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December 20, 2007
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Happy Holidays!
On behalf of AFSA, I would like to wish all of our members
and AFSA Newsbriefs readers Happy Holidays. AFSA appreciates your contributions
to the success of our organization, and we look forward to continuing to serve
you in 2008. Best wishes for an enjoyable holiday and prosperous New Year!
Chris Stinebert
AFSA President & CEO
New AFSA Board Members Welcomed
New AFSA Mortgage Division Chair Named
AFSA to Comment on HOEPA Regulations Proposed by the Federal Reserve
European Commission Rules Against MasterCard’s Use of Interchange Fees
New Member Welcome
Daimler Financial Services Americas Strengthens Commitment to Metro Detroit Community
Wells Chairman Faults Crisis Mentality
MasterCard Fears a Trend in Europe's Fee Decision
U.K. Banks, JPM on Lists to Buy From GE (Maybe)
Good News for Some Gift Card Recipients
Angling for Attention in Alt Payments
Bill OKd to Spare Taxes on Forgiven Mortgage Debt
Greenspan Plug Buoys Advocates Pressing Bailout
Washington Wire: Silver Lining
Default Lines: The New Math of Credit Scores
Mainstreaming Small Loans
Sonic Unloads Its 'Buy Here, Pay Here' Unit for $33 Million
Red-Flag Rules Worry Dealers
Vehicle Financing Brochure Is Now Available in Spanish
New AFSA Board Members Welcomed
Randy Chesler, President
of CIT Consumer Finance, has been appointed to the AFSA Board of Directors. Chesler
takes over the role from Tom Hallman, who served as Chairman of the AFSA Board
from Oct. 2004 to Oct. 2006. Hallman will be greatly missed on the board.
Headquartered
in New Jersey, CIT provides financial solutions – from financing to insurance
– to Fortune 1000 companies.
Chesler is joined on the board by Margaret
Keane, President & CEO, GE Retail Consumer Finance. Keane assumes the seat of
Mark Begor, whose presence on the board will be missed.
The goal of this
GE Money business unit is to provide the right financing solution for every customer to put the power into buying.
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New AFSA
Mortgage Division Chair Named
Elvis Goddard, CitiFinancial Executive
Vice President of Consumer Finance North America, has been named chair of AFSA’s
Mortgage Lending Division Advisory Board.
A 30-year consumer finance industry
veteran, Goddard began his career with Aristar, Inc. in the consumer finance branch
network. In 2004, he joined CitiFinancial, where he currently oversees branch
network operations in more than 550 branch offices across eight states in the
Southern United States. Goddard has been actively involved in AFSA for more than
15 years, and has served on the Mortgage Lending Division Advisory Board for the past three years.
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AFSA to
Comment on HOEPA Regulations Proposed by the Federal Reserve
On Dec. 18, the Federal Reserve Board announced a set of proposed rules regarding
mortgage lending on Regulation Z under the Home Ownership and Equity Protection
Act (HOEPA).
The proposal would create a new category of “higher-priced
mortgages” that would include virtually all subprime loans. Among other
restrictions, financial institutions that make these loans would be prohibited
from extending credit to consumers without considering borrowers’ ability
to repay the loan. Lenders would also be required to establish an escrow account
for the payment of property taxes and homeowners’ insurance for these types
of loans.
The proposal includes additional provisions that would apply
to almost all mortgages, including the prohibition of paying mortgage brokers
yield spread premiums that exceed an amount that the consumer agrees to in advance.
AFSA will submit a comment letter, which will be due 90 days after the
proposed rules are published in the Federal Register. Among other things, AFSA
will be looking at the feasibility of implementing the Federal Reserve’s
proposal and whether it might limit product options for too many Alt-A and prime borrowers.
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European
Commission Rules Against MasterCard’s Use of Interchange Fees
On Dec. 19, the European Commission (EC) ruled that MasterCard Europe’s
cross-border “interchange fees” – fees paid between banks when
cardholders make purchases using their cards – violate EC Treaty rules on
restrictive business practices, and gave the company six months to “withdraw
the fees.” MasterCard Europe stated its intent to appeal the decision, which
the company said will lead to higher costs to cardholders and result in fewer
electronic payments.
AFSA issued a statement expressing disappointment
in the EC’s decision, which, in effect, imposes a government price cap on
fees that should be dictated by the marketplace.
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AFSA welcomes Cypress Software Systems to the association as a new Associate
Member. Cypress Software Systems, headquartered in Dallas/Fort Worth, develops
automated processing software for risk-based loan applications. Cypress’
primary representative to AFSA will be Allan Fried, Senior Vice President of Product Management.
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Daimler Financial Services Americas
Strengthens Commitment to Metro Detroit Community
PRNewswire (12/14/07)
On Dec. 14, Daimler Financial Services Americas reaffirmed
its commitment to the metro Detroit region by presenting a $100,000 check to the
capital fund campaign of an area charity. The Forgotten Harvest food rescue agency
helps the poor and hungry by gathering extra prepared and perishable food to donate
to area pantries. Daimler Financial Services also presented the food rescue agency
with food supplies gathered by Daimler staff. The donation comes only months after
the financing division donated three new trucks to Forgotten Harvest. "At Daimler
Financial Services Americas, our commitment to the region is clear--we believe
in the long-term potential of Michigan and want to facilitate job growth in the
area as well as strengthening the community in which we live," said Daimler Financial
Services Americas President and CEO Klaus Entenmann. "All of us believe in the
mission of Forgotten Harvest and support Forgotten Harvest as they work hard on
a daily basis to feed the hungry in Metro Detroit."
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Wells Chairman Faults Crisis Mentality
American Banker (12/13/07) Dobbs, Kevin
Wells Fargo
& Co. Chairman Richard Kovacevich reiterated to Wall Street analysts his plan
to retire in 2008 and criticized their coverage of the mortgage crisis on Dec.
12, claiming that their emphasis on the negative aspects of the situation has
only exacerbated things. "If you could somehow cut off Wall Street and put it
in the bay, the rest of the world is doing quite well, thank you very much," he
stated. "Unemployment is low, people have jobs, the economy is doing OK." Kovacevich
reported that there is just a 30 percent likelihood that the economy will enter a recession next year.
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MasterCard Fears a Trend in Europe's Fee Decision
American Banker (12/20/07) P. 11; Jalili, H. Michael
The European Commission's ruling that MasterCard must scrap cross-border interchange
fees has provoked concerns from MasterCard and industry observers that other regulators
could impose similar restrictions. "If unchallenged, then there will be global
impact," said MasterCard associate general counsel Carl Munson. President of MasterCard's
European division Javier Perez said in a conference call that banks would still
allow customers to use cards for cross-border transactions despite the ruling.
According to him, the point of the ruling is "to send a signal to [national regulators]
and say, 'We don't like interchange, and we expect you, at [the] domestic level,
member states, in Europe, to take note of us saying we don't like interchange
and, therefore, accelerate your actions in the member countries.'" About 5 percent
of MasterCard's transactions would be impacted by the ruling, but none of the
credit card company's revenues would be affected because the ruling only covers
the fees collected by issuers. Analysts said the commission's decision would have
no immediate impact on banks. MasterCard said it would obey the commission's order
for now, but will appeal the ruling to the European Court of First Instance. Competition
commissioner Neelie Kroes said the ruling sets a precedent for Visa Europe, which
agreed five years ago to cap its cross-border fees at 0.7 percent.
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U.K.
Banks, JPM on Lists to Buy From GE (Maybe)
American Banker (12/17/07)
Vol. 172, No. 241, P. 17; Jalili, H. Michael
JPMorgan Chase
has been named a likely suitor for General Electric's card portfolio, although
other companies are also rumored to be in the running. Among them is British bank
HSBC, though its recent exposure to the mortgage crisis has left some question
as to the company's prospects of wading into the U.S. credit card market. Another
company whose name has been mentioned as a potential buyer is Citigroup, which
has also suffered mortgage losses. Barclays' name has also been circulated. Auriemma
Consulting Group's Steven Jacowitz says Barclays is a reasonable candidate because
it "has said it's in search of new acquisitions. ... It's much easier to acquire
a portfolio than to grow organically." Moreover, Barclays and JPMorgan successfully
completed a transaction earlier this year after Barclays acquired BJ's Wholesale
Club. Neither Barclays nor HSBC would confirm their intentions.
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Good
News for Some Gift Card Recipients
San Francisco Chronicle (12/16/07) P. E1; Pender, Kathleen
Sponsored by a California state senator and approved by Gov.
Arnold Schwarzenegger, a new state law requires retailers in California to redeem
partially used or unused gift cards for cash when the card's value falls below
$10. The law, SB 250, goes into effect in January 2008 and applies to cards sold
by individual retailers after January 1997. However, the new rule does not pertain
to cards that can be utilized at several retailers, such as cards with a Visa
logo or cards issued by malls. Other exceptions to the new rule include cards
issued as part of a loyalty program and cards that were donated to companies or
nonprofit groups. The legislation modifies a section of the California Civil Code
that bars expiration dates and service fees on most gift cards sold in the state.
Only three other states in the nation?Washington, Montana, and Vermont?mandate
retailers give cash in exchange for cards with low values.
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Angling for Attention in Alt Payments
American Banker (12/13/07) P. 1; Wolfe, Daniel
Alternative
payment companies are advertising their services as early in the online transaction
process as possible in a bid to steal transaction volume from credit cards. Prominent
placement on merchants' home pages is one strategy, and a key retailer that will
likely support such promotion is Amazon.com, which recently agreed to use the
Bill Me Later service and acquire a minority stake in the company. Bill Me Later
co-founder Mark Lavelle says merchants that agree to promote his service can "double
or triple" the volume of purchases facilitated through Bill Me Later than if the
service was only offered at the checkout stage, while the size of each transaction
can as much as triple. Javelin Strategy and Research analyst Bruce Cundiff notes
that many customers are seeking new avenues for online payment due to concerns
about security or because they want a technique that is easier to use than a payment
card. "If a consumer perceives a certain payment method to be more secure and/or
more convenient, that's what is going to be driving their behavior," he says.
ModaSolutions, whose eBillMe payment service allows customers to initiate payments
to merchants via their banks' online bill pay sites, has also entered into a home-page
promotion agreement with merchants. Meanwhile, PayPal's logo has prominent placement
in ads for products that can be bought through its Text-to-Buy service, which
lets shoppers purchase items they see in print ads by relaying a text message
from their phones. Without such placement, "there's no awareness that that's the
way you can buy that product" through PayPal, says the company's Amanda Pires.
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Bill OKd to Spare Taxes on Forgiven Mortgage Debt
Los Angeles Times (12/19/07)
Homeowners who modify
their home loans to avoid foreclosure will get a reprieve from paying taxes on
the forgiven mortgage debt for three years. Congress passed the legislation on
Dec. 18 to waive taxes of as much as 35 percent on mortgage debt cancelled from
Jan. 1, 2007, to Dec. 31, 2009. "Homeowners who restructure their mortgages to
avoid foreclosure should not be hit with a tax bill as a result," said Treasury
Secretary Henry Paulson. Penalties on partnerships and small businesses that fail
to file tax returns will be raised to fund the $1 billion cost of the bill.
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Greenspan Plug Buoys Advocates Pressing Bailout
American
Banker (12/18/07) Vol. 172, No. 242, P. 20; Rehm, Barbara A.
On Dec. 16, former Federal Reserve Board Chairman Alan Greenspan endorsed bailing
out subprime mortgage holders, which was a shot in the arm for advocates lobbying
the government to rescue such individuals. In an ABC "This Week" interview, Greenspan
suggested that infusions of cash from the government could help borrowers without
inflicting long-term damage to the economy. In contrast, attempting to fix the
prices of interest rates or homes could prolong the crisis, Greenspan explained,
adding, "It's only when markets are perceived to have exhausted themselves on
the downside that they turn." Subsequently, the Greenlining Institute used Greenspan's
statements to publicize a meeting of industry officials and policymakers; the
meeting aimed to discuss solutions that have a greater scope than the plan proposed
by the Bush administration in early December. According to Treasury Secretary
Henry Paulson, the administration's plan pushes lenders to freeze the starter
rates on certain subprime loans, which could help as many as 50 percent of the
1.2 million subprime borrowers confronting mortgage resets. However, critics say
the Paulson plan is not extensive enough. Greenlining is urging the federal government
to establish a rescue fund for individuals in foreclosures and to stop, for the time being, future foreclosures.
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Washington Wire: Silver Lining
Wall Street Journal (12/14/07) P. A8; Carnevale, Mary Lu
Speaking at the New York City Subprime Lending and Foreclosure Summit, U.S. Treasury
Undersecretary Robert Steel noted one benefit of the boom in subprime mortgages.
Steel pointed out that more African Americans and Hispanics were able to achieve
homeownership in recent years due to increased availability of subprime mortgages.
"Although today the term 'subprime' evokes some uncomfortable feelings ... the
increased use of subprime products over the last 13 years resulted in millions of new mortgages," he said.
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Default Lines: The New Math of Credit Scores
Wall Street Journal (12/19/07) P. D1; Kim, Jane J.
The three major credit bureaus--Experian Group, TransUnion, and Equifax--could
implement Fair Isaac's new credit scoring system as early as spring 2008. The
new system, FICO 08, was developed in response to lenders' demands for a better
way to gauge borrower risk amid the credit crisis. FICO 08 continues to assign
consumers scores between 300 and 850 and take into consideration their debt loads,
payment histories, recent accounts and inquiries, type of credit, and length of
credit history; but it now will give higher scores to consumers making timely
payments on different types of loans and lower scores to those who have used much
of their available credit or have multiple delinquent accounts. Additionally,
consumers will not get credit for accounts for which they are authorized users--a
practice that has long allowed consumers to rebuild their credit and benefit from
the higher credit scores of friends or family members.
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Mainstreaming Small Loans
American Banker (12/14/07) Vol. 172, No. 240, P. 10; Holcom, Tom
Small-dollar consumer loans are a new and positive trend in the
loan market for lower-income workers and military personnel. Numerous initiatives
are being developed to transport lower-income Americans into mainstream banking.
One pilot program from the Federal Deposit Insurance Corp. (FDIC) persuades banks
to provide loans of as much as $1,000 at affordable interest rates and with low
or no origination fees. The small-dollar loans also offer longer payment periods,
financial education, and a savings component. Meanwhile, the Defense Department
adopted regulations in October to defend service members from predatory lending.
The regulations, which cap certain types of loans at an annual percentage rate
of 36 percent, also intend to help ferry underserved military workers into the
banking mainstream. Guidelines from the Defense Department cite the FDIC's small-dollar
loan program as a feasible option for service members.
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Sonic Unloads Its 'Buy Here, Pay Here' Unit for $33 Million
Ward's Dealer Business (12/01/2007) Gordon, Mac
Sonic
Automotive has sold Cornerstone Acceptance, a lender focused on "buy-here, pay-here"
loans. After Sonic acquired Cornerstone in a dealership group purchase, Sonic
prohibited its 172 dealerships from issuing such loans, divested a Cornerstone
portfolio of $27 million, sought a buyer in 2006, and has now sold Cornerstone
for $33 million. Sonic is too large a company to handle the in-house financing
difficulties of buy-here, pay-here, says Ken Shilson, founder of the National
Alliance of Buy Here, Pay Here dealers. William Baldwin of Baldwin Anthony Securities
concurs, adding that Sonic is not able to cope with higher rates of default and
repossession. Though buy-here, pay-here lending can be extremely profitable, says
Baldwin, it is also the most challenging part of auto financing. Sonic CFO David
Kosper explains, "Buy here, pay here can be a great business, but it's one we don't really need. It's too risky."
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Red-Flag Rules Worry Dealers
Ward's Dealer Business (12/01/2007) Finlay, Steve
Proposed "red-flag" rules authorized by Congress and being developed by agencies
such as the Federal Trade Commission would compel creditors to report suspicions
of identity fraud stemming from customer-loan data. Because of their auto-financing
operations, auto dealers are considered creditors. While eager to combat identity
fraud, auto dealers are loath to do investigative work for the federal government.
Though some mandates would be simple to execute, like checking a driver's license
photo, others are beyond the capabilities of average dealership workers, says
lawyer Michael Benoit of Hudson, Cook, a firm that represents dealers. In addition,
lenders already use anti-fraud systems, so requiring dealers to do so as well
would be redundant, says Benoit. Andrew Koblenz, general counsel for the National
Automobile Dealers Association (NADA), agrees, though Koblenz adds that only dealers
who engage in "buy here, pay here" financing operations should have to play active
roles in the red-flag tasks. Paul Metrey of NADA advocates a "more prudent approach"
in which regulated entities show how their existing processes and policies can
battle ID theft. The red-flag initiative is the latest in a string of government
regulations that have impacted dealers since 2000, forcing dealers to spend more
time on compliance. However, some rules have benefited dealers, such as the mandate
regarding adverse-action notification, which gives dealers a chance to educate
borrowers about credit, says NADA Chairman Dale Willey.
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Vehicle Financing Brochure Is Now Available in Spanish
Ward's Dealer Business (12/01/2007)
"Understanding
Vehicle Financing," an industry-approved brochure to educate car buyers, is now
available in Spanish. The American Financial Services Association Education Foundation
publishes the brochure through the National Automobile Dealers Association, and
is striving to reach a broader audience. First published in 2003, the updated
version of the brochure addresses both dealership financing and vehicle leasing
by providing a glossary of financing terms, a worksheet that facilitates the comparison
of terms from multiple creditors, and a list of relevant federal regulations.
The brochure also contains information to help consumers assess their own financial
situations prior to financing a vehicle, such as a worksheet that calculates affordable
monthly payments and information on how to get a credit report. A checklist of
steps to take before visiting the dealership and after visiting the dealership is also included.
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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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