July 12, 2007
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AFSA Committee Compiling Data Protection Practices
GAO: Few Identity Thefts Result from Breaches
The House Votes on Predatory Lending Resolution
AFSA Requests Spitzer Veto in New York
CIT to Sponsor 2007 New York Philharmonic Concerts in the Parks Summer Series
DaimlerChrysler Financial Services Americas to Keep Headquarters in Metro Detroit
Legislative Update: Credit Cards
Visa Rethinks Transactions--and the Devices That Make Them
Credit-Card Stocks Slug It Out
New Cash Idea for Homeowners
First 6 Mos Show Pace, Priorities for US Rep Frank, Sen Dodd
New York's AG Probes Lenders
New Subprime Guidance to Disqualify Many Borrowers
House Passes Overhaul Plan on Student Aid
Study Calls Overdraft Shift Abuse of Customers
Payday Lenders Closing Doors After New Regulations Take Effect
Media Coverage Plays Significant Role in Rent-to-Own Public Policy
Nat City Car Loan Underwritten Just on Credit Score
Indirect Auto Loan Delinquencies Trended Higher in 1st Q
Capital One Auto Finance President Discusses New One Program
Banks Battle for CUs' Auto Finance Market Share
AFSA Committee Compiling Data Protection Practices
The AFSA Identity Theft Fraud Control Committee has begun compiling a list of practices used by member companies to safeguard customer data. AFSA members have voluntarily submitted this information to remind members of the importance of safeguarding customer personally identifiable information (PII). This document will identify general guidelines to follow, based upon several recent data privacy incidents that have occurred in the marketplace in the past year. These business practices should help AFSA members-- both large and small--assess their own security practices and enhance them, if needed.
Over the last five years, identity theft and fraud has cost consumers and industry an average of $50 billion per year—with the financial services industry assuming close to 90 percent of that cost. Consumer notification, account monitoring and fraud mitigation can cost a breached company millions of dollars. Damage to a company’s reputation and loss of consumer trust can often lead to much greater financial loss.
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GAO: Few Identity Thefts Result from Breaches
On July 5, the Government Accountability Office (GAO) released a report stating that despite the frequency of data breaches in recent years, most do not result in identity theft. Though it lacked comprehensive information, the GAO cited reports of about 570 breaches reported in the news media during 2005 and 2006. Available data and interviews with researchers, law enforcement officials and industry representatives indicated that most breaches have not resulted in detected incidents of identity theft, particularly the unauthorized creation of new accounts. In a review of the 24 largest breaches reported in the news media from January 2000 through June 2005, the GAO found only three resulting in fraud on current accounts and one resulting in the unauthorized opening of an account.
(click for web site)
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The House Votes on Predatory Lending Resolution
On Wednesday, the House of Representatives voted on a nonbinding resolution by Representative Elijah Cummings (D-MD) that warns of the dangers of predatory lending. In brief, it urges government action to promote tighter standards, particularly for risky mortgages.
The original resolution pointed to abuses prevalent in the subprime market that were being faulted for contributing to the increase in foreclosures. That version had called for legislation to ban unfair and deceptive practices, curb prepayment penalties and require loans to be underwritten at the fully indexed rate. The language, however, was toned down after the staff of the House Financial Services Committee Chairman Barney Frank (D-MA) met with Representative Cummings’ staff and industry representatives last month. The Industry determined that vocal opposition would not be productive.
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AFSA Requests Spitzer Veto in New York
AFSA has requested Governor Elliott Spitzer to veto “A1416/S4566,” which would prohibit using the frequency of customers’ inquiries to creditors as an element in calculating credit scores. AFSA did so because such legislation is not only unnecessary to protect consumers but is also likely to carry with it unintended consequences. To see the entire statement, please go to the AFSA Web site at www.afsaonline.org.
(click for web site)
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CIT to Sponsor 2007 New York Philharmonic Concerts in the Parks Summer Series
Business Wire (07/12/07)
CIT Group Inc. is serving as the lead corporate sponsor of the 2007 New York Philharmonic Concerts in the Parks summer series taking place July 9-17 throughout New York and New Jersey. Concertgoers are encouraged to donate nonperishable food items to benefit local area food banks. In connection with this effort, CIT will also hold a food drive at its New York City offices and encourage its employees to contribute. "CIT is proud to serve as the lead corporate sponsor of the 2007 New York Philharmonic Concerts in the Parks," said Jeffrey M. Peek, CIT chairman and CEO. "By supporting this series of concerts, thousands of concertgoers will be able to enjoy the wonderful music of one of the world's most esteemed orchestras in some of the most beautiful parks in our area. In addition, we are proud that this year concertgoers will have the opportunity to give back to the community by donating to a local area food bank. I encourage everyone to come out and enjoy a concert under the stars and bring a nonperishable food item for those in need." Zarin Mehta, New York Philharmonic president and executive director, said, "We extend our deepest gratitude to CIT for enabling us to give this gift to the people of New York."
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DaimlerChrysler Financial Services Americas to Keep Headquarters in Metro Detroit
DaimlerChrysler Financial Services Americas News Release (07/02/07)
The corporate staff that supports DaimlerChrysler Financial Services Americas' Mercedes-Benz Financial and Truck Financial business divisions is moving to a new location in Farmington Hills, Mich. DaimlerChrysler Financial Services Americas President and CEO Klaus Entenmann says about 400 employees will be relocated to a nearby 153,000 square-foot office building at 36455 Corporate Drive. "This move, a few miles away from our present headquarters, reinforces our commitment to Metro Detroit and keeps our headquarters for the entire Americas region right here in Michigan," Entenmann said. The new headquarters will house the corporate staffs for Mercedes-Benz Financial, DaimlerChrysler Truck Financial, and other departments, including Finance, Risk Management, Audit Communications, Information Technology, Legal, and Human Resources. The move will take place after the asset transfer of the company's Chrysler Financial business unit to Cerberus Capital Management is completed in the third quarter.
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Legislative Update: Credit Cards
American Banker (07/12/07) Vol. 172, No. 133, P. 5
Rep. Carolyn Maloney (D-N.Y.) said that the roundtable expected to take place this month could have been solely a discussion between major issuers and consumer advocates to agree on industry practices without implementing legislation. However, industry representatives said they saw no reason to agree to voluntary concessions if key members of the House Financial Services Committee were intent on pursuing legislation. Industry lobbyists say they believe Maloney as well as House Financial Services Chairman Barney Frank (D-Mass.) and Rep. Spencer Bachus (R-Ala.) will be open to bills' passing. Bills pending include co-sponsored legislation between Maloney and Rep. Gary Ackerman (D-N.Y.) that would prevent creditors from accessing fees for card payments made by electronic fund transfer. Sen. Carl Levin (D-Mich.) has introduced a bill that would ban lenders from charging interest on any portion of a card paid on time or on debts paid on time and in full, and cap interest rate hikes on outstanding debt at 7 percent. Issuers would also be required to apply payments to the lowest-interest debt first and give their customers the option of hard credit limits that could not be exceeded.
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Visa Rethinks Transactions--and the Devices That Make Them
InformationWeek (07/09/07) No. 1145, P. 34; Martin, Richard
As Visa prepares to go public early next year, it is also launching several initiatives that will shift its business model from supporting plastic cards to network-based services that handle a variety of transaction types from different devices. Visa is already conducting a test of mobile payments in conjunction with Wells Fargo. As part of the test, a small group of Wells Fargo employees is using Nokia phones and Ztar Mobile wireless service to make payments and manage their accounts. Users will eventually be able to use to the service to automatically transfer funds from one bank account to another via Short Message Service messages. The test will be expanded to a few hundred Wells Fargo customers later this year. Meanwhile, Visa has added "account-level processing" to its payment-processing system. This will allow Visa to manage transactions in real time using the entire credit card number, instead of the six-digit bank identification number that had been previously used. The new system also allows consumers to take their account number with them if they upgrade to a higher-end card.
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Credit-Card Stocks Slug It Out
Business Week Online (07/09/07) Steverman, Ben
MasterCard held one of the most successful initial public offerings of 2006, while the stock has more than tripled since its May 2006 IPO. Yet Morgan Stanley's spin-off of Discover Financial Services was not as successful, with stocks dropping almost 10 percent during their first week of public trading. Discover is smaller, has less penetration, and is accepted by fewer merchants than the more famous rival issuers. As such, Morningstar analyst Michael Kon says the credit card company is viewed as "the ugly duckling of the industry." However, despite Visa, MasterCard, and American Express processing more transactions, Discover retains customer loyalty longer and charges lower interchange fees than its competitors. Moshe Katri of Cowen & Co. says that Discover's status as a spin-off and not an IPO with Morgan Stanley shareholders automatically receiving Discover shares might have flooded the market resulting in plummeting shares. Analysts predict a larger financial institution might acquire Discover at some point.
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New Cash Idea for Homeowners
Christian Science Monitor (07/12/07) P. 2; Arnoldy, Ben
A private San Francisco firm, REX & Co., has rolled out an innovative product that lets homeowners cash out equity without having to take out a loan or line of credit. Borrowers can use the money for retirement purposes, to diversify their investments or any other reason they see fit; but instead of receiving interest and monthly payments, REX simply claims a share of the home's appreciated value when it is sold. While similarly structured "shared-appreciation" mortgages enjoyed a period of popularity at one time, REX's concept--while not completely new--differs in that it provides a kind of hedge against volatility in the residential property market. "What's attractive about this particular form of shared-appreciation mortgage is that there is an upfront transfer of cash, so that the burden of it all working out is more on the company than on the homeowner," says Dr. Susan Wachter, a professor at the Wharton School at the University of Pennsylvania. Pointing to the way that reverse mortgages got off to a bumpy start, however, other real estate experts caution that the relative novelty of the REX product attaches some measure of risk to it.
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First 6 Mos Show Pace, Priorities for US Rep Frank, Sen Dodd
Dow Jones Newswires (07/09/07) Paletta, Damian
House Financial Services Committee Chairman Barney Frank (D-Mass.) and Senate Banking Committee Chairman Christopher Dodd (D-Conn.) have both used their leadership to look at ways to better regulate business and the financial industry, but their approaches have been different throughout the year. Frank's strategy has included passing a number of bills to more tightly regulate a number of industries, including housing and student loans; in addition, he has passed bills that limit commercial ownership of banks and encourage shareholders to have a nonbinding vote on how companies pay their executives. Dodd, meanwhile, has focused on efforts to get financial institutions to voluntarily change their practices to be more helpful to consumers. In addition, Dodd's presidential run has occupied a considerable amount of his time, leading to fewer bills being passed in the Senate committee than in the House. Both committees, however, are looking at bills aimed at addressing problems in the subprime mortgage market and regulating private-equity firms and hedge funds' influence over investment markets. Although the Senate committee has passed just seven bills to the House's 17, Dodd has still pushed through a bill to improve approval of foreign investment in U.S. companies. Dodd has also had to contend with an even split between Democrats and Republicans on his committee, whereas the House committee has a clear majority of Democrats.
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New York's AG Probes Lenders
National Mortgage News (07/09/07) Vol. 31, No. 40, P. 7; Collins, Brian
New York Attorney General Andrew Cuomo is bringing a new level of scrutiny to the mortgage industry through active investigations into the relationship between mortgage brokers, appraisers, and lenders. Some examinations involve underwriting and pricing issues; others involve predatory lending, according to Andrew Sandler of Skadden Arps. The attorney general's office seems to be concentrating on the behavior of mortgage brokers and appraisers, and has subpoenaed multiple mortgage firms to gather data on compensation, practices, and the methodology behind slating borrowers for various loan products. In an attempt to determine whether mortgage brokers coerce appraisers into inflating property prices, Cuomo's office subpoenaed First American's appraisal unit. The attorney general's office is seeking evidence to prove that lenders pressure the appraiser into matching the sales price by threatening to take their business somewhere else, according to an attorney who preferred to remain anonymous.
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New Subprime Guidance to Disqualify Many Borrowers
Credit Union Journal (07/09/07) Vol. 11, No. 27, P. 1; Roberts, Ed
New guidelines from the National Credit Union Administration and banking regulators could prohibit tens of thousands of borrowers from obtaining new mortgages. Under the new rules, lenders must underwrite loans based on a customer's capacity for making payments not on the loan's low introductory rate, but on the loan's adjusted rate. Approximately three-fourths of all subprime ARMs presented in 2006 included low "teaser" rates that jumped after two years or three years to higher, floating rates. The new guidance stipulates that lenders must gather more data to assess a borrower's ability to pay back the loan. In addition, the lenders are required to give the customers the chance to refinance out of an ARM at least two months before the interest rate increases to a higher echelon, without being penalized. Though the guidance is not compulsory, examiners will use the requirements when evaluating compliance with consumer regulations. Michael Calhoun of the Center for Responsible Lending approves of the endeavor, but believes more must be done to protect homeowners from aggressive lending practices. Currently, Congress is considering legislation that would prohibit certain exploding ARMS and restrict prepayment penalties.
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House Passes Overhaul Plan on Student Aid
New York Times (07/12/07) Schemo, Diana Jean
The House has approved legislation to reduce federal subsidies to student lenders by $19 billion over five years while using the savings to augment grants for needy students and halve interest rates on federally backed loans. These sweeping changes to student aid programs denote a severe loss for the student loan industry, and come in reaction to recent investigations that revealed many lenders' practice of paying colleges for preferential treatment. Some supporters of the bill compare it to the 1944 G.I. Bill in terms of facilitating college attendance as, over the past five years, college costs have outrun inflation by almost 40 percent. In addition to halving federally backed loans' interest rates and reducing lender subsidies, the bill increases Pell grants and establishes loan forgiveness programs for public servants. Critics say the legislation goes too far in terms of creating entitlement programs for needy students. Student lenders also argue that the bill would force some lenders to close their businesses and would diminish the services provided to borrowers. Small and medium-sized lenders would be the hardest hit, according to a report by the Congressional Research Service. While President Bush is expected to veto some of the bill's elements, most anticipate that the revision of student aid will pass into law in 2007.
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Study Calls Overdraft Shift Abuse of Customers
American Banker (07/12/07) Vol. 172, No. 133, P. 3; Kaper, Stacy
The Center for Responsible Lending has released a study reporting that banks generated $17.5 billion in overdraft fees in 2006. Roughly $1.94 was yielded for every dollar borrowed from debit and ATMs by consumers unaware they were over their limit. Since 2004, there has been a 70 percent rise in overdraft fee income, largely due to the automatic enrollment of customers in overdraft protection programs that cover the transaction but charge the customer a fee of about $34. Rep. Carolyn Maloney (D-N.Y.), who is pushing for legislation to reform overdraft practices, said that banks' practices "encourage a problematic aspect of banking: overdrawing an account," while the financial institutions use the tactic as a motive for increasing their fee incomes. The study also criticized banks for reordering the clearance of checks from the highest to lowest payment amount so that delaying processing of deposits more often results in checks bouncing and overdraft charges. Rep. Tom Price (R-Ga.) said current overdraft programs provide consumers with adequate protection, and he is reluctant to return to his constituents and explain why their banks no longer offer overdraft protection.
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Payday Lenders Closing Doors After New Regulations Take Effect
Associated Press (07/09/07)
New regulations that went into effect in Oregon have caused many payday lenders in the state to go out of business. The regulations pertain to payday and car title lenders and are designed to crack down on alleged predatory lending practices. Among other things, the regulations cap annual interest rates at 36 percent. A spokesman for the Oregon Department of Consumer and Business Services says that no fewer than 60 payday loan stores have shut down or turned in their licenses since June 1. Check 'n Go has decided to shutter 21 of its stores, and Advance America, Cash Advance is mulling whether it will need to close 45 of its stores. The regulations are also affecting car title loans. Northwestern Title, which is about to shut down 17 stores in Oregon, has filed a lawsuit that claims the new regulations are unconstitutional. However, more than 200 payday lenders in the state remain open.
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Media Coverage Plays Significant Role in Rent-to-Own Public Policy
RTOHQ (07/06/2007) May, Richard
A report from APRO on media coverage of the rent-to-own industry over the past year examines how that coverage affected public perceptions and government regulation of the industry. Several developments in the industry led to a number of positive articles on rent-to-own operations, including the news that rent-to-own payments will now be used to evaluate credit scores for home loans. Negative stories on rent-to-own were also prominent, however, most stemming from a Brookings Institute press release on "The High Cost of Being Poor" that criticized rent-to-own practices. A series of negative stories in the Buffalo News led to a federal bill designed to impose severe regulation on the industry, as well as five bills in the New York state legislature. A Department of Defense report that criticized rent-to-own also required significant intervention by the industry to ensure that the practices involved were being discussed accurately.
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Nat City Car Loan Underwritten Just on Credit Score
American Banker (07/11/07) Launder, William
National City Corp. has introduced a new program for approving direct auto loans, which entails a blank check that can be written to licensed dealers. As a result of the program, borrowers with the checks in hand will have more leverage to negotiate a good price with dealers without having to go through the intermediary of the lender. In addition, the loans can be approved in minutes, and checks can be processed in just a day. The checks are approved based solely on the consumer's credit score, and after the vehicle is purchased, collateral verification such as the vehicle identification number is provided. A pilot test of the program showed that consumers bought cars with a 50 percent higher purchase price than under the previous program, although volumes in the pilot showed room for improvement. National City hopes to use the program to cross-sell other products to customers, a benefit that was not available in its defunct indirect auto lending business.
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Indirect Auto Loan Delinquencies Trended Higher in 1st Q
Automotive Digest--Funding Weekly (07/10/07)
First quarter 2007 indirect auto loan delinquencies rose over the fourth quarter of 2006, climbing from 2.57 percent to 2.73 percent. Direct auto loan delinquencies, meanwhile, declined from 1.85 percent in the fourth quarter of 2006 to 1.68 percent in the first quarter of 2007. Factors contributing to the increase in delinquencies include a weak job market and a lackluster economy.
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Capital One Auto Finance President Discusses New One Program
SubPrime Auto Finance News (07/05/2007) Reed, Jennifer
Capital One Auto Finance has combined its subsidiaries, including Capital One, Onyx Acceptance Corp., North Fork Bank, and Hibernia Bank into One Program. This new system allows the company to approve 98 percent of loans, generally in under 45 seconds. The One Program is capable of approving customers with FICO scores that range from 500 to 850. Beyond these improvements, One Program hopes to reach out to more independent as well as franchise dealers while improving dealer flexibility and customer experience. Capital One has also done some relocating recently, in the real world and online. The Web site for the company's direct-to-customer buying program has been changed to www.capitaloneautobuying.com, and the company has opened new offices in Plano, Texas, that will allow 1,000 employees involved in One Program to work in the same environment.
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Banks Battle for CUs' Auto Finance Market Share
States News Service (07/03/07)
Speaking at a recent auto finance conference in Austin, J.D. Power and Associates Senior Vice President Gary Tucker said that credit unions are boosting their share of auto financing and that banks are complaining that credit unions are stealing their customers. But Credit Union National Association Vice President of Economics and Statistics Mike Schenk noted that vehicle loans have long been the lynchpin of credit unions, accounting for about 40 percent of their total loan portfolios. "Banks claim credit unions are morphing into commercial banks," he said. "But it is the banks that are morphing into the credit union business. Much of why credit unions are around is because they make loans that banks won't." The reason customers are drawn to credit unions for car loans is that credit unions can offer lower loan prices due to their not-for-profit nature, and with margins more anemic than ever, competition for auto financing has increased.
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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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