March 8, 2007
Welcome to AFSA Newsbriefs, a free e-mail newsletter from the American Financial Services Association. I hope you not only find it useful but also enjoyable!
Its goals are simple—to provide up-to-date information on AFSA's activities and to deliver news of interest to professionals in the consumer credit and finance fields. Please let us know what you think!
Each issue, AFSA Newsbriefs will scan 8,000 English-language news sources to bring you the best finance-related items, many of which are not available anywhere else on the Web.
We hope you find AFSA Newsbriefs to be an informative resource. Also, please feel free to "forward" weekly issues to interested colleagues. Thanks for your interest and best regards.
Chris Stinebert
President and CEO
No Knockout in Round One
Film Takes on Flawed Card Marketing Practices
In Brief: MasterCard Alters Some Interchange Fees
Debating Standards for Mortgage Lenders
FDIC Sanctions Fremont Over Subprime Loans
State Urges Curbs on Subprime Lenders
Watchdogs Insist Payday Lender Reforms Inadequate
Coalition to Fight Predatory Lending
Suit Alleges Brokers Steer Buyers to Pricey Allies
Financial Expert Encourages Protection of FICO
DaimlerChrysler May Also Divest Chrysler Finance Unit
Subprime Finance Turbulence Is Spreading
Legislature Update
Citigroup Will Bankroll ACC Capital
Ford Restructuring Costs Estimated at $11.2 Billion
GE Money to Form a Joint Venture With Colombia's Banco Colpatria
Christopher Buckley, Forbes FYI, to Keynote Independents Conference
AFSA Urges Committee to Get Reliable Foreclosure Data
Foreclosures Top Consumer Advisory Council Agenda
Jurisdictional Frictions Still Freeze Data Security Bills in Congress
AFSA Coordinates Joint Letter to Federal Regulators
No Knockout in Round One
American Banker (03/08/07) Kaper, Stacy
Sen. Carl Levin, chairman of the Senate Permanent Subcommittee on Investigations, said on Mar. 7 that recent changes to controversial credit card practices by some banks are not enough to placate lawmakers. Sen. Levin said that the credit card industry needs some legislation to regulate practices, but lobbyists are not concerned as they believe Levin faces an uphill battle to push legislation through. Levin's committee does not have jurisdiction over banking issues; the committee that does, the Senate Banking Committee, is split between the parties 11 to 10, and at least one key member of the Banking Committee, Sen. Tom Carper (D-Del.) is not pushing for legislation. The Delaware Democrat said the subcommittee should focus on lenders who target subprime borrowers, and even praised the bank witnesses, from Citigroup, JPMorgan Chase, and Bank of America, for their financial literacy programs. Sen. Levin remained optimistic about potential legislation, saying the hearings are not a partisan issue, but a matter of fair practices and honesty. Levin also promised to work with Sen. Chris Dodd (D-Conn.) on any bill, acknowledging the Banking Committee has jurisdiction on lending practices.
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Film Takes on Flawed Card Marketing Practices
American Banker (03/06/07) Jackson, Ben
Consumer advocates are hoping the new documentary film "Maxed Out" will raise awareness about the dangers of accumulating too much debt and force changes in the way credit card companies market their cards and handle their customers. The film [was] shown on Capitol Hill on March 7, the same day the Senate Permanent Subcommittee on Investigations held hearings on credit card rates, fees, and grace periods, and will also premiere in 15 other cities over the next two weeks. Drake University law professor Cathy Lesser Mansfield said people get into trouble with credit cards because they enter into a contract that they are unable to change, but that card companies can change. Mansfield is also the chairwoman for a group called Americans for Fairness in Lending, which aims to raise public awareness about the dangers of debt, and hopes to make people look at debt as a public safety issue, such as drunk driving or smoking. The director and producer of the film, James D. Scurlock, said the film's original intent was to explore how people used credit cards to live like millionaires on $30,000 salaries, but changed the film's focus as he discovered increasingly more people with insurmountable debt.
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In Brief: MasterCard Alters Some Interchange Fees
American Banker (03/01/07) Jalili, H. Michael
MasterCard has unveiled an interchange rate schedule that reveals which fees will rise, fall, and be capped for particular types of online purchases. Joshua Peirez, president of global public policy for MasterCard, said the new schedule represents a "more sophisticated" effort in segmenting its market among issuers, retailers, and consumers. The schedule will reduce fees for Internet retailers that comply with the UCAF and SecureCode security standards, according to Peirez, and cap fees on gasoline purchases at or above $50. Taxi fares will be transferred to a lower rate category. MasterCard will not alter its rates for its World Elite brand of cards, designed for consumers with elevated spending levels. The new rates are set to take effect in April.
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Debating Standards for Mortgage Lenders
Wall Street Journal (03/08/07) Simon, Ruth
The increase in defaults on subprime mortgages has some states and federal banking regulators looking to create rules that would require lenders to ensure that home loans are suitable for borrowers. However, some industry observers say a suitability requirement would make home financing more expensive and could force mortgage lenders to take a much more conservative approach to lending. According to one expert, mortgage lenders will "deny credit ... to people who deserve credit" if they have to consider the suitability of the loan. The expert instead favors disclosure standards that lenders could voluntarily adopt to help educate borrowers about their mortgage product options.
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FDIC Sanctions Fremont Over Subprime Loans
Reuters (03/08/07) Poirier, John
The Federal Deposit Insurance Corp. on Wednesday issued a cease-and-desist order against subprime mortgage lender Fremont General Corp., which it accused of failing to have adequate risk-management protocols in place and of selling loans that significantly raise a borrower's tendency to default. Without admitting wrongdoing in its subprime mortgage and commercial property lending operations, Fremont agreed to the order--which calls for it to implement within 90 days a lending policy to remedy its flawed practices. The new order of business will include clearer disclosures, full compliance with consumer-protection laws, underwriting based on an analysis of the subprime borrower's ability to repay at the fully indexed rate and guidelines for restructuring troubled loans. "Our concern has always been that banks make loans that borrowers are unable to repay," stated FDIC Chairman Sheila Bair.
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State Urges Curbs on Subprime Lenders
Boston Globe (03/06/07) Blanton, Kimberly
Massachusetts is targeting subprime lenders with a new bill that would require loan officers working at brokers that make subprime loans to obtain a state license. According to Daniel O'Connell, Secretary of Housing and Economic Development, the measure calls for charging the state's more than 30,000 lending officers a $250 licensing fee--which would raise more than $7 million. Under the proposal, the state would use some of the money to hire more state loan-company examiners; and about $5 million would be used to create a fund to provide foreclosure-related assistance to consumers who lose their homes. The state had record foreclosure filings last year--by 19,487 homeowners, most of whom had poor credit ratings and subprime loans.
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Watchdogs Insist Payday Lender Reforms Inadequate
Associated Press (03/06/07) Schafer, Susanne M.
The payday loan industry has instituted a number of changes in its business practices in response to growing pressure from consumer watchdog groups. The biggest change the industry adopted would give consumers more time to pay back a loan without a financial penalty. Once a year, consumers would be given the option of choosing an "extended payment plan" that would give them between two and four extra months to pay off loans. Payday loans are typically repaid after two weeks. However, lawmakers in a number of states are still not satisfied. In South Carolina, for example, lawmakers are considering legislation that would limit annual interest fees on loans to 36 percent. The legislation would also limit the number of loans a consumer could have with a single payday loan company. New legislation in 10 other states would impose similar limits. Representatives from the payday loan industry said the interest caps are too harsh, and would prevent them from bringing in enough revenue to cover their overhead.
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Coalition to Fight Predatory Lending
Los Angeles Times (03/06/07)
Americans for Fairness in Lending, a new coalition of consumer and civil rights organizations, has rolled out a national campaign against predatory lending. Rather than target individual lenders, the coalition will speak out against abusive mortgage lending, high late fees on credit-card payments, rapid tax refunds, and other unscrupulous practices that make it difficult for borrowers to repay debt. The group is pushing for enhanced disclosures and stricter regulations. Participants include the Consumer Federation of America, Consumers Union, the NAACP, and the National Council of La Raza.
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Suit Alleges Brokers Steer Buyers to Pricey Allies
Baltimore Sun (03/02/07) Harney, Ken
A class-action lawsuit filed in Minnesota by home buyers Kenneth and Dylet Grady against Coldwell Banker Burnet Realty Inc. accuses the property brokerage of breach of fiduciary duty. The plaintiffs say they were steered to the company's affiliated title insurer and settlement firm, Burnet Title, without being told that it charges much more than non-affiliates, adding that Burnet Title's fees are equivalent to 75 percent of the insurance premium. The suit--which requests that more than 10,000 clients receive refunds and damage awards--also says the realty firm failed to disclose that sales associates who successfully guide clients to use Burnet Title receive compensation as soon as the deal is closed, rather than at a later date. Given that numerous big brokerages have title, settlement, and mortgage affiliates, observers believe the lawsuit could have national ramifications.
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Financial Expert Encourages Protection of FICO
Fort Leavenworth Lamp (03/01/07)
A new "Military Saves" program urges service members to create savings goals and to put aside emergency money. Created by the Defense Department and launched on Feb. 25, the program received advice from financial expert Suze Orman. Orman compared money-saving strategies to "financial ammunition" for the soldiers and suggested that they begin by rapidly paying off credit card debt. The second thing to do, according to Orman, is to develop a high FICO score. Once soldiers take those steps, they can work on putting eight months to 12 months of pay into a simple savings account or a money-market savings account; this will be an emergency fund for soldiers and their families. Orman concluded by discussing retirement savings, recommending the Thrift Savings Plan (TSP), though she cautioned against borrowing from the TSP because of its tax and penalty. For younger soldiers, Orman proposed using a Roth Individual Retirement Account. The "Military Saves" initiative is part of a national campaign, "America Saves," which encourages families and individuals to develop personal wealth. Over 1,000 corporate, nonprofit, and government groups are involved in the movement.
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DaimlerChrysler May Also Divest Chrysler Finance Unit
Bloomberg (03/06/07) Bennett, Jeff
DaimlerChrysler CEO Dieter Zetsche announced on March 5 the possibility of divesting Chrysler's financial arm, which provides leases and loans to Chrysler's customers and dealers. Chrysler's loss last year of $1.5 billion put Zetsche under investor pressure to sell the Michigan-based automaker. If Zetsche does choose to dismantle the 1998 Daimler Benz and Chrysler merger, the auto loan and leasing unit may be divested as well. Financial analyst Pete Hastings points out that regardless of who owns the company, Chrysler must execute a turnaround similar to the ones accomplished by GM and Ford. His recommendation for Chrysler Financial is a sale to raise cash while allowing Chrysler to maintain a "heavy operational involvement" in the finance division. "Surely, private equity would have interest in the finance unit, as long as the loan quality holds up under due diligence," Hastings says. Meanwhile, Zetsche states that "all options are on the table" for Chrysler.
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Subprime Finance Turbulence Is Spreading
Seeking Alpha (03/01/07) Panzner, Michael
The Fitch rating agency has issued a press release that may indicate that growing agitation in the subprime finance sector may extend beyond housing-related lending. Fitch's "In the Auto ABS Driver's Seat" newsletter cited a 31.4 percent spike in the annualized net loss (ANL) index and a 4.1 percent increase in subprime delinquencies for U.S. auto loans in January compared with December. "Approximately 70 percent of the transactions in the subprime ANL index recorded higher loss levels in January as the index hit its highest level in nearly three years," says Hylton Heard of Fitch's Auto ABS Group. Between December and January the subprime ANL rose from 6.60 percent to 8.67 percent, while the index was 24.2 percent higher compared to January 2006. One subprime issuer that was in the index may have slightly distorted the ANL spike by deploying a change in their servicing policy. Fitch expects something of a decline in the ANL once the change's implementation is complete. The subprime delinquency index increased 0.11 percent between December and January to 2.82 percent.
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Legislature Update
Billings Gazette (MT) (03/03/07)
The Montana State Legislature reached its midpoint on Feb. 28. Though many of the 1,360 proposed bills remain alive, the deadline for sending bills from one house to the other has expired, and many bills have died. The dead bills include State Rep. Jonathan Windy Boy's (D-Rocky Boy) proposal to ban auto insurance credit scoring (HB 212) as well as State Sen. Steve Gallus' (D-Butte) bids to abolish credit scoring in both homeowners insurance and auto insurance (SB 429 and SB 331, respectively).
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Citigroup Will Bankroll ACC Capital
Orange County Register (CA) (03/01/07) Padilla, Matthew
Citigroup Inc. has agreed to provide ACC Capital with enough cash to keep it afloat and able to fund loans. Under terms of the deal, Citigroup not only has the option to purchase ACC's mortgage servicing and wholesale lending operations, it also becomes the firm's primary buyer and funder of loans. Last spring, ACC released details of a major shakeup in its operations that eventually included the closure of all 229 of its retail branches. ACC, the parent company of Ameriquest Mortgage, became the country's first top subprime lender to downsize amid a slowing home-sales market.
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Ford Restructuring Costs Estimated at $11.2 Billion
BankNet 360 (03/01/07)
Ford Motor Co. has put shares of Ford Motor Credit Co. up as collateral to cover restructuring costs at the parent company likely to top $11.18 billion. Ford Credit shares, as well as shares in Volvo, Jaguar, Aston Martin, and other properties, are being used as surety against a $23.4 billion line of credit to cover restructuring costs and other expenses.
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GE Money to Form a Joint Venture With Colombia's Banco Colpatria
dBusinessNews (03/01/07)
GE Money has acquired a minority position in Colombia's Banco Colpatria as part of GE Money's expansion into Latin America. GE money's initial purchase of a 39.3 percent stake is predicted to close within a few months, pending regulatory approvals. GE Money also has options to obtain an additional stake--up to 25 percent more--by 2012. Banco Colpatria has assets of over $2.4 billion and is Colombia's second largest issuer of credit cards. The new partnership expects their improved consumer credit offerings to do very well in Colombia's high growth consumer banking and financial services markets. GE Money-Latin America also offers mortgages, credit cards, insurance products, auto loans, and personal loans in Argentina, Mexico, and Brazil, and--in partnership with BAC-Credomatic Holding--in El Salvador, Costa Rica, Honduras, Guatemala, Panama, and Nicaragua. GE Money-Latin America has assets of approximately $7 billion.
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Christopher Buckley, Forbes FYI, to Keynote Independents Conference
This year, the 24th annual Independents Conference and Exposition will be held on March 21-24 at Walt Disney Yacht Club Resort in Lake Buena Vista, Florida. The conference schedule is packed and includes timely and informative sessions built around the theme: Orchestrating Magical Solutions. Christopher Buckley, editor with Forbes FYI, will kick off the conference with his keynote address, providing a humorous perspective on current events, world affairs and culture
Hall of Fame baseball legend, Johnny Bench, will close the conference. He was named the greatest catcher ever and received baseball's esteemed honor of selection to the All Century Team. Other highlights include the RSM McGladrey Annual Financial Survey Results. Discounted Walt Disney World park passes are also available for all AFSA conference attendees.
(click for web site)
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AFSA Urges Committee to Get Reliable Foreclosure Data
Citing the need for independent research, AFSA urged members of the Senate Committee on Banking, Housing and Urban Affairs to ask the GAO for a study on foreclosure rates. To ensure, AFSA noted, the committee "makes its policy determinations based on reliable data." The AFSA recommendation was presented on February 26 and included in written testimony submitted as a follow up to a committee hearing on Preserving the American Dream: Predatory Lending Practices and Home Foreclosures.
(click for web site)
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Foreclosures Top Consumer Advisory Council Agenda
AFSA staff will attend the next Consumer Advisory Council public meeting on March 8 at the Federal Reserve Board offices in Washington, DC. The following topics will be on the agenda: home mortgage foreclosures, home-lending practices, financial privacy notices, amendments to Regulation E and check-holding practices. The Consumer Advisory Council, established in 1976, advises the Board on the exercise of its responsibilities under the Consumer Credit Protection Act, as well as other matters in the area of consumer financial services; its membership represents interests of consumers, communities and the finance services industry.
(click for website) or (click for website)
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Jurisdictional Frictions Still Freeze Data Security Bills in Congress
AFSA fully expects data security legislation to be considered again by a number of committees in both chambers of Congress this session. Representative Darlene Hooley (D-OR), who played a critical role last session, spoke to a joint AFSA committee meeting in Washington recently. She is now a member of the House Energy and Commerce Committee, but she hopes to be able to facilitate a coordinated legislative package that is considered by the entire House of Representatives this year. Meanwhile, AFSA continues to educate Members of Congress on the importance of a national standard that: 1) provides functional regulator oversight; 2) avoids State Attorney General enforcement; and 3) sets a reasonable trigger for breach notification to consumers. Jurisdictional friction between the Financial Services (Banking) and Commerce Committees in both the House and Senate stalemated efforts to move a comprehensive bill during the last Congress and still blocks efforts this year.
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AFSA Coordinates Joint Letter to Federal Regulators
In December, AFSA was successful in coordinating a joint trade letter to federal regulators on Nontraditional Mortgage Guidance. It encouraged them to resist calls to expand their September, 2006 Interagency Nontraditional Mortgage Guidance—at least before the impact of the Guidance is better understood. Subsequently, AFSA met with regulators to explain that market pressures are already forcing lenders to adjust their underwriting criteria. Although they appear split on how best to address the concerns expressed by congressional members, federal regulators issued a joint proposal on March 2 calling on lenders to underwrite to fully indexed rates for hybrid ARMs, such as 2/28s and 3/27s. Comptroller of the Currency, John Dugan, however, expressed concern that the proposal might leave some creditworthy borrowers unable to access affordable credit options. The industry has 60 days to comment on the proposal.
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Abstract News © Copyright 2007 INFORMATION INC.
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In This Issue:
AFSA Newsbriefs is a weekly executive summary of AFSA initiatives and consumer credit articles. For more information, please contact David Casserly at dcasserly@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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