March 15, 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
How to Protect Your Plastic
Dodd Now Says Credit Card Abuses Need a Bill
Democrats' Bill to Bar Some Card Practices
PIN Fees? More Banks Rethink Model
Using One-to-One Approach to Sway Minds on the Hill
Some See a Silver Lining in Subprime Loan Clouds
Dodd: Government Bears Blame for Loan Woes
Subprime Woes Called Manageable
Banks Go on Subprime Offensive
Putting a Price Tag on Dream of Equality
Losses Force Lenders to Tighten Up on Easy Home Loans
The Ebay of Loans
Payday Loan Proposals Differ
Wachovia Reaches Out to Dealers After Merger
AmeriCredit Announces $486 Million Asset-Backed Securitization Through Subsidiary Long Beach Acceptance Corp.
Citibank and Shell Find Huge Credit Card Niche in Denmark
Senate Puts Credit Card Industry under Spotlight
Military Rate Cap Update
AFSA Staff Hears CAC Discuss Foreclosures
Several States Eye "Car Buyers' Bill of Rights"
AFSA Turns to Web to Keep Members Up to Date
How to Protect Your Plastic
Wall Street Journal (03/15/07) P. D1; McQueen, M.P.
The Federal Reserve reports that debit-card use among consumers has jumped 20 percent annually since 1996, and banks indicate that debit cards were used for about $1 trillion worth of sales in 2006. As debit-card spending grows, so too does fraud, with fraudulent charges rising 21 percent in 2005 from 2004 levels to reach $662 million. However, unlike credit cards, which limit consumers' fraud liabilities to $50 under federal law, debit cards are protected by electronic fund transfer laws, which limit consumer liabilities only if incidents are reported within two business days, leaving many victims of identity theft and fraud fighting with individual banks over their debit-card policies. Identity Theft Resource Center Co-Executive Director Jay Foley says, "When push comes to shove, you have better protections with a credit card than you will ever have with a debit card, regardless of what the banks say with their ads." To protect debit cards from identity thieves, consumers should know where their card is at all times, particularly when paying in restaurants and gas stations. Experts also warn that ATMs should be inspected by consumers for anything out of place, and PIN numbers should be guarded at all times from onlookers and hidden cameras. Many recommend using the signature feature rather than PIN numbers at stores and other locations.
Back to Top
Dodd Now Says Credit Card Abuses Need a Bill
American Banker (03/14/07) P. 1; Kaper, Stacy
Senate Banking Committee Chairman Chris Dodd (D-Conn.) took an aggressive position on Mar. 13, saying the only way to fix widespread abuses and unfair practices by financial institutions is through legislation. While giving a speech before the National League of Cities, Dodd said he wants to pass legislation that will prohibit some of the practices that make it difficult for people to get out of debt. Prior to his recent speech, Dodd asked credit card companies at a Senate Banking Committee on Jan. 25 to voluntarily change their practices so legislation would not be necessary. Dodd's strict opinion of card legislation comes one week after Sen. Carl Levin (D-Mich.), the chairman of the Senate Permanent Subcommittee on Investigation, said he would write a bill this year that would prohibit certain card practices. Dodd, who has sponsored several card bills in the past, told reporters that his stronger stance was not influenced by Levin, but that the two lawmakers "sort of agree" on card legislation, and that he hopes card companies will make changes on their own, but that legislation is the only way to make changes throughout the industry.
Back to Top
Democrats' Bill to Bar Some Card Practices
American Banker (03/13/07) P. 18; Kaper, Stacy
A new bill by Rep. Mark Udall (D-Colo.) looks to ban several credit card practices. The bill, which was introduced March 9 and is co-sponsored by Financial Services Committee member Rep. Emanuel Cleaver (D-Mo.) would prohibit credit card companies from using "any adverse information unrelated to a cardholder's account with that issuer" to increase the cardholder's interest rate. Card companies would also be prohibited from charging over-the-limit fees if they authorize a purchase over the cardholder's spending limit. Card companies would be required to include disclosures that clearly show the cardholder how much would be needed as payment each month to pay off the debt in three years. The bill also introduces stricter standards regulating how credit card companies make offers to people under 18 years old, and would also prohibit card companies from charging a cardholder additional fees or higher interest rates for canceling a card.
Back to Top
PIN Fees? More Banks Rethink Model
American Banker (03/14/07) Breitkopf, David
A survey conducted by Dove Consulting has found that the practice of charging consumers a fee for using PIN-debit is on the decline. The survey, which was commissioned by the debit network Pulse EFT Association and released last month, found that 28 percent of issuers charged some customers a PIN-debit fee in 2006, compared with 32 percent in 2005. Just 5 percent of these banks' customers are charged the fee, which averaged 48 cents in both 2005 and 2006. Banks that charge the fee are hoping to drive consumers toward using signature-debit, which carries a higher interchange fee. But many banks are realizing that PIN-debit fees are putting the customer in the middle of the battle between banks and merchants over interchange fees, according to Tony Hayes, Dove's managing director. "The reality is, most customers don't think about PIN vs. signature," he said. "Therefore, most banks have concluded that the better strategy is simply to promote use of the card and not to confuse customers."
Back to Top
Using One-to-One Approach to Sway Minds on the Hill
American Banker (03/12/07) Jalili, H. Michael
While the Merchants Payments Coalition has been running ads in Washington, D.C. and Vermont in an effort to enlist consumers in the fight over interchange fees, the Electronic Payments Coalition--a group that represents Visa, MasterCard, most of the major card issuers, and several trade groups--has opted to reach out directly to policymakers. Peter Madigan, the coalition's chief executive, noted that the elections brought 54 new representatives and 10 new senators to Washington, along with hundreds of new staff members. "Every time you have new members, you want to reach them and tell them your side," he said. However, it is not out of the question that the Electronic Payments Coalition will turn to ads in the future, according to Brian Gardner, a policy analyst with KBW Inc.'s Keefe, Bruyette & Woods Inc.
Back to Top
Some See a Silver Lining in Subprime Loan Clouds
American Banker (03/15/07) P. 18; Johnson, Hilary
Not all of the news has been bad this week with regard to mortgages and the financial services sector. Countrywide Financial Corp. reports that it has started to nab market share from its rivals, with its stock price rising 2.7 percent on Wednesday and analyst Paul Miller of Friedman, Billings, Ramsey & Co. upgrading the California-based company's stock to "outperform." Also on Wednesday, BankUnited Financial Corp.'s stock rose 4.4 percent as Janney Montgomery Scott LLC's Albert Savastano wrote that the firm has "significantly better underwriting and credit metrics than subprime lenders." However, Merrill Lynch economist David Rosenberg cautions that home prices could still dip as much as 10 percent in 2007, with such a decline having a negative effect on the country's gross domestic product.
Back to Top
Dodd: Government Bears Blame for Loan Woes
Los Angeles Times (03/15/07)
Senate Banking Committee Chairman Christopher Dodd (D-Conn.) expects to question banking watchdogs about the status of the subprime mortgage industry. Dodd believes regulators are partly to blame for rising subprime defaults, insisting that they "have not been doing as good a job as I think they should have been doing." In related news, HUD Secretary Alphonso Jackson says the agency is urging Fannie Mae, Freddie Mac, and private banks to make forbearance arrangements for cash-strapped subprime borrowers who are in danger of losing their homes.
Back to Top
Subprime Woes Called Manageable
Chicago Tribune (03/13/07)
The current crisis in the high-risk lending sector is a "manageable" situation that the Treasury Department is monitoring closely, an official with the agency assured on Monday. The comments from Robert Steel--undersecretary for domestic finance--came as fears continued to escalate over the impact of a spate of subprime delinquencies and defaults on other sectors of the economy. U.S. bank watchdogs are pushing new guidelines for approving loans to borrowers with flawed credit or low incomes, and the Center for American Progress has recommended that Washington consider providing grants to increase mortgage assistance and foreclosure prevention initiatives for families at risk of losing their homes.
Back to Top
Banks Go on Subprime Offensive
Wall Street Journal (03/13/07) P. A3; Mollenkamp, Carrick; Hagerty, James R.; Smith, Randall
Big banks and investors that purchased subprime mortgages originated by small lenders over the last couple years are responding to an increase in defaults on the products by ordering the lenders to buy them back. Many subprime originators are now facing bankruptcy because they lack the money necessary to comply, and some experts argue that the subprime mortgage market is weakening at a faster pace due to these repurchase demands. New Century Financial Corp., for instance, is among the lenders on the brink of bankruptcy, fielding repurchase orders from Morgan Stanley, Citigroup Inc., Goldman Sachs Group Inc., Credit Suisse Group Inc., IXIS Real Estate Capital Inc., and Bank of America Corp. The company reportedly owes a total of $8.4 billion to these creditors, and Piper Jaffray analyst Robert Napoli says that repurchasing the loans at a 20-percent loss would eliminate New Century shareholders' equity.
Back to Top
Putting a Price Tag on Dream of Equality
Windsor Star (Ontario, Canada) (03/10/07) Sowell, Thomas
Recent political interest in controlling the alleged "predatory lending" of high interest loans to those with poor credit, ignores the truth behind the high interest rates, writes columnist Thomas Sowell, senior fellow at Stanford University's Hoover Institution. While it is easy, politically, to pass laws capping interest rates and making it difficult for lenders to recoup their money, doing so actually causes the credit available to low-income individuals to disappear. Illegal loan sharks become the next alternative in such a scenario. Politicians are loathe to face the reality that the interest rate is higher for some because "it is far riskier to lend to some people than to others." Risky loans, rather than leading to lucrative profits, often cause lenders to go bankrupt or to lose millions of dollars.
Back to Top
Losses Force Lenders to Tighten Up on Easy Home Loans
Houston Chronicle (03/10/07) Sarnoff, Nancy; Patel, Purva
As an epidemic of defaults sweeps through the subprime mortgage sector, lenders are responding to the subsequent losses by making such financing more elusive. Previously, "if you breathe and have a Social Security number . . . you were going to get a house," notes Mark Cady of Market Street Mortgage in Houston. Now, subprime lenders are demanding that applicants have higher credit scores and contribute a bigger down payment, among other requirements. While the flow of money available to the subprime borrower community is likely to slow considerably as a result of this trend, observers note that lenders not subject to federal regulation will continue to offer higher-risk products such as 100-percent financing and interest-only loans.
Back to Top
The Ebay of Loans
Forbes (03/12/07) Vol. 179, No. 5, P. 68; Steiner, Christopher
Prosper.com, known as the eBay of loans, was founded by former E-Loan CEO Christian Larsen as a venue to match unsecured individual lenders with individual borrowers who may not otherwise qualify for loans. Three-year loans of up to $25,000 can be secured at rates of three to five percentage points under what credit cards charge by stripping overhead costs. Even better rates and tax deductions are offered if home equity is tapped. Credit ratings of borrowers are provided by Experian and posted along with other relevant data like debt-to-income ratio and delinquencies. Lenders then bid on interest rates, with the lowest rates winning the auction. Money from the winning bidders is then packaged into one loan. Despite the risk, only 0.5 percent of total loan amounts have fallen into default, while an average of 6.5 percent of borrowers fall behind on payments per month, compared to the 4.2 percent and 4.4 percent, respectively, for credit-card companies. Lenders can choose from among three collection agencies to recover delinquent payments but otherwise are pretty much left out to dry if a loan defaults. Prosper makes money on the deal by charging borrowers an upfront fee of between 1 percent to 2 percent and lenders 0.5 percent to 1 percent of the yearly loan balance. The company should generate about $1.8 million in revenue this year and should have at least $120 million in outstanding loans by year's end. It now boasts a listing of 40,000 loans and 12,000 registered lenders, catching the eyes of some investment professionals.
Back to Top
Payday Loan Proposals Differ
Montgomery Advertiser (03/09/07) Kizzire, Jamie
Alabama Sen. Lowell Barron (D-Fyffe), proposes reforming the payday loan industry in order to protect customers from "a never-ending cycle of debt." Barron's bill would require the industry to offer payment plans, and would prevent interest from accruing and loans from renewing or rolling over. The legislation would also prevent the business from lending money to the military and their families. For customers using a car title to secure a title loan, the state's Small Loan Act would go into effect, causing interest rates to decrease and payback timelines to extend. State Sen. Bradley Bryne (R-Fairhope) calls Barron's bill "payday reform light" and challenges Barron's bill with his own proposal to cap the payback lenders' annual rate at 36.7 percent under the Small Loan Act. Barron contends that doing so would prevent the industry from offering a needed service. Steven Schlein, Community Financial Services' spokesman, agrees that the interest rate cap would prevent the company from turning a profit, thereby banning itself, and reports that Community Financial Services would not support Bryne's bill.
Back to Top
Wachovia Reaches Out to Dealers After Merger
Automotive News (03/13/07)
Wachovia's auto dealer services division has a new name: Wachovia Dealer Services. This change reflects Wachovia's merger with WFS Financial in 2006, and is one of several modifications contributing to the division's fresh image.
Back to Top
AmeriCredit Announces $486 Million Asset-Backed Securitization Through Subsidiary Long Beach Acceptance Corp.
AmeriCredit News Release (03/13/07)
On Tuesday, AmeriCredit Corp. announced the pricing of a $486 million offering of automobile-supported securities via lead manager Greenwich Capital Markets Inc., and co-manager Citigroup Global Markets Inc. The deal signifies Long Beach Acceptance Corp.'s initial securitization since its acquisition by AmeriCredit in January. Net proceeds from securitization deals will be utilized to offer long-term funding of receivables. The securities will be dispensed through owner trust Long Beach Acceptance Auto Receivables Trust 2007-A, in four classes of notes. Financial Security Assurance Inc. will offer bond insurance for the offering. Original credit enhancement will equal 3.75 percent of the initial receivable pool balance increasing to the overall mandated enhancement amount of 8 percent of the then-outstanding receivable pool balance. The original 3.75 percent enhancement will be comprised of 1.25 percent of overcollateralization and 2.50 percent of a Class C certificate.
Back to Top
Citibank and Shell Find Huge Credit Card Niche in Denmark
Citibank News Release (03/09/07)
Citibank and Shell's introduction of a new MasterCard signifies the launch of a new niche in the credit-card industry. Citibank and Shell are merging the benefits of a credit card and a gas card, an unprecedented move in Denmark. The country has over 2 million private motorists who will get the opportunity to make their household budgets stretch farther due to the new Shell MasterCard from Citibank. The card provides rebates on gas and additional purchases and the rebates are doubled during a 60-day introductory timeframe. In addition, Shell MasterCard has all the benefits of a regular MasterCard, as it can be utilized at all Shell gas stations and at over 23 million worldwide outlets, and it provides access to ATM cash withdrawals. At present gas prices, the rebate will be 40 percent to 60 percent ore a liter in the initial 60 days, plus all rebates accumulated by employing the card for daily purchases. All rebates accumulated will be credited toward Shell and Metax gas purchases the next month. With the introduction of the Shell MasterCard, Citibank becomes Shell's sole consumer credit-card partner in Denmark.
Back to Top
Senate Puts Credit Card Industry under Spotlight
AFSA staff attended the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations hearing on the credit card industry, which was held on March 7. Subcommittee Chairman Carl Levin (D-MI) called the session to probe the billing and disclosure practices of the nation's three largest credit card issuers—Bank of America, JP Morgan Chase and Citigroup. Practices under particular scrutiny—by both lawmakers and consumer groups—include universal default, double-cycle billing, over-the-limit fees and late fees.
Many major issuers, including the three at the hearing, have already promised to reexamine some fees and disclosures that consumers find confusing or unfair. Recently, Citigroup announced the elimination of universal default as a determinant of the customer's account. AFSA staff members continue to talk to members of Congress and their staffs to ensure that any proposed legislation considers the entire credit card industry and is based on facts.
Back to Top
In early March, AFSA Chairman-Elect, Andrew Morrison, and AFSA staff met with the Department of Defense (DOD) staff members charged with writing the implementation regulations for the Payday Lending Law. The DOD staff members remain very clear about their intention to keep the regulations focused on payday, title and refund-anticipation loan products. At the same time, however, they reserved the option to pursue a broader approach, if they are unable to develop effective product definitions.
Utilizing the definition of consumer credit, as provided in the AFSA comment letter, staff members are working to provide definitions of the target products for the DOD. In addition, to address the DOD request for financial education opportunities for military personnel, the AFSA Education Foundation is coordinating making MoneySKILL® available for use in training new recruits.
Back to Top
AFSA Staff Hears CAC Discuss Foreclosures
AFSA staff attended the recent Consumer Advisory Council (CAC) meeting at the Federal Reserve Board in Washington, DC. The CAC advises the Board on the exercise of its responsibilities under the Consumer Credit Protection Act. Stella Adams, from the North Carolina Fair Housing Center, led the meeting in a discussion on mortgage foreclosures. She called on several members of the Council to describe the effects of mortgage foreclosures, making the point that the "foreclosure crisis," as she termed it, is a national problem.
In addition, Governor Susan Bies addressed the proposed Statement on Subprime Mortgage Lending. She noted that while federal regulators tried to emphasize that the key ideas were to apply broadly, the focus should remain on subprime lending. Chairman Ben Bernanke focused on two points in addressing the foreclosure issue: 1) it is important to prevent loans that are likely to lead to foreclosure; and, 2) all involved should help borrowers who already have mortgages from falling into foreclosure. Care should be taken, Bernanke noted, not to tighten underwriting standards too much. That could limit options for borrowers who are looking to refinance to prevent foreclosure in the future.
Back to Top
Several States Eye "Car Buyers' Bill of Rights"
Several states, including Missouri, Arizona, Massachusetts and Minnesota, have begun to look at legislation surrounding the issue of a Car Buyers' Bill of Rights. This follows the recent California Car Buyers' Bill of Rights that went into effect in that state on July 1. In Missouri, HB 699 and its companion SB 335, would give buyers a two-day cancellation option, and is supported by the Missouri Automobile Dealers Association. The Arizona bill requires car dealers to offer both buyers and lessees a contract option that would allow them to return the vehicle to the dealer. Early last week, Massachusetts's legislature introduced a House and Senate Bill identical to the 2006 proposed legislation. The Minnesota draft bill, on the other hand, caps dealer reserve for vehicle financing, provides regulation for the sale of certified used motor vehicles and requires a cancellation option applied to used cars as well.
Currently, AFSA staff is working with the Minnesota Financial Services Association on the legislation there. In addition, AFSA has created a side by side comparison of the Minnesota and Massachusetts bills to the enacted legislation in California. These have been distributed to the Vehicle Finance subcommittee members.
Back to Top
AFSA Turns to Web to Keep Members Up to Date
In an effort to cut down on printed materials, the AFSA meetings department has turned to the Internet, creating Web sites designed exclusively for specific conferences. The sites offer more up-to-date and comprehensive information on upcoming events than ever before possible. The first conference Web site was for the Vehicle Finance Conference in February. Potential attendees were able to review—online—the most current schedule, speakers, hotel information and more! Exhibit information and sponsor updates gave tremendous exposure to those supporting the conference.
Current updates are posted to www.independentsconference.com allowing visitors access to the enhancements made to the upcoming Independents Conferences in Walt Disney World. In addition, the two AFSA investors' conferences share a common site allowing visitors to see the latest on both meetings. In December, AFSA introduced www.investinthefinanceindustry.com to the issuer and investment community.
Back to Top
Abstract News © Copyright 2007 INFORMATION INC.
|
In This Issue:
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.
|
