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August 16, 2007
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Spitzer Vetoes Universal Default and Credit Scoring Bills
Independents Advisory Board Sets Goals for 2008
Democrats Unveil Principles for Subprime Legislation
AFSA Submits HOEPA Comment Letter to Federal Reserve
Sale Speculation Lifts CIT Shares
Lenders in Damage-Control Mode
New, Hidden Plastic Fees Rankle Credit Card Users
Firms Sued for Too Much Info on Receipts
House Bill Would Limit Credit Lines for Students
Federal Banks, Thrifts, Share Blame for Mortgage Woes, FDIC Official Says
Good Old FHA Loans Make a Comeback
Dingell: Limit MI Deduction
Payday Loan Industry Launches Ad Blitz
The Two-Income Tax Trap
High School Seniors Test Well in Basic Economics
Unsafe at Any Rate
Longtime Foe of ILC Bills Starts on His Own
Bear Stearns Enters India by Acquiring Ford Automotive Finance--Report
Online Car Buyers Feel Leasing Riskier Than Buying
Assn: Car Loans to Rise 20-25 Percent This Year--Brazil
Exotics on the Easy Payment Plan
This Week: Jim Lawrence
Spitzer Vetoes Universal Default and Credit Scoring Bills
Last night, New York Governor Elliott Spitzer (D-NY) vetoed two pieced of legislation of great concern to the financial services industry.
Ban on Multiple Inquiries in Credit Scoring (S4566/A1416): This legislation would have prohibited using the frequency of customers’ inquiries to creditors as an element in calculating credit scores. AFSA sent a veto memo to the Governor on July 11, 2007, that stated that the legislation is unnecessary to protect consumers and would likely carry unintended negative consequences for consumers and creditors alike. AFSA worked closely with the credit reporting industry on the veto effort. The New York Financial Services Association and AFSA member companies also sent veto requests. Numerous AFSA members and the credit reporting industry deserve much credit for the veto effort.
These are links to the vetoed multiple inquiries in credit scoring legislation. http://assembly.state.ny.us/leg/?bn=S04566&sh=t and http://assembly.state.ny.us/leg/?bn=A01416&sh=t
Universal Default (S2969) This bill would have prohibited or rendered invalid cardholder agreements that allow a creditor to increase a credit card interest rate based on late payments to another creditor or based on a regular review of a consumer’s credit score. This type of risk-based repricing is used by many creditors when a consumer’s risk profile changes. A version of this bill, sponsored by state State Senator Charles J. Fuschillo, Jr. (R-Merrick), also passed last year and was vetoed by then-Governor Pataki.
Governor Spitzer's veto statement has not yet been released by his office. This is a link to the vetoed universal default bill: http://assembly.state.ny.us/leg/?bn=S02969&sh=t
Please contact AFSA Senior Vice President for State Government Affairs, Danielle Fagre Arlowe, 952.922.6500 (dfagre@afsamail.org) with any questions on these items.
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Independents Advisory Board Sets Goals for 2008
The group met recently to discuss its 2008 goals, including planning the 25th Anniversary Independents Conference, to be held March 26-29, 2008 at the Wild Horse Pass Resort in Chandler, Arizona. This event will showcase the accomplishments of the Independents Section over its 25 year history and the value that Independents—as the traditional consumer finance companies, contributed to the growth of the industry.
Other goals of the Independents Section Advisory Board include: expanding the membership of the section, increasing the fundraising for AFSAPAC by 25 percent to reach $250,000 this year, continuing to work with the AFSA Education Foundation to raise money for the MoneySKILL® Personal Finance Course (offered at no cost to students), creating a Resource Section on the new Independents Web site (currently under construction), and developing training programs for branch office personnel in a DVD and Web-based format.
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Democrats Unveil Principles for Subprime Legislation
In a series of meeting with regulators, consumer advocates and industry representatives, staff members for Representatives Barney Frank (MA), Mel Watt (NC), and Brad Miller (NC) have unveiled issues that the Congressmen expect to address in legislation to be introduced after their August recess. Chairman Frank and his colleagues want to address issues identified as “predatory practices” by limiting or prohibiting a number of provisions. These could include single premium credit life insurance, mandatory arbitration and prepayment penalties. In addition, they hope to enact new standards that would impose a fiduciary duty on lenders and require them to determine a borrower’s ability to repay. AFSA staff and other financial services associations are actively canvassing member companies to identify and prioritize concerns associated with the principles outlined by congressional staff. They would then provide substantial feedback both before and after the legislation is introduced.
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AFSA Submits HOEPA Comment Letter to Federal Reserve
On August 15, AFSA submitted a comment letter to the Federal Reserve as a follow up to the agency’s June 14, 2007, hearing on the Home Equity and Ownership Protection Act (HOEPA). The AFSA letter expressed support for the Federal Reserve Board goal of “encouraging responsible mortgage lending for the benefit of individual consumers.”
At the same time, it asked the Board to be cautious in exercising its rulemaking authority under HOEPA to limit unfair and deceptive mortgage lending practices. A copy of the AFSA comment letter is posted on its Web site.
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Sale Speculation Lifts CIT Shares
American Banker (08/14/07) Rieker, Matthias
Rumors of a possible sale of CIT Group sent the company's shares up more than 5 percent Monday. In a research report, Meredith Whitney of Canadian Imperial Bank of Commerce's CIBC World Markets suggested that a sale was inevitable. "We believe CIT's board will ultimately be forced to act in the best interest of shareholders and entertain offers to sell CIT," she wrote. Whitney speculated that CIT could draw more than $50 a share.
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Lenders in Damage-Control Mode
NorthJersey.com (08/13/07) Newman, Richard
For its 2007 Primary Mortgage Servicer study, J.D. Power and Associates polled 11,481 homeowners in November 2006, February 2007, and May 2007 about how satisfied they are with their mortgage servicers in terms of account administration, billing, the payment process, and communications. Lenders were awarded up to 1,000 points, with the average score reaching 798. Topping the list was BB&T Corp. of North Carolina with 860 points, followed by Buffalo, N.Y.-based M&T Mortgage, Citizens Bank of Rhode Island, and Countrywide Home Loans. Ocwen Financial of Florida had the lowest score, of 627. According to J.D. Power senior research director Tim Ryan, lenders received higher scores if they held onto a loan's servicing rights. The survey also indicated a jump in borrowers making online payments to 28 percent from 20 percent and a drop in borrowers making check payments to 40 percent from 46 percent over the last couple of years.
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New, Hidden Plastic Fees Rankle Credit Card Users
Courier-Post (N.J.) (08/14/07) Dugas, Christine
The credit card sector has become the target of consumer organizations and legislators, who contend the card issuers are doing all they can to increase rates, charge new and concealed fees, and punish cardholders with unfair rules. The Federal Reserve Board is proposing mandating that the issuers publish clearer data concerning rates and fees and to provide notification 45 days, instead of 15 days, before they increase rates, and Congress is proposing numerous prices of legislation to limit some of the sector's most controversial regulations. While the credit card sector states it is open to more disclosure, it opposes sanctions on its ability to hike fees or rates or alter protocols. The sector also points out that credit cards are more reasonable now than prior to 1990, when the majority of issuers charged a set rate of around 20 percent.
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Firms Sued for Too Much Info on Receipts
Miami Herald (08/12/07) P. E1; Danner, Patrick
Roughly 200 lawsuits have been filed across the country against retailers who allegedly issued receipts that showed too many digits of a card's account number and its expiration date. Under the 2003 Fair and Accurate Credit Transaction Act, businesses are required to delete a card's expiration date and show no more than five digits of the account number on electronically printed receipts. The law gives consumers the right to pursue damages of $100 to $1,000 for each instance where a business failed to comply with the law--even if they were not victims of fraud or identity theft. That provision has been criticized by businesses and some lawyers, including Michael W. Casey III, a Miami lawyer who is defending a business accused of printing too much information on receipts. "They [customers] are trying to take advantage of a quirk in the law that is very unfair," he says. "It's very unreasonable to reap windfall damages when nobody has been damaged."
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House Bill Would Limit Credit Lines for Students
Knoxville News-Sentinel (TN) (08/09/07) Whitehead, Paul N.
A bipartisan measure to prevent college students from accumulating credit card debt has been introduced. The Student Credit Card Protection Act, filed by Reps. John J. Duncan Jr. (R-Tenn..) and Louise M. Slaughter (D- N.Y.), proposes that student credit limits be capped at 20 percent of a student's yearly income, with a $500 limit for students with no co-signer. Other protective measures include mandating that co-signers agree in writing to any credit limit increase and only allowing one credit card to be issued to students who show no income. Slaughter and Duncan have introduced the bill to Congress during each congressional session since 1999, but the bill has never made it out of committee.
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Federal Banks, Thrifts, Share Blame for Mortgage Woes, FDIC Official Says
Daily Report for Executives (08/14/07) Bruce, R. Christian
Federal Deposit Insurance Corp. General Counsel Sara Kelsey addressed the subprime mortgage crisis at an Aug. 12 meeting of the American Bar Association. In her comments, she noted that the blame for the housing market's current problems do not rest solely on non-bank affiliated lenders. According to the Federal Reserve Board, 52 percent of subprime mortgages in the past few years were made by independent mortgage firms, while the other 48 percent were made by banks, thrifts, or their mortgage units. Likewise, responsibility for rectifying these issues cannot rest solely on state regulators. To eliminate possible gaps in state regulation that may still make dishonest or risky lending practices possible, federal regulators must act. The Federal Reserve Board apparently agrees with Kelsey. The Fed is expected to propose new rules intended to apply to all lenders by December.
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Good Old FHA Loans Make a Comeback
USA Today (08/14/07) Dugas, Christine
Weakness in the mortgage market is prompting more low- and moderate-income buyers to consider loans backed by the Federal Housing Administration (FHA), which reports a 76.8 percent surge in applications to 73,444 in June from 41,530 in December. However, experts say the FHA still lags behind private lenders, and it remains to be seen whether lawmakers will approve bills aiming to modernize the program. It has been difficult for borrowers in high-cost markets to obtain FHA loans because the maximum loan amount stands at $362,790 and because many borrowers cannot afford to make the required 3 percent down payment. Additionally, mortgage brokers must contend with a ton of paperwork because the FHA has not yet employed an automated underwriting system, and lenders must pay $6,000 to $8,000 annually for required FHA audits. FHA Office of Single Family Program Development director Meg Burns notes, "Given how many borrowers really could benefit from FHA financing but how few of them do, I would say we are still very much in the doldrums."
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Dingell: Limit MI Deduction
National Mortgage News (08/13/07) Vol. 31, No. 45, P. 2
Houses larger than 3,000 square feet would no longer be eligible for the mortgage interest tax deduction under a proposal from House Energy and Commerce Committee Chairman John Dingell (D-Mich.). Observers say the move would hit the jumbo mortgage market hard, as borrowers are already contending with rising rates in response to problems in the secondary mortgage market. Dingell's efforts to eliminate the deduction for large homes is part of his broader campaign to slash global warming.
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Payday Loan Industry Launches Ad Blitz
Washington Post (08/15/07) P. B4; Stewart, Nikita
The Washington, D.C., payday loan sector has begun an ambitious advertising initiative to convince the D.C. Council to change a vote that would restrict the fees levied on short-term loans. In July, the council voted to provide preliminary approval to legislation that would restrict the fee charged for a $100 loan paid back within 14 days to 90 cents, a rate more in keeping with those charged by banks and credit unions. The sector contends that this limit would push payday advance business into bankruptcy. The final vote is scheduled to occur Sept. 18, and the D.C. Financial Services Association intends to employ newspaper, TV, and radio advertisements to persuade the public to oppose the council's attempts to restrict loan choices.
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The Two-Income Tax Trap
Wall Street Journal (08/14/07) P. A17; Zywicki, Todd J.
Some scholars contend that modern American households are in a shaky financial situation despite the presence of two incomes and decades of ostensible middle-class prosperity. In the 1980s and 1990s, non-business bankruptcy filings in the United States soared, prompting Congress to pass the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The legislation caused bankruptcy filings to plunge, but scholars argue that the decline is temporary. These academics believe that higher mortgage payments, rising healthcare costs, and other new expenses are stressing family budgets and pushing mothers into the workforce. Harvard Law School Professor Elizabeth Warren explores this theory in her new book, "The Two Income Trap: Why Middle Class Mothers and Fathers Are Going Broke," which compares a middle-class family in the 1970s to a middle-class family in the 2000s. While Warren neglects to discuss changing tax obligations in-depth, calculations based on the books' figures reveal that the most significant change in the expenditures of middle-class households over the last 30 years is the radically higher tax burden imposed by the American tax system's progressive nature. Therefore, the best way to mitigate the family budget crunch would be to implement flatter and lower tax rates. Another option would be to abolish the tax system's "secondary earner bias," notes Edward J. McCaffery of the University of Southern California Law School.
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High School Seniors Test Well in Basic Economics
Washington Post (08/09/07) P. D01; Chandler, Michael Alison
Almost 80 percent of high school students are able to identify and apply key economic concepts, according to the first National Assessment of Educational Progress survey of economic literacy. The results are based on the testing of approximately 11,500 high school seniors from both public and private institutions, 42 percent of whom were able to demonstrate proficiency or better. Although this number is better than recent tests in other subjects, only 3 percent performed at an advanced level and one official described students as "shaky on terminology." However, education officials believe that the findings are an encouraging sign that economic principals are playing a more prominent role in secondary education, even though only a third of the states require students to take an economics course prior to graduation.
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Unsafe at Any Rate
Democracy Journal (08/01/2007) No. 5, P. 8; Warren, Elizabeth
To mitigate dangerous or misleading lending practices, Harvard University Professor Elizabeth Warren recommends the creation of a federal commission to guarantee the safety of financial products. Warren says such an organization could operate much the same way the Consumer Product Safety Commission (CPSC) does. Like the CPSC, her proposed Financial Product Safety Commission (FPSC) would have the power to establish consistent safety standards. It would also have the ability to ban or recall financial products it deems excessively risky for borrowers. Such an agency would benefit lenders in two ways. First, federal regulation would actually encourage borrowers by giving them the confidence to enter into the credit market knowing they will be treated fairly. Second, honest lenders would benefit because the FPSC would help eliminate much of their unsavory competition.
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Longtime Foe of ILC Bills Starts on His Own
American Banker (08/16/07) P. 1; Adler, Joe
Utah Sen. Bob Bennett (R) has been rumored to be researching legislation that could possibly lead to a ban on interstate branching of industrial loan companies (ILCs) owned by commercial entities like Home Depot and Wal-Mart. The ban would represent a compromise between these companies and traditional banks. It would also present an alternative to the total ban on commercially owned ILCs recently proposed in the House. It is currently unknown how much support the ban would have from other major Senate players like Sen. Christopher Dodd (D-Conn.). However, American Financial Services Association Executive Vice President of Federal Affairs Bill Himpler points out that such a bill could have a major impact on the current ILC debate. According to Himpler, branching is "the issue" the Independent Community Bankers of American and the American Bankers Association "have raised the loudest stink about. If something were to come in to address that, I would think that they would be hard-pressed not to accommodate Mr. Bennett."
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Bear Stearns Enters India by Acquiring Ford Automotive Finance--Report
Forbes (08/15/07)
Bear Stearns is set to buy Ford Automotive Finance Co. for 900 million rupees, marking its entrance into the Indian market. The terms of the deal call for Bear Stearns to invest at least $25 million in the company, helping it expand its operations from an automotive financier to a "full-fledged financial services company."
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Online Car Buyers Feel Leasing Riskier Than Buying
PRWeb (08/13/07)
BuyingAdvice.com has just released a survey of 1,193 individuals who were in the market for a new car in the next 30 days. According to their results, over 40 percent of those surveyed did not feel they were adequately aware of all the differences between leasing and buying a car. Seventy-five percent said they had never leased a car, and 64 percent said they did not think leasing a car was a better option than buying.
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Assn: Car Loans to Rise 20-25 Percent This Year--Brazil
Business News Americas (08/13/07)
After seeing an almost 28 percent increase in new car loans in the first half of 2007 compared with a year earlier, analysts predict that the value of such loans in Brazil could reach as high as $33.7 billion. Leasing operations grew at an even higher rate, 64.3 percent, compared to the first half of 2006. Meanwhile, almost 30 percent of car buyers paid cash. The rise in loans has hurt buyers' groups known as consorcios, which mix loans with a lottery to encourage participation. Consorcios backed just 4 percent of car sales in the first half.
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Exotics on the Easy Payment Plan
New York Times (08/12/07) McGeehan, Patrick
While one might expect the rich to pay for their expensive cars with cash, some multimillionaires opt, instead, to lease their cars. Timothy S. Durham, for example, chooses to lease his cars in spite of the paperwork because doing so frees up his cash for other uses. Leasing also allows Durham to defer paying some of the sales tax, because lease payments are spread out over several years. Durham intends to purchase the Bugatti he is currently leasing at the end of the five-year contract and will in the meantime invest his cash. However, Putnam Leasing CEO Steven Posner notes that many of his wealthy customers lease because they do not want to sink too much money into a depreciating asset. Roughly two-thirds of those leasing a new Ferrari trade it in or give it up before the end of the lease, says Posner and, to oblige fickle car enthusiasts, Putnam lets customers switch from one car to another under the same lease, charging only the difference in wholesale values. Premier Financial Services CEO Mitch Katz says that approximately 25 percent of very costly cars are leased, and about 50 percent of those leases are held by companies and are claimed--at least in part--as business expenses by their owners. Katz estimates that 50 percent of very expensive cars are paid for with cash, and the remaining 25 percent are bought with the assistance of a bank loan. Location is also an important financing element, because some states permit leaseholders to pay sales tax on a monthly basis, which is more cost-effective than paying tax on the entire lease value upfront.
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This Week: Jim Lawrence
Automotive Digest--Funding Weekly (08/10/07) Lawrence, Jim
New rules to be added to the Federal Trade Commission's (FTC's) Fair and Accurate Credit Transactions Act will place a number of responsibilities on dealers. The rules will obligate car dealerships to initiate programs identifying identity theft "red flags." Among the act's listed warning signs are address discrepancies encoded on a credit report. Dealers will have to train their employees to identify and handle this issue as well as a number of other possible problems. To spot weaknesses in a dealership's credit checks, all dealers will have to audit their current policies and programs. This process is intended to force all dealers to institute new procedures that address obstacles specific to their business. If they do not comply, dealerships will find themselves in trouble with the FTC. Despite objections from car dealers who feel these rules place an unfair and possibly financially risky burden on their shoulders, insider buzz indicates the new regulations will be finalized this Autumn.
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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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