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August 9, 2007
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AFSA to Submit Comments on the Use of SSNs in Fraud Prevention
AFSAEF’s Irvine Speaks at NCSL Conference
AFSA SGA Forum, NAACA Annual Meeting Scheduled for Next Month
Registration Underway for AFSA’s 2007 Annual Meeting
Maloney Introduces Credit Card Principles
GMAC Financial Services to Fund More Than a Dozen Community Build Day Projects Throughout August
The New Chrysler Financial
Countrywide to Aid Troubled Latino Borrowers
Prepaid Is New Focus at Capital One
MasterCard Says EU Ruling on Interchange Fees Will Be Made in the Autumn
Will PIN Debit Play Online?
Mortgage Brokers Rip Clinton Plan
Bush Faults Easy Money for Volatility
New Laws Needed to Curb Unscrupulous Brokers
Loan Standards Up as Defaults, Wall St. Hit Banks, Lenders
Why Academic Studies Are Good for the RTO Industry
Talking About Innovation Isn't Enough--C.U.s Must Plot a Course for Loan Success
Viewpoint: Credit Insight From Nontraditional Data
Credit Scores Still Mystery to Most
Driving Out of the Hole
Your Car and Your Credit
A New Trend in Auto Financing: Car Mortgages?
AFSA to Submit Comments on the Use of SSNs in Fraud Prevention
AFSA will be working with its member companies to prepare a comment letter to the Federal Trade Commission (FTC), which is seeking comments on the uses of Social Security Numbers in the private sector to reduce the overall incidences of ID theft. Comments are due by September 5th.
This call for industry comments comes on the heels of a bill passed out of the House Ways and Means Committee that would significantly limit the use of SSNs by the financial services industry for customer authentication, fraud prevention and recovery, and employee security and screening.
The House Energy and Commerce Committee also has offered a bill that would impose similar, and in some cases, tighter restrictions on the use of SSNs.
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AFSAEF’s Irvine Speaks at NCSL Conference
American Financial Services Association Education Foundation President and CEO Susie Irvine was a participant in a panel session on Money + Knowledge = Financial Literacy held August 7th at the 2007 National Conference of State Legislatures Annual Meeting in Boston. The session’s goal was to address ways in which state legislators, educators and other interested organizations can work together to better prepare individuals to manage their finances in light of rising consumer debt.
During her presentation, Irvine asked legislators to work to make personal finance a required course in their states.
In addition to AFSAEF’s participation in this morning’s panel, AFSA is participating in this week’s NCSL conference in other ways. The association has a financial literacy booth featuring member companies’ financial literacy materials at NCSL’s exposition and hosted a Financial Services Committee Outreach Dinner last night.
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AFSA SGA Forum, NAACA Annual Meeting Scheduled for Next Month
This year’s AFSA State Government Affairs Forum and National Association of Consumer Credit Administrators (NACCA) Annual Meeting will feature discussions on timely issues, networking events with industry leaders and opportunities to meet state regulators. The meetings will take place September 25-27, 2007 at the Eldorado Hotel & Spa in Santa Fe, New Mexico.
Session topics include: Consumer Advocate Perspectives on All Lending Segments, Foreclosures, Cross-Border and Internet Lending, Misleading Advertising, Car Buyers’ Bill of Rights, Interchange, Universal Default, Installment Lending in the Crosshairs of Payday and Mandatory Counseling. Among the speakers will be The Wall Street Journal’s John Fund, who will give a political update.
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Registration Underway for AFSA’s 2007 Annual Meeting
The AFSA 91st Annual Meeting & Leadership Conference “Leadership ~ Beyond the Sea” is scheduled for October 27-30, 2007 at the Four Seasons Aviara in North San Diego, California. With its many networking and educational events, this is the pre-eminent conference for AFSA and its members. Most Committees of Professional Interest will be meeting in conjunction with the conference.
This year’s program includes a political debate between Fred Barnes, executive director of The Weekly Standard and Fox News Commentator, and Eleanor Clift, contributing editor to Newsweek and McLaughlin Group panelist. Also speaking will be Stephen Moore, economics writer with The Wall Street Journal and Angelo Mozilo, chairman and CEO of Countrywide Home Loans.
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Maloney Introduces Credit Card Principles
On August 3rd, Rep. Carolyn Maloney (D-NY), Chairwoman of the Subcommittee on Financial Institutions and Consumer Credit, introduced a set of four principles that are meant to serve as guidance to credit card issuers in billing their customers.
In a conference call with reporters, Maloney described the principles, along with the Fed’s updated Regulation Z guidance and the OTS’s proposed rulemaking on “unfair and deceptive practices,” as good steps in consumer protection. However, she still wants to offer legislation on the matter.
House Financial Services Committee Chairman Barney Frank (D-MA) is also expected to propose a credit card bill that is likely to focus on payment allocation and retroactive repricing. The committee will hold hearings on the future bills early this fall. AFSA will continue to follow the situation in the weeks ahead.
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GMAC Financial Services to Fund More Than a Dozen Community Build Day Projects Throughout August
GMAC Financial Services News Release (08/07/07)
As part of the Financial Services Roundtable's Community Build Day initiative, GMAC Financial Services will sponsor 13 community improvement projects throughout August. Funding will go toward the construction of four Habitat for Humanity homes in Minneapolis, Philadelphia, Sacramento, and Pittsburgh. GMAC's Community Build Day project will also sponsor school supply drives in nine cities, including Bethesda, Md.; Costa Mesa, Calif.; Waterloo, Iowa; and Richfield, Minn. GMAC President Bill Muir lauded the outreach as an opportunity to support communities, saying, "GMAC believes in supporting efforts that strengthen local communities, particularly those focusing on housing and human services, financial literacy, and education. We are pleased to participate in these projects to revitalize neighborhoods and help students get the tools they need to learn."
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The New Chrysler Financial
Earthtimes (08/06/2007)
Chrysler Financial resumed operations on Aug. 6 as a stand-alone company after DaimlerChrysler AG transferred its sales operations and dealer network to the firm. The new financing unit will continue providing dealers of Chrysler, Jeep, and Dodge products with competitive deals aimed at fostering brand loyalty.
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Countrywide to Aid Troubled Latino Borrowers
National Mortgage News (08/03/07) Dymi, Amilda
To aid the thousands of Latino homeowners nearing foreclosure, Countrywide Financial has developed a Spanish-language homeownership education Web site, MiHogarCountrywide.com. The goal of the site is to teach Latinos in their native language about everything from the process of purchasing a home to how to maintain homeownership. The site is expected to serve as a reference for all who are unfamiliar with the mortgage cycle, particularly for individuals with adjustable-rate mortgages waiting to reset. The Web site also contains phone numbers so that those seeking more information can contact counselors. To address the trend of Latino buyers who lack the financial education to avoid foreclosure, the online tool aims to show homeowners how to respond to life changes (such as job loss), what their options are, and how to position themselves to act. Indeed, the Center for Responsible Lending discovered in 2005 than almost 20 percent of the 375,000 high-interest-rate loans given to Hispanic homebuyers are expected to go into foreclosure, due in part to a lack of education regarding the hazards of adjustable-rate mortgages.
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Prepaid Is New Focus at Capital One
American Banker (08/09/07) Breitkopf, David
Although it was once focused solely on credit cards, McLean, Va.-based Capital One Financial is now moving rapidly into the debit card market. In March, Capital One and MasterCard began issuing a so-called "decoupled" debit card that routes payments across the automated clearing house network and can be linked to accounts at any bank. On Tuesday, Capital One announced that it would purchase NetSpend Holdings--a provider of general-purpose, reloadable prepaid products--for $700 million in cash. The deal, which is set to close next quarter, is part of Capital One's effort to sell prepaid customers other financial products as they mature financially, according to Scott Grimes, Capital One's senior vice president of payments. The move comes amid concern at Capital One over the future of the credit card market, said Gwenn Bezard, a research director at Aite Group in Boston. "A lot of people are embracing debit, and that's why Capital One has introduced a decoupled debit card and bought NetSpend," Bezard said.
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MasterCard Says EU Ruling on Interchange Fees Will Be Made in the Autumn
Thomson Financial (08/03/07)
MasterCard announced today that it expects the European Commission to finish its inquiry and rule on the company's interchange fee payments network sometime in the fall. When the European Commission finished its banking and payment card sector industry examination last January, it said it would not abolish interchange fees, though it would continue to look into whether the current level of fees is legal. The European Commission also expressed concern about the "large variations in merchant and interchange fees for payment cards, barriers to entry in the markets for payment systems and credit registers, obstacles to customer mobility, and product tying." MasterCard said at the time that it welcomed EU Competition Commissioner Neelie Kroes' decision not to abolish interchange fees, though it also said that the inquiry's conclusions left the system in a "cloud of uncertainty."
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Will PIN Debit Play Online?
Digital Transactions (07/01/07) Vol. 4, No. 7, P. 19; Lucas, Peter
According to analysts, online retail sales could total $900 billion by 2016, or roughly 15 percent of all retail sales. As online retail sales rise, merchants will increasingly look for ways to reduce their payment-card acceptance costs and increase overall sales by turning to payment methods such as PIN debit. However, EFT networks currently do not offer PIN-debit card payments to online merchants. But now some EFT networks are conducting pilot programs of online PIN-debit systems. First Data's Star EFT network, for example, is testing a system that will allow consumers to pay select bills online without entering their PINs. In addition, Star is planning to test PIN-less micropayments for transactions of $25 or less. However, such efforts may not be enough to create widespread momentum for EFT networks in the online retail channel. "PIN-less debit is limited in its scope of merchants and the size of the transaction," said Paul Tomasofsky, president of Two Sparrows Consulting. But, he added, "There is a significant portion of consumers that want to use their ATM card for online purchases, just as they would a credit card, but can't. ETF networks are missing out on a lot of volume through the online sales channel, and the stakes are only going to get higher."
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Mortgage Brokers Rip Clinton Plan
American Banker (08/09/07) Adler, Joe
A proposal by Sen. Hillary Clinton (D-N.Y.) to adopt new standards for mortgage brokers as a means to curtail predatory lending is opposed by the National Association of Mortgage Brokers. The plan calls for new licensing requirements, fee disclosures, and the ability for borrowers to examine the backgrounds of their brokers, among other provisions. According to the trade group, "NAMB regrets that Sen. Clinton has chosen to single out small-business America in a problem that encompasses everyone. The entire mortgage system needs to be examined from stem to stern."
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Bush Faults Easy Money for Volatility
New York Times (08/09/07) P. C1; Weisman, Steven R.
President Bush entered the discussion about the housing downturn and its impact on the financial markets during a speech at the Treasury Department on Wednesday, with his remarks focusing on the easy money that sparked rapid, unsustainable gains in the residential property market in recent years. The present decline is "a necessary reaction to a flood of liquidity that came into the market in the past couple years," Bush remarked, going on to suggest that the government should not interfere with the market by helping to bail out struggling borrowers. In response to a request by Sen. Charles Schumer (D-N.Y.) that Fannie Mae and Freddie Mac be allowed to purchase more mortgages in order to bolster prime lending, the president said the government-sponsored enterprises should correct leftover internal accounting problems before taking such action. Bush also called for better financial education of borrowers, insisting that some of the problems resulted from their failure to carefully read mortgage documents before signing.
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New Laws Needed to Curb Unscrupulous Brokers
Wall Street Journal (08/09/07) P. A11; Schumer, Charles E.
U.S. Sen. Chuck Schumer, D-N.Y., believes unscrupulous mortgage lenders and brokers who used inflated appraisals and other fraudulent activities to lock borrowers into homes they cannot afford are responsible for the credit crunch presently plaguing the financial markets. In a letter to the editor, the legislator insists that new laws are needed to curtail predatory lending in the subprime mortgage market, as the current regulatory system does not prevent deceptive and misleading lending practices. He acknowledges that the secondary mortgage market will correct itself and that legitimate lenders do not need laws to regulate their operations, but he believes legislation targeting subprime mortgage lenders and brokers could boost investor confidence.
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Loan Standards Up as Defaults, Wall St. Hit Banks, Lenders
Investor's Business Daily (08/07/07) P. A1; Stoddard, Scott
A drop in demand for mortgage-backed securities has caused a credit freeze that has prompted mortgage lenders to cease underwriting certain loans, take a closer look at borrower qualifications, and hike interest rates on some products. Experts note that prime borrowers are finding it difficult to obtain financing; and the lack of credit could slow home sales even more, spark price declines, and push up default rates. Inside Mortgage Finance publisher Guy Cecala states, "There's definitely a backlash now in which investors are saying they don't want to hold anything with a mortgage attached. Loans are going to be much harder to get and more expensive to get." With interest rates on approximately $1 trillion in adjustable-rate mortgages slated to increase in 2007, the inability of borrowers to refinance into fixed-rate products could spell trouble. Some experts worry about the impact of the housing downturn on the economy, insisting the Federal Reserve needs to cut interest rates or Fannie Mae and Freddie Mac need to be given permission to purchase more home loans.
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Why Academic Studies Are Good for the RTO Industry
RTOHQ (08/07/2007)
In an interview with APRO, Jim Hawkins, author of a law and economics paper on the rent-to-own (RTO) industry, says his opinion of RTO has changed since conducting the research. Hawkins initially believed RTO was too expensive and the highest prices were paid by the most vulnerable consumers, but the research led him to conclude that people should be allowed to enter into such a beneficial contract. Previous research into the payday loan industry, which sought to establish some connections to RTO, prompted Hawkins to conduct the study, "Renting the Good Life." Hawkins views RTO as a beneficial contract because it enables people to obtain durable goods without making a long-term commitment, and although he takes issue with "behavior-driven" fees such as late fees and club programs, he believes offering lifetime reinstatement fees would offer a better strategy than having people lose their equity. He says the research and interviews with industry professional yielded several surprises, including the revelation that short-term renters, who tend to be better off, are subsidized by long-term renters. RTO gives people who are excluded from mainstream financial services an opportunity to own high-quality, durable goods, and that is the strength of the industry, says Hawkins. In addition to offering lifetime reinstatement fees, Hawkins recommends that the industry limit charges for add-on fees such as late fees.
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Talking About Innovation Isn't Enough--C.U.s Must Plot a Course for Loan Success
Banking Wire (08/06/07) P. 41; Bartlett, Michael
Sustainable credit union (CU) growth depends on lending innovation, and CUs must develop strategies for innovation to overcome current market obstacles. Total CU loans have declined since June 2005, as baby boomers borrow less and younger adults prioritize low rates over loyalty to one bank, according to Judy Tharp, CEO of Piedmont Aviation Credit Union. Tharp recommends that CUs create a lending plan that tackles a variety of loans. The strategy should also connect to the credit union's vision. Tharp asserts that credit unions must cultivate novel ways to price, package, promote, and deliver loans, and cites Starbucks as a model of how to transform a product into an experience. Tharp points to auto lenders, in particular, as needing to improve the car-buying experience for their customers, either by developing relationships with dealers or by enhancing their Web sites. Other CU opportunities for modernization include offering alternative student loans and alternatives to payday lending, including "near-prime" lending. In addition, social lending sites like prosper.com may be a helpful example for credit unions to study, says Tharp.
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Viewpoint: Credit Insight From Nontraditional Data
American Banker (08/03/07) P. 10; Brown, Thomas C.
Lenders need to be constantly searching for new and creditworthy customers to realize growth, but this process is becoming increasingly challenging amid a competitive market and shrinking base of potential customers. As a result, there is a need to consider using new tools to foster growth and focus on the 25 percent of individuals who largely rely on cash--immigrants, young people, and those who dislike credit due to cultural biases. To evaluate a consumer's credit history, banks traditionally look at such things as prompt bill payment, debt, available credit, and debt-to-income ratio, but some histories can fail to indicate creditworthiness because they might overlook, for example, life-changing situations. Lenders should assess such things as the stability of addresses with telephone listings as proof of responsible housing and utilities payments. The use of non-conventional data in place of credit histories can allow creditors to leverage the growing market of non-conventional credit seekers, based on innovative thinking and updated scoring approaches.
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Credit Scores Still Mystery to Most
Huntsville Times (AL) (08/02/07) Accardi, Marian
A new survey from the Consumer Federation of America and Washington Mutual reveals that only 24 percent of approximately 1,000 adults knew that 700 is the lowest credit score likely to qualify for a low-cost mortgage. Only 29 percent understood what a credit score means; however, that was up from only 27 percent in the 2005 survey. Stephen Brobeck, executive director of the federation, says the increase in the percentage of consumers who had obtained their credit scores--59 percent, versus 54 percent in the last survey--also was a good sign. It is worthwhile for consumers with lower scores to work on improving them, considering that Fair Isaac Corp. estimates that raising a credit score from the 580-619 range to 660-699 could save a borrower $5,148 in annual interest expenses on a $300,000 loan carrying a fixed rate over 30 years.
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Driving Out of the Hole
Kalamazoo Gazette (MI) (08/05/07) Nixon, Alex
Subprime vehicle financing is an on the rise, as an increasing number of customers turn to buy-here, pay-here auto dealerships to obtain a vehicle. The growth is driven in part by defaults in the subprime mortgage market. Foreclosures and bad credit make it difficult for consumers to obtain traditional loans. Others are in financial difficulties because of job loss, divorce, or poor money management. All such consumers are willing to accept high interest rates and the majority are grateful to find dealers who will help them acquire dependable transportation at affordable payments. Two dealerships in Kalamazoo, Mich., seek to help such customers regain their financial footing. Express Auto offers an in-house lending company through which it finances subprime auto loans at interest rates of between 14 percent and 20 percent; state law caps such loans at 25 percent. The goal at J.D. Byrider, meanwhile, is to help customers rebuild their credit.
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Your Car and Your Credit
Washington Post (08/02/07) P. D2; Singletary, Michelle
The use of credit scores to determine eligibility for automobile insurance and premiums is a common practice by the industry. But consumer groups have for many years urged state and federal lawmakers to examine the practice. Some advocates say the use of credit scores to determine insurance rates is discriminatory toward African Americans and Latinos because they tend to have lower credit scores. In a recent study, the Federal Trade Commission (FTC) used earlier research, public comments, and industry statistics to conclude that credit scores accurately forecast the number of claims that consumers file and the overall cost of those claims. The report also found that that all the leading auto insurance firms now rely on credit-based scores in some way. Critics of the FTC's study methodology include the Consumer Federation of America, the National Fair Housing Alliance, the National Consumer Law Center, and the Center for Economic Justice. Meanwhile, as of June 2006, 48 states have taken some kinds of action to restrict or ban the use of credit-based insurance scores, according to the FTC. Georgia, Illinois, and Utah, for instance, bar the use of credit history data as the only grounds for underwriting or rating decisions. Most states base their laws on the Model Act Regarding Use of Credit Information in Personal Insurance, written by the National Conference of Insurance Legislators.
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A New Trend in Auto Financing: Car Mortgages?
Black Enterprise (08/07) Fortson, Jeff
An increasing number of consumers are selecting extended term car loans as means for obtaining the car of their choice. Among new auto loans issued in 2006, 58 percent were financed over at least six years. As well, 48 percent of used-vehicle loans received six-year financing, or more, in 2006. At the end of 2006, new cars cost $29,400, on average, a price that necessitates over six months of median family income, according to Comerica Bank's Automobile Affordability Index. In addition, over one-third of consumers in 2006 owed more on their vehicle at the time of trade-in than the vehicle was actually worth. Consumers who financed their cars for a maximum of three years owed $3,588, on average, in comparison to those who owed an average of $5,157 at trade-in after having financed the car for eight years or more. Industry experts concur that the "car mortgage" trend can be overturned if consumers buy cars within their budgets, allocate a substantial down payment, pay off their trade, or contemplate leasing.
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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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