-to-own bill for the first time, and Hall is a senior member of the House who has co-sponsored Consumer Rental-Purchase legislation every session since its initial introduction in 1993. The rent-to-own bill, H.R. 1767, now has 48 co-sponsors.
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The Other Side of Payday Lending
Williamsport Sun-Gazette (07/31/07) Eaton, Alissa
Payday loans are largely unregulated by the government and therefore have high interest rates. However, payday loans are sometimes the only viable option for many Americans who are unbanked. The high interest rates are necessary, because payday loans are extremely high risk and do not require collateral as bank loans do. For these reasons, some financial experts are not as quick as others to decry these types of loans. They do recommend, though, that these loans only be used in an emergency and that the borrower work only with a lender with whom someone they trust is familiar.
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Lender Settles With AG Over College Payoffs
Crain's New York Business (07/31/07) Bindrim, Kira
New York Attorney General Andrew Cuomo and Nelnet Inc. have reached a settlement regarding the student loan consolidator's use of 120 alumni associations for loan services referrals. As part of the settlement, Nelnet will eliminate the referral payments and agreements to those alumni groups and pay $2 million to Cuomo's National Education Fund, which helps families understand the financial aid process. According to state investigations, Nelnet paid alumni groups and universities for referrals, and the firm used college logos in its marketing materials. The firm also allegedly paid for school workers' travel expenses and other perks, as well as sponsored marketing events. Cuomo earlier reached related settlements with 11 student loan companies, including Citibank and JPMorgan Chase.
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America's Great Divide
Bank Technology News (07/07) Sisk, Michael
Banks are increasingly reaching out to the approximately 73 million unbanked or lightly banked people in the United States, and are using technological advances to do so. To begin with, banks such as Bank of America, Citigroup, and Wells Fargo are experimenting with providing credit cards and mortgages to those without Social Security numbers, but with checking accounts or tax-identification numbers. Those who are unbanked include newly legal immigrants, young people, and senior citizens, in addition to undocumented U.S. residents. First American is striving to tap into the market of emerging creditors by generating an alternative credit score, called an Anthem Score, by utilizing non-traditional data sources like rent, phone bills, and utility payments. In addition, First American has automated the process, and "electronic" Anthem scores will be available in 2007's fourth quarter. Fair Isaac created its alternative credit score, the FICO Expansion score, chiefly by performing retrospective scoring on loan portfolios already in existence. LexisNexis unveiled its tool, RiskView, which develops a score by using address stability, asset ownership, and other non-traditional data, and which aims to analyze the emerging credit market in greater depth. Financial institutions are discovering that not only are the unbanked a large pool of potential customers, they are also very lucrative customers. The Atlanta-based Banuestra Financial Corp. is getting "subprime yields" from the customers it attracted through grass-roots efforts and immigrant-staffed branches, according to CEO Drew Edwards. Banuestra's Conexion El Banco technology, a platform that does scoring and underwriting, allows the bank to manage check-cashing risks for customers without deposit accounts. Moreover, private equity firms may begin to invest in financial services for the underbanked, as the sector is technologically savvy, has growth opportunities, and is "an ideal setting for private equity," according to David Coulter of Warburg Pincus.
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Dealership Loans Good Option for Auto Buyers
Lexington Herald-Leader (KY) (07/30/07) P. A8; Kain, Jack
The National Automobile Dealers Association's (NADA's) former chairman, Jack Kain, writes that in the over half-century that he has been a part of the automobile business, he has never known a time that was more competitive than now, which is good for consumers, because it means increased choices for both cars and car financing. Kain notes that a market that is highly competitive creates a large number of affordable financing options provided by dealerships, banks, and credit unions. "In the end, many consumers find that the dealership is their best route to low-cost auto financing," Kain writes. He explains that dealers have access to many sources of financing and can frequently surpass or match the finance rates of credit unions and banks. Kain notes that certain customers with credit challenges find that dealership financing is their sole way to purchase a car. In addition, he states, dealer financing provides the ease of one-stop shopping. Kain points out that the majority of dealers receive good customer evaluations regarding finance. He adds that dealers realize that consumer satisfaction and education go together; as such, a nationwide consumer education initiative sponsored by Americans Well-Informed on Automobile Retailing Economics provides car shoppers with a bevy of information on the Internet concerning the auto-financing procedure. Meanwhile, the American Financial Services Association and NADA have created an automobile financing guide available at many dealerships.
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On Paying for Cars With Cash
New York Times (07/28/07) Maynard, Micheline
Cash deals are proliferating in the automobile industry, to the disappointment of dealers who prefer that buyers finance or lease their cars. Non-cash paying buyers are more likely than those paying with cash to purchase extras like antirust coating or extended warranties, as such costs are easily incorporated into the borrowed amount. In the first half of 2007, 11.7 percent of buyers used cash to purchase cars, compared to roughly 8 percent of buyers during the last several years, according to a poll by CNW Marketing Research. Cash purchases were extremely rare in 1998, then bounced back, then plunged again after 9/11 when General Motors and other auto companies unveiled 0 percent financing plans to generate car sales. While 0 percent financing was made available to almost everyone in 2001, currently only individuals with the best credit are offered the deal. Banks and auto company finance companies have been hurt by setting these cars' residual value too high; a too high residual causes the finance company to lose money on a leased car after it is returned. The custom of promoting five-year loans and six-year loans has also been detrimental to lenders, as the car ends up being valued at less than the amount still needing to be paid off.
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Cautionary Signs Cropping Up Regarding Future of Auto Loan Performance--S&P
CNNMoney (07/26/07)
Standard & Poor's Ratings Services (S&P) says it sees cautionary signs emerging in the auto finance sector. Despite the fact that the auto finance asset backed securities market has performed well in the wake of numerous foreclosures and delinquencies in the subprime mortgage market, S&P is concerned about the future, citing some lenders that have a surplus of liquidity and are becoming more liberal in their credit standards.
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Abstract News © Copyright 2007 INFORMATION INC.
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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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