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July 26, 2007
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AFSA Cautions Against Expanding HMDA Reporting Requirements
AFSA Signs Trade Group Letter Requesting GSE Reform Legislation
AFSA Opposes Legislation to Restrict Industry Access to Social Security Numbers
CIT: Consumer Returns, Regs Don't Add Up
Countrywide Home Loans Launches It's Your Choice Mortgage Campaign
Keychain Alliance Offers Keys to Hope for Homeowners
Online Resale of Gift Cards Raises Fraud Alarms
Legislators Question Interchange Setup
Fed Changes Small-Receipt Requirement
HMDA Suits Backdrop for Committee Hearings
Priority Asked for GSE Reform
Enough Subprime, Let's Talk Housing Debacle
Credit Union Expansion Bill Draws Bankers' Ire
Senate Student Loan Bill Avoids Private Reform
Where Bankruptcies Stay High
US Senate Approves $15.4B Student Lender Subsidy Cut
Student Lending Hits the Web
Chrysler Sale to Be Completed After Banks Take Loans
SCRS Supports Total Loss Disclosure Bills
This Week: William C. Jensen
Bank Allies Press Dodd to Limit ILC Ownership
AFSA Cautions Against Expanding HMDA Reporting Requirements
On Wednesday, AFSA executive vice president of federal government affairs, Bill Himpler, told a hearing held by a House Financial Services Subcommittee that an expansion of reporting requirements under the Home mortgage Disclosure Act (HMDA) could cause more harm than good. “… we must be mindful of how any changes might affect liquidity,” Himpler told the hearing. “More importantly, we should allow the industry to provide manageable borrowing options for consumers facing reset or the possibility of foreclosure.”
To see the AFSA press release regarding the hearing, go to the AFSA Web site.
(click for web site)
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AFSA Signs Trade Group Letter Requesting GSE Reform Legislation
In conjunction with six other trade associations, AFSA sent a letter yesterday to Senate Banking Committee Chairman Chris Dodd (D-CT) and Ranking Member, Richard Shelby (R-AL), encouraging the committee to move quickly on Fannie Mae, Freddie Mac and the Federal Home Loan Banks reform legislation. It asked for a hearing as soon as possible, with the goal of sending completed legislation to President Bush this year. The full text of the letter is posted on the AFSA Web site (www.afsaonline.org).
(click for web site)
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AFSA Opposes Legislation to Restrict Industry Access to Social Security Numbers
Last Friday, AFSA asked its members to voice their opposition to H.R. 3046, “The Social Security Number Privacy and Identity Theft Prevention Act of 2007.” The bill, sponsored by Rep. Michael McNulty (D-NY), seeks to reduce identity theft by restricting the sale, purchase and public display of social security numbers by government and businesses. In addition, AFSA sent its own letter to Members of Congress and signed a joint trade group letter that went to the House Ways and Means Committee earlier.
“While well intended, H.R. 3046 would actually weaken – rather than strengthen – the private sector’s ability to prevent fraud and identity theft,” said AFSA president and CEO Chris Stinebert. To see the entire press release, go to the AFSA Web site. (www.afsaonline.org)
(click for web site)
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CIT: Consumer Returns, Regs Don't Add Up
American Banker Online (07/23/07) Launder, William
CIT Group would become more of a pure commercial finance company if it gets out of the home lending and student loans businesses. Such a move would leave the New York-based company with two consumer lines in its small-business lending unit and CIT Bank, its $3.5 billion-asset industrial loan company that offers third-party financing to the customers of big companies like Dell. Consumer lending accounts for about 6 percent of CIT assets and about 10 percent of its income. A week ago, CIT said it was quitting the home lending business, but it could attempt to sell the mortgage company. CIT has not decided what it would do with the student loan business, although analysts believe it will be easier to sell than the mortgage business. "The performance and growth of our student loan business has been overshadowed by the uncertainty of pending legislation on Capitol Hill," CIT Chairman and Chief Executive Jeffrey M. Peek said during an earnings call.
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Countrywide Home Loans Launches It's Your Choice Mortgage Campaign
CNN Money (07/23/07)
Countrywide Home Loans has announced a national initiative designed to educate mortgage consumers about the many options available to them regarding how certain costs are paid when refinancing or obtaining a home loan, irrespective of their mortgage lender. Countrywide's more than 9,000 loan officers and mortgage sales force are being equipped with new tools such as specialized mortgage cost calculators designed to help them show customers cost-effective choices for structuring their home loan packages. A national survey commissioned by Countrywide of more than 2,280 homeowners found that 76 percent of respondents strongly agreed that they want to be informed by mortgage lenders about the maximum number of closing cost choices. The survey also found that 69 percent of respondents strongly agreed that they are more likely to trust a mortgage lender who is open and honest about the many options available to them given their individual situation. Nine out of 10 U.S. home
owners agreed that there is really no such thing as a mortgage without fees. Three of five U.S. homeowners (61 percent) indicated strong agreement with the idea that "one size fits all" mortgages are not necessarily the best option for everyone. Dan Hanson, managing director of Countrywide, notes that home loan choices can vary from one buyer to the next based on individual financial circumstances. Countrywide intends to advise customers about such mortgage cost options as no money needed for closing costs, lowering interest when closing costs are paid upfront, reducing mortgage interest rates, and combining first and second mortgages, among other options.
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Keychain Alliance Offers Keys to Hope for Homeowners
GMAC Financial Services News Release (07/20/07) Weinberg, Brett J.
GMAC Mortgage and Homecomings Financial customers can seek help from the Keychain Alliance, formerly known as the HOPE program, to avoid foreclosure. The alliance has members in 10 U.S. cities, who partner with local organizations and businesses to educate homeowners about avoiding foreclosure even during difficult financial times. Members work one-on-one with homeowners to map out ways to avoid losing their homes. The earlier they seek help, the more options the alliance can offer people to help them meet their mortgage obligations.
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Online Resale of Gift Cards Raises Fraud Alarms
USA Today (07/23/07) P. 1B; Acohido, Byron; Swartz, Jon
Criminals have found a way to launder money by reselling gift cards on the Internet. Thieves use a stolen credit card to buy a gift card online, which they turn around and sell at an online auction Web site or for a set discount at a gift-card exchange Web site. According to Paul Cogswell, vice president of loss prevention and risk services at Comdata, the scam helps criminals use stolen credit card numbers before the victim can close the account. Some online auction Web sites are taking action to address this problem. EBay, for instance, limits sellers to offering one gift card worth $500 or less per week. However, this policy is routinely violated, said Joseph LaRocca, vice president of loss prevention at the National Retail Federation.
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Legislators Question Interchange Setup
American Banker (07/20/07) P. 3; Kaper, Stacy
At a hearing held by the House Judiciary Committee antitrust task force, retailers and consumers told lawmakers that Visa, MasterCard, and their banks are conspiring unfairly and illegally to charge merchants overly high interchange fees. For their part, representatives from the card industry said the antitrust claims were untrue. They also said that interchange fees are an appropriate costs for the service and convenience provided, and that government regulation of the interchange system would harm both small merchants and consumers. "Without the incentive of interchange, community banks like mine would not be able to offer the same services we do now, which means fewer choices for consumers and less competition for their business," said John Buhrmaster, the president of First National Bank of Scotia in New York. However, House Judiciary Chairman John Conyers (D-Mich.) said the government may be forced to intervene because interchange fees are not being set by the ma
rket.
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Fed Changes Small-Receipt Requirement
ATM & Debit News (07/19/07) Vol. 7, No. 26, P. 4
The Federal Reserve Board has approved amending the Electronic Funds Transfer Act's Regulation E, no longer requiring merchants to provide receipts for debit card purchases of $15 or less. According to the Fed, "receipts are of minimal benefit to consumers in small-dollar transactions." The rule will be effective Aug. 6, and also applies to small-dollar purchases made with prepaid payroll cards. MasterCard and Visa have backed amending the regulation, as eliminating receipts will make it easier for merchants of kiosks and vending machines to upgrade to accepting cards without the expenses of a printer, says Visa Vice President Niki Manby. A MasterCard spokeswoman said the use of PayPass will increase as more merchants accept contactless payments, citing the New York City PayPass pilot in subways as an example where obtaining receipts would be burdensome. Yet Gwenn Bezard of the Aite Group says although the receipt "is extremely annoying ... at the end of the day it i
s the only way for consumers to dispute incorrect charges on the spot."
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HMDA Suits Backdrop for Committee Hearings
American Banker (07/25/07) Hopkins, Cheyenne
Lenders' fears regarding a requirement that they begin issuing pricing data for some higher-cost loans under the Home Mortgage Disclosure Act (HMDA) have been realized, as a class-action lawsuit against 12 lenders has been filed by the National Association for the Advancement of Colored People accusing them of imposing higher interest rates on black borrowers. Attorney Andrew Sandler of Skadden, Arps, Slate, Meagher & Flom LLP--who represents some of the lenders named in the litigation--expects similar lawsuits to be filed in the coming months. Meanwhile, the House Financial Services oversight subcommittee has planned a hearing in which federal bank regulators are expected to voice support for the rule and consumer advocates will likely push for expanded disclosures. The hearing will focus on the fact that no cases have been brought by the U.S. Justice Department even though regulators referred 134 cases of possible discrimination to the agency over the past three year
s. According to HUD's deputy assistant secretary for enforcement and programs, Bryan Greene, "The data alone is not going to tell you if they are discriminating because the data doesn't have key information on who gets the loan and at what price so the data that we receive helps us to target which lenders we might pursue." American Financial Services Association Executive Vice President of Federal Affairs Bill Himpler says lenders are concerned that reporting more data will hurt borrowers privacy and impact lenders' pricing models. "Our goal for the hearing is to again explain to Congress that HMDA's working; the regulators have analyzed a couple years' of data; have made referrals [to the Justice Department]; investigations are going forward; the process is working," Himpler says. "We are in a time right now where we have some increased cases of defaults, and the last thing we need right now is to prejudge these cases."
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Priority Asked for GSE Reform
American Banker (07/24/07) Sloan, Steven
The American Financial Services Association and several other financial services organizations recently sent a letter to the Senate Banking Committee requesting that lawmakers give priority to efforts to revamp oversight of the government-sponsored enterprises. Such legislation was approved by the House in May. The correspondence to committee chairman Sen. Christopher Dodd (D-Conn.) and Sen. Richard Shelby (R-Ala.) states, "We strongly encourage the committee to continue its efforts on this important issue by holding a hearing as soon as possible and by working toward the goal of sending completed legislation to the president this year."
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Enough Subprime, Let's Talk Housing Debacle
Reuters (07/24/07) Saft, James
Alt-A mortgages--whose borrowers are more creditworthy than those in the subprime sector but do not qualify for prime financing--are experiencing higher delinquency rates, even though federal officials have said that problems in the subprime market would not spill over to affect prime borrowers. However, there are now concerns that troubles in the Alt-A market could make it difficult to obtain financing, prompt more homeowners to sell, and cause consumers to tighten their purse strings. According to RBS credit strategist Bob Janjuah, "Subprime may have been the first area to roll over, but pain has, is and will continue to spread to the Alt-A and prime sectors of the U.S. housing market." Last year, originations of Alt-A mortgages totaled $386 billion, versus $640 billion in subprime loans.
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Credit Union Expansion Bill Draws Bankers' Ire
American Banker (07/26/07)
Legislation proposed by Rep. Jose E. Serrano (D-N.Y.) that would give the National Credit Union Administration the authority to let all credit unions add underserved areas to their fields of membership has spawned criticism from the banking industry. While the 1998 Credit Union Membership Access Act grants only multiple-common-bond credit unions to instate such an initiative, Serrano says the Affordable Financial Services Enhancement Act is designed to provide low-income communities increased access to financial services. Yet banking industry representatives say the move is just another attempt by credit unions to increase their market presence and compete for banks' customers. America's Community Bankers' vice president of government relations, Greg Mesack, said, "Community-chartered credit unions are not serving underserved people within their current chartered areas. Why should they get a legislative change that lets them go cherry pick wealthy people somewhere els
e?" Meanwhile, a Government Accountability Office report reveals that some 41 percent of bank customers are people of modest means, but only around 31 percent of credit union members are of the same demographic.
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Senate Student Loan Bill Avoids Private Reform
American Banker (07/25/07) Kaper, Stacy
The Senate has passed legislation intended to improve lender relationships with college financial aid departments. The bill was approved by the Senate unanimously and calls for reauthorizing the Higher Education Act, which oversees college financial aid programs. The legislation would require lenders to implement a code of conduct as outlined by New York State Attorney General Andrew Cuomo. A similar bill was approved by the House on May 9. Meanwhile, Senate Banking Committee Chairman Christopher Dodd (D-Conn.) was prevented from unveiling a measure on regulating private sector loans due to a procedural rule, but planned to present it again when the bill goes to conference or as a separate bill. According to a draft of Dodd's proposed reforms, banks would not be allowed to use colleges' default or graduate rate data when establishing a student's loan rate if that information would adversely impact the borrower. Students would also be able to cancel a loan 30 days af
ter acceptance, and lenders would have to report information on borrowers' race, gender, and loan terms to the Federal Reserve Board to allow the board to determine if minority students were getting higher cost loans compared to white students. Borrowers would also be permitted to discharge private-sector loans in bankruptcy if they qualify for such safeguards and had been repaying loans for a minimum of five years.
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Where Bankruptcies Stay High
Wall Street Journal (07/25/07) P. B2F; Lovely, Erika
Despite a national trend of bankruptcy reform and declining bankruptcy rates, three states in the Southeast continue to see high numbers of Chapter 13 bankruptcy cases. In Tennessee, every year an average of 5.8 people file for bankruptcy out of every thousand; in Georgia the figure is 4.87 out of 1,000; and in Alabama it is 4.77 for every 1,000. These figures are fairly large, especially considering the national average is only 2.52 per 1,000. The cause of this phenomenon would seem to be high poverty rates; however, there are several poorer states with much lower bankruptcy figures. Economists looking for alternate reasons have found the social culture in these three states may contribute to bankruptcy's popularity. All three states have been major supporters of Chapter 13 bankruptcy since its inception. Its long history in the states also makes it somewhat of a tradition for lawyers, many of whom consider it a default option when representing clients in financial
trouble. These states' combination of gambling access, religious traditions, high subprime lending, and low health insurance rates are also considered possible contributing factors.
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US Senate Approves $15.4B Student Lender Subsidy Cut
Dow Jones Newswires (07/20/07) Godfrey, John
The Senate passed on July 20 a bill that would save the government around $15.4 billion by 2012. The savings come from major cuts to government subsidies of student loans. The House passed a similar bill in June; however, while the House wants to use the savings to halve borrower interest rates, the Senate and the White House both vehemently oppose this idea. Assuming the differences can be worked out, the bill could become law by this Fall. The cut would have major consequences for the 3,500 lenders that are currently approved to finance federally guaranteed student loans. In fact, the bill's success in the Senate has put a kink in the negotiations for J.C. Flower's prospective $25 billion leveraged buyout of SLM Corp. Not only does it stand to lose government subsidies, certain versions of the bill also include provisions to reduce government insurance on defaulted loans and prohibit schools from receiving incentives from lenders to send student business to their
company.
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Student Lending Hits the Web
Wall Street Journal (07/19/07) P. D1; Chaker, Anne Marie
A bevy of Web-based services that have appeared recently to help individuals obtain college loans is receiving scrutiny from official groups. Services such as collegeloanmarket.com and studentloanscout.com were created in partial response to problems connected to colleges' "preferred-lender lists," which are names of recommended lenders that institutions provide to students to contact for loans. An in-depth investigation by New York Attorney General Andrew Cuomo has determined that certain lenders offered rewards such as stock or expensive meals to college financial-assistance representatives in order to be included on those lists. Cuomo's office, however, is also investigating certain of the newer sites. While the new sites claim they try to help the borrowers who want to get loans on their own, they also all state that they try to help consumers compare interest rates and private student-loan terms. Investigators contend that the sites may have an economic incentiv
e in the suggestions they give; may not provide correct rates; and are unclear as to what the loans' impact are on the credit scores of students. Although the sites do not charge borrowers, they usually earn money from fees that lenders or schools pay.
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Chrysler Sale to Be Completed After Banks Take Loans
Bloomberg (07/26/07) Rubinroit, Harris
The sale of 80.1 percent of Chrysler to Cerberus Capital Management LP is expected to be completed by early August. The deal calls on Cerberus to put $5 billion into the automotive unit and $1.1 billion into the financial services unit. Cerberus will also pay DaimlerChrysler an additional $1.3 billion. Chrysler also hopes to find buyers for $8 billion in loans for its financing unit after increasing interest rates. The financing unit has announced it will be offering investors 4 percentage points above Libor on a $4 billion five-year term loan.
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SCRS Supports Total Loss Disclosure Bills
Automotive Body Repair News (07/24/07) Albright, Brian
The Society of Collision Repair Specialists is joining the National Automobile Dealers Association and the Automotive Service Association in their support of newly proposed legislation. The two prospective bills, recently introduced in the House and the Senate, would give the public access to the history of vehicles after they have been declared total losses. The legislation would obligate insurers to release information including vehicle identification number, odometer reading, and the reason for total loss classification. This information could then be accessed online through email or information databases like Carfax. The bill's supporters hope these provisions would prevent the resale of extensively damaged cars to consumers who have no knowledge of their history. The bills were initially proposed in the wake of Hurricane Katrina to prevent the sale of water damaged vehicles.
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This Week: William C. Jensen
Automotive Digest--Funding Weekly (07/24/07)
William C. Jensen serves as senior vice president and manager of the Custom Vehicle Group for Chase Auto Finance, which in 2004 merged with Bank One's auto finance business. For the past year-and-a-half, Chase Auto Finance has been focusing on providing comprehensive auto dealer financial services, and has ample experience in both the prime and subprime areas. Recently, the company has been targeting the middle to enable dealers to offer a wide range of choices to their customers. Jensen anticipates having 45 Chase Custom Finance offices nationwide to offer multiple services to dealers. Chase Custom Finance has traditionally served independent dealers through prime products, while Chase Auto Finance is a comprehensive provider for the overall auto arena. For 2008, Jensen says, the aim of Chase Auto Finance is to keep developing the midrange or near-prime offering for the 680-600 FICO segment. Chase Custom Finance would like to see its competitiveness rise in the 580
-620 range of subprime and ensure an easy migration from prime into custom for dealers. As for sales, Jensen wants dealers to be aware about its wide range of products and says the firm is concentrating on its sales force. Commercially, Chase Auto Finance wants to expand even though it is the leading bank in market share among commercial floor plans.
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Bank Allies Press Dodd to Limit ILC Ownership
American Banker (07/24/07) Adler, Joe
Banking groups are calling on Sen. Christopher Dodd (D-Conn.), chairman of the Senate Banking Committee, to act quickly to ensure that a bill limiting commercial ownership of industrial loan companies (ILCs) passes the Senate before a moratorium on commercial companies' applications for ILCs expires in January. Congress will be in recess for the month of August and after Oct. 26, so groups pushing for the passage of the bill are concerned about there being enough time for the Senate to consider the legislation. Although Dodd has spoken in favor of the bill, it has not yet been introduced in his committee, and much of his time has been occupied by his presidential campaign. In addition, any bill passed by the Senate would have to be reconciled in conference with complementary legislation already passed by the House, which is expected to be more stringent than a Senate bill due to the need to compromise with Sen. Bob Bennett (R-Utah), the chamber's strongest defender of
commercial companies' right to own ILCs.
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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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