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June 14, 2007
AFSA Files Amicus Brief in Nuvell Credit Case
Credit Card Practices Scrutinized at House Hearing
San Francisco will host AFSA's 2008 Vehicle Finance Conference
AFSA Commends Federal Reserve Board for HOEPA Hearing
Volvo on Top
Carper: Some Card Policies Untenable
Visa Service Fee 'Unlawful'
Support for Credit Card Rulemaking Beyond Fed
At Consumer Protection Hearing, Fed on Hot Seat
Loan Data Proves Baffling to Many, FTC Says
Pa. High Court Bolsters Lenders' Arbitration Pacts
Unbanked Get a Look from Private Equity
States Should Not Restrict Energy Utility and Telecoms Data
Schumer Introduces Rent-to-Own Bill to Override 47 State Laws
House Panel Chairman Unveils Student Lender Subsidy Cut
Dodd Details Bill to Curb Abuses in Student Loans
New Study Shows Average Credit Score Is 98 Points Lower for Consumers With One Late Auto Payment
CBA: Average FICO Score for Used Vehicle Climbs
Streamlined Driving Ahead for Autos
Oregon House Approves Interest Rate Cap
AFSA Files Amicus Brief in Nuvell Credit Case
AFSA filed an amicus brief in the negative equity case, Graupner v. Nuvell Credit Corporation case. The brief, filed in the U.S. District Court for the Middle District of Georgia, stated that the words; the statutory history; the Congressional intent; the analogies to the federal "Truth in Lending;" and—certainly not least, the explicit statement of the Georgia legislature (in its "Motor Vehicle Sales Finance Act") direct the Court to affirm Judge Laney's decision for Nuvell. The case is available to AFSA members by going to: www.afsaonline.org and selecting Litigation under the Legal tab.
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Credit Card Practices Scrutinized at House Hearing
The Subcommittee on Financial Institutions and Consumer Credit Chair, Carolyn Maloney (D-NY), held a hearing on June 7, which AFSA staff attended. Its goal was simple—to provide clear, simplified credit card disclosures for consumers. Discussed at the hearing was the Federal Reserve's updated Regulation Z, which implemented the "Truth-in-Lending Act." Several lawmakers noted the Fed's recent proposal to improve disclosures was a good first step, but criticized the central bank for not doing more to ban unfair and deceptive practices. Practices such as universal default, double-cycle billing, applying payments first to balances with lower interest rates, and late fees after credit limits are exceeded were labeled as "questionable." Executives from Citigroup, Capital One and Bank of America represented the industry on the hearing's second panel.
House Financial Services Chairman, Barney Frank (D-MA), held a full committee hearing this week on how to restore state consumer protections that federal regulators have preempted.
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San Francisco will host AFSA's 2008 Vehicle Finance Conference
For the fifth time, the AFSA Vehicle Finance Conference and Exposition will be coordinated with the NADA annual conference. The event, scheduled for February 6-8, 2008, in San Francisco, gives industry executives a "two-for-one conference opportunity." Last year, this event attracted nearly 400 executives from both the lender and dealer communities to Las Vegas. For more information on the conference, contact the AFSA Meetings Department at 202-296-5544 or meetings@afsamail.org.
To see the press release announcing the event, click here.
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AFSA Commends Federal Reserve Board for HOEPA Hearing
A statement from Chris Stinebert, president and CEO of AFSA, commends the Federal Reserve Board and the goals of its HOEPA hearing. To see the entire statement,
click here.
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Volvo on Top
Winnipeg Sun (06/08/07) McLeod, Annette
The annual J.D. Power and Associates Canadian Dealer Satisfaction Study looks at 1,355 new-vehicle dealers and how happy they are with their current financial providers. The survey analyzes both in-house captives, like GMAC and Chrysler Financial, as well as traditional banks. Each dealership was asked to evaluate their financial providers on three levels: retail credit, retail leasing, and floor planning loans. This year GMAC was the number one captive and best financial provider overall, while TD was rated the best of the banks. The dealers are also asked which type of financing is important to them. This year retail credit has become more popular. Forty-seven percent of dealerships ranked retail credit number one, up from 44 percent last year.
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Carper: Some Card Policies Untenable
American Banker (06/14/07) Vol. 172, No. 114, P. 3; Kaper, Stacy
Senate Banking Committee member Sen. Tom Carper (D-Del.) said he welcomed a proposal from the Federal Reserve Board to make card disclosures clearer, as many card practices are questionable. "The idea of being able to change interest rates sort of like any time, any place" is untenable, Carper said. He backed a plan from Rep. Carolyn Maloney (D-N.Y.), chair of the House Financial Services Committee, for issuers to adopt best practices that would be recognized as a "gold standard." Carper also said the Banking Committee should hold another hearing to discuss disclosure changes regarding Regulation Z, though Maloney said that "even Reg Z and the best disclosure may not be enough to resolve some of the ... abusive practices that have attracted the most criticism."
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Visa Service Fee 'Unlawful'
Stuff (NZ) (06/13/07)
A federal judge has ruled that Visa's "settlement service fee," which the credit card company forced its 100 largest debit card issuers to pay if they reduced their Visa debit volume by more than 10 percent, is illegal and must scrapped. The judge's ruling came in a lawsuit brought by MasterCard, which said that the fee effectively prevented issuers from switching their business to MasterCard.
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Support for Credit Card Rulemaking Beyond Fed
American Banker (06/08/07) P. 1; Kaper, Stacy; Sloan, Steven
At a hearing held by the House Financial Services financial institutions subcommittee June 7, several lawmakers said the Federal Reserve Board's recent proposal to improve disclosures was a good first step toward fixing problems in the credit card industry, though they criticized the Fed for not going further in using its power to ban unfair and deceptive practices. As a result, Rep. Carolyn Maloney (D-N.Y.) asked whether other federal regulators should be given a similar ability to ban unfair and deceptive practices in the credit card industry. Though several regulators at the hearing said they would welcome the additional power, only one--Federal Deposit Insurance Corp. Chairman Sheila Bair--said she would use it. Other regulators at the hearing were coy about whether they supported taking additional steps to rein in certain practices in the credit card industry. Fed Gov. Frederic Mishkin said he did not know if more action was necessary, but that the central bank "will consider if other steps need to be taken."
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At Consumer Protection Hearing, Fed on Hot Seat
American Banker (06/14/07) P. 1; Hopkins, Cheyenne; Kaper, Stacy
The Federal Reserve Board came under criticism on Wednesday for being slow to define unfair and deceptive lending practices, prompting House Financial Services Committee Chairman Barney Frank (D-Mass.) to consider transferring that power to other U.S. regulators. "It's use it or lose it," the legislator said during at hearing. "If the Fed doesn't start to use that authority to roll out the rules, then we'll give it to someone who will use it." Fed Gov. Randall Kroszner responded to the criticism by saying the central bank faces legal and practical challenges in establishing rules, adding that it is not the only regulator that has the power to crack down on abusive practices. Frank also said he hopes the Fed's hearing on Thursday will lead to some action by the central bank.
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Loan Data Proves Baffling to Many, FTC Says
Los Angeles Times (06/14/07) Kristof, Kathy M.
After receiving numerous complaints about mortgage disclosure paperwork, the Federal Trade Commission conducted a study to determine to what extent the forms currently used by lenders are confusing for borrowers. The analysis involved over 800 mortgage borrowers and a hypothetical loan, with half of the participants given current disclosure forms and the remainder provided with a prototype form created by the FTC. With current disclosures, 90 percent of participants did not know the loan's upfront costs, 50 percent did not know the loan amount, about 67 percent were unaware that prepayment penalties were included, and 20 percent did not know the monthly payment and were unsure whether property taxes and insurance were included. Though the study found that borrowers had a better understanding of 17 of 21 key loan terms when reading the FTC's prototype disclosure form, balloon payments and the difference between the annual percentage rate and the actual interest rate were still deemed confusing. Alex Pollock of the American Enterprise Institute says a disclosure form that allows lenders to input the loan amount, starting interest rate, monthly payment, and other terms into blank spaces would be easier to comprehend; but Mortgage Grader President Jeff Lazerson does not expect disclosures to improve until lenders are penalized for inaccuracies and tardiness in distributing the documents.
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Pa. High Court Bolsters Lenders' Arbitration Pacts
American Banker (06/11/07) P. 20; Jalili, H. Michael
Mortgage companies in Pennsylvania can continue to write arbitration clauses into loan agreements, according to a decision by the state's Supreme Court. The ruling stems from the case Salley v. Option One Mortgage Corp., in which a plaintiff who was facing foreclosure challenged an arbitration clause because it would allow the lender to take a foreclosure dispute to a trial court but restrict the borrower to arbitration. Mortgage lenders favor arbitration because trials are expensive, time-consuming and unpredictable. Plaintiff's representative Brian Mildenberg, of the law firm Mildenberg & Stalbaum in Philadelphia, noted that the agreement also does not allow the borrower to countersue but added that consumers would now have the right to challenge arbitration clauses in their entirety. "If I was in the industry," he stated, "I wouldn't be so happy."
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Unbanked Get a Look from Private Equity
American Banker (06/14/07) Vol. 172, No. 114, P. 1; Launder, William
Financial services for underbanked consumers, who number around 40 million in the United States, are a lucrative opportunity for private equity firms and hedge funds, as indicated by people representing Pequot Capital Management and Warburg Pincus at a Dallas conference on the underbanked. "We are looking across the sector broadly," noted Warburg Pincus managing director David Coulter. "I think there are real growth equity opportunities there." Coulter cited the subprime mortgage market as a perfect analogy for explaining the appeal of the underbanked to private-equity firms. "Look at ... the returns those firms have been able to generate over time," he said. "You can find businesses that produce very, very attractive returns on equity. In part that reflects the risk of the sector." Among the companies that have sought private-equity capital for growth is Banuestra Financial, which provides services such as remittances and check cashing to a mostly Hispanic customer base from a dozen Atlanta storefronts. Banuestra CEO and President Drew Edwards said his company backed off from an initial public offering in favor of private equity, which he called "smart, patient money." Edwards characterized businesses that focus on the underbanked as currently being in an expansion mode.
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States Should Not Restrict Energy Utility and Telecoms Data
dBusinessNews (06/12/07)
The Alternative Data Initiative, conducted by PERC and the Brookings Institution Urban Markets Initiative, concluded that including energy utility and telecom data in consumer credit reports can have an incredibly positive impact. The study found that with the inclusion of these types of data, low-income borrowers, the elderly, young adults, and minorities have a better road to cost effective, mainstream credit. At the same time, lenders are able to broaden their client base while keeping risk at a minimum. Despite these encouraging findings, lawmakers in California, New Jersey, Texas, and Ohio have enacted restrictions on transferring this type of data, and several more states have similar legislation in process. Different states have different reasons for passing legislation restricting alternative data transfer, ranging from concerns about personal privacy to worries about soaring energy utility rates. PERC and its partners maintain, however, that the benefits of alternative data far outweigh the costs.
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Schumer Introduces Rent-to-Own Bill to Override 47 State Laws
Association of Progressive Rental Organizations (06/12/07) Keese, Bill
Sen. Charles Schumer (D-N.Y.) has introduced a new bill, the Rent-to-Own Reform Act of 2007, which would redefine rent-to-own transactions as a sale, not a lease. This bill would overturn laws on the books in 47 states. It also contradicts current national tax law, as well as the decisions of the Internal Revenue Service, the Federal Reserve Board, and the Federal Trade Commission, which all recognize rent-to-own contracts as a lease.
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House Panel Chairman Unveils Student Lender Subsidy Cut
Wall Street Journal (06/12/07) Godfrey, John
House Education and Labor Committee Chairman George Miller (D-Calif.) has unveiled a bill that would reduce student lenders' subsidies by $18.75 billion, which is a far cry from the $22 billion in cuts proposed by Sen. Edward Kennedy (D-Mass.). The House previously approved legislation to cut lender subsidies by $12 billion in January. Any cuts made to the subsidies will go toward increasing funding for student aid, particularly increases in the number of Pell Grants and reductions in student loan interest rate limits, according to sources. The proposed bill does maintain the reduction in loan guaranty percentage supported by the Bush administration, but it increases the guaranteed interest rate to 55 basis points below the guaranteed lender interest rates on student loans. Meanwhile, the committee expects to review an increase in lender loan origination fees from 0.5 percent to 1 percent, which could generate an additional $2.5 billion in savings. Lenders say the reductions in the proposed bill are too deep for the industry to sustain.
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Dodd Details Bill to Curb Abuses in Student Loans
American Banker (06/11/07) Kaper, Stacy
Senate Banking Committee Chairman Christopher Dodd (D-Conn.) intends to propose legislation to outlaw misleading and dishonest practices in the student-loan industry, and to guarantee that students are aware of the terms and conditions of their loans. To enhance transparency, the bill would mandate all private student loan solicitations to disclose the loan's various rates, as well as information about less-expensive federal loans. The bill would prohibit lenders from giving gifts to schools' financial aid offices in exchange for preferential treatment, and bars lenders from using underwriting data based on the student borrower's race, age, school, or other personal factors. Moreover, the measure would give the Federal Reserve Board the authority to monitor such data. Finally, the bill would offer Community Reinvestment Act credit for banks that offer cheaper loans to low-income students. Dodd has also united with New York Attorney General Andrew Cuomo in calling on the top 20 student lenders to reveal information about underwriting criteria used in calculating their loan rates and terms.
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New Study Shows Average Credit Score Is 98 Points Lower for Consumers With One Late Auto Payment
PRNewswire (06/13/07)
Experian Consumer Direct's latest National Score Index study reveals that the average credit score for U.S. consumers with no late auto payments is 703, a score that falls by almost 100 points, to 605, for those consumers who have made one or more late payments. Moreover, the average credit score decreases further, to 580, when the auto payment is three months late or more. A little over one-quarter of the U.S. population has at least one auto lease or loan on file, and 12 percent of consumers have at least one late payment on file. The national balance on an auto loan is $15,654, on average, and the average monthly auto payment is $495 nationwide. Ty Taylor, president of Experian Consumer Direct, points out that lenders use credit scores to calculate the rates and terms for auto loans. Because purchasing a car is one of the biggest purchases consumers can make, it is vital for consumers to build good credit by spending within a budget and paying bills on time, says Taylor. Experian Consumer Direct runs Web sites, like freecreditreport.com, to provide consumers with credit reports, credit score reports, and credit monitoring reports, all of which help consumers handle their finances in a secure and convenient way.
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CBA: Average FICO Score for Used Vehicle Climbs
SubPrime Auto Finance News (06/12/2007) Reed, Jennifer
The Consumer Bankers Association's annual report revealed that while the median FICO score on a new vehicle has fallen, the average score on a used vehicle has increased. Indeed, officials discovered that the average FICO score for new vehicles has been declining over the past few years, from 730 in 2004, to 727 in 2005, and 722 in 2006. Used vehicles' average FICO scores grew from 658 in 2005 to 712 in 2006. Loan maturity levels, as many industry professions anticipated, are extending for both new and used vehicles. E-contracting has also grown more popular, with 14 percent of surveyed lenders using some form of the tool, up from 8 percent last year. Executives also noted that "Captive account delinquency rate [for used vehicles] was still higher than that of large banks, but was the lowest in the past three study periods--down 23 percent since last year."
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Streamlined Driving Ahead for Autos
Asset Securitization Report (06/11/07) Mitchell, Donna
As expected, auto loan asset-backed securities (ABS) issuance has fallen substantially this year. As of May, total auto loan ABS issuance had declined by 25 percent from last year, perhaps because prime auto loan issuance fell by 45 percent over the same period. One contributing factor may be the recent acquisitions of some midprime auto lenders by parent companies uninterested in mining the securitization market for funding. Though some large deals have been made, such as Wachovia Auto Loan Owner Trust issuing $2 billion in ABS, auto ABS issuance is predicted to stay down. This shift has generated some positive developments, such as AmeriCredit moving up from subprime to prime after absorbing Bayview Financial. The stability in the auto sector is beneficial for issuers, because yields are rising. As a small and efficient model, the current auto ABS sector offers lucrative opportunities for new issuers and provides room for finance companies and nonprime auto ABS subsectors to develop and grow.
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Oregon House Approves Interest Rate Cap
Associated Press (06/09/07)
The Oregon legislature passed HB 2871 with a vote of 38 to 16, limiting interest rates on loans under $50,000 to 30 percentage points above the Federal Reserve discount rate. If Gov. Ted Kulongoski signs the bill into law, it would take effect July 1. Supporters hope the bill will reduce alleged abuses in the car-title loan sector.
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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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