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November 8, 2007
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AFSA Issues Statement on House Financial Services Committee’s Passage of H.R. 3915
AFSA Submits Comment Letter to the OTS on Unfair or Deceptive Acts or Practices
2007 Merit Managers, Lifetime Award Recipients Honored at AFSA Annual Meeting
Federal Reserve Incorporates AFSA’s Suggestion Regarding Electronic Disclosures
AFSA Welcomes New Staff
Wells Fargo Auto Finance Names Stagecoach Winners
Cerberus Chairman Positive on GMAC, Sees Chrysler Turning Around
Gift Cards With a Personal Touch
Gift Cards Still Stylish This Year
Amid Data Thefts, Visa's Software Rules Align More Closely With PCI
Credit Risk: Who's Going to Go Bankrupt?
House Panel Clears Bill on Lending
Lenders to Home Buyers Tighten Further
Banks Fear Democrat Bids to Aid Mortgage Borrowers
Governor OKs New Mortgage Counseling
Banks, CUs to Fill Payday Gap? Maybe
FDIC OKs a FACT Act Proposal
E-Finance Is the Latest Mantra
VA Localities Push Lawmakers to Cap Payday Loan Interest Rates
Experian Provides Used Market Overview by Risk Scores
Betting on Subprime Auto Loans While Others Run Away
AFSA Issues Statement on House Financial Services Committee’s Passage of H.R. 3915
Tuesday night, the U.S. House Financial Services Committee passed the “Mortgage Reform & Anti-Predatory Lending Act” (H.R. 3915) co-sponsored by Chairman Barney Frank (D-MA) along with Representatives Brad Miller (D-NC), Mel Watt (D-NC), Spencer Bachus (R-AL), Judy Biggert (R-IL), Shelley Moore-Capito (R-WV) and Steve LaTourette (R-OH) by a vote of 45 to 19. The bill is expected to reach the House floor next week.
In a statement issued immediately after the vote, AFSA thanked the committee for its leadership in addressing rising foreclosures, but asserted that H.R. 3915, as currently written, “could exacerbate the current foreclosure situation by eliminating important borrowing choices for consumers.”
Prior to Tuesday’s markup on H.R. 3915, AFSA sent a letter to Chairman Barney Frank and Ranking Member Spencer Bachus in which the association said it cannot support the bill at this time.
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AFSA Submits Comment Letter to the OTS on Unfair or Deceptive Acts or Practices
AFSA submitted a November 5th comment letter to the Office of Thrift Supervision (OTS) on the regulations on unfair or deceptive acts or practices that the OTS is considering reviewing.
AFSA wrote that it believes the OTS should refrain from any rulemaking with respect to “unfair or deceptive acts or practices” involving consumer financial services. There is no demonstrated need for additional regulation, and a rulemaking proceeding in this area could be very problematic, said the association.
In particular, AFSA noted that the OTS should not consider creating a list of any specific practices deemed to be unfair or deceptive in the areas of credit card lending, residential mortgage lending, gift cards and deposit accounts. In addition to the problems inherent in an agency rulemaking, the inappropriateness of applying the FTC’s unfairness standard and the inflexibility of a laundry list, AFSA believes that banning the suggested practices would harm, not help, consumers.
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2007 Merit Managers, Lifetime Award Recipients Honored at AFSA Annual Meeting
Charles Konold, Manager, United Finance Co., in Medford, OR and Saundra A. Meyer, Branch Manager, CitiFinancial in Mt. Pleasant, PA were selected by their companies to receive the AFSA Merit Manager Award on October 29 during the AFSA Annual Meeting in San Diego. The Merit Manager Award is presented to branch managers from AFSA member companies who have demonstrated outstanding management skills and translated those skills into company profits. These top performers have also hired and trained new managers for the company.
The AFSA Lifetime Achievement Award is presented to individuals who have provided outstanding service to their companies and customers for over 20 years. The 2007 recipients include: Frances Baize, Branch Manager, CitiFinancial, Lawrenceburg, TN; Brenda Gallup, Manager, Security Finance Corp., Palestine, TX; Mario Magana, General Manager, Mullen Finance Plan, Glendale, CA and Debra Simonds, Branch Sales Manager, HSBC, Wilbraham, MA.
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Federal Reserve Incorporates AFSA’s Suggestion Regarding Electronic Disclosures
On Nov. 8, the Federal Reserve Board (FRB) announced the adoption of amendments to five consumer financial services and fair lending regulations (Regulations B, E, M, Z, and DD) to clarify the requirements for providing consumer disclosures in electronic form.
AFSA submitted a comment letter on the proposed amendments to Regulation Z on Oct 12. In the final amendment, the FRB wrote, “Creditor commenters [which includes AFSA] generally urged that the “non-bypassable link” example in the comment be deleted, or at least that the final comment make clear that the various methods of presenting disclosures electronically are only examples and not requirements.”
By following AFSA’s suggestion, the modified amendment clarifies that the various methods of presenting disclosures electronically are not the exclusive means of satisfying the disclosure requirements, but examples.
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AFSA welcomed two new staff members in the past month. Karen Healy, AFSA’s new Communications Manager, is responsible for writing press releases, brochure content, member communications, and other marketing materials, as well as media relations and updates to the AFSA Web site. Karen comes to AFSA from Communications Marketing Group in Tysons Corner, Virginia, where she served a number of association clients.
Jenny Bengtson joins AFSA as Manager of Member Services. Jenny is responsible for membership customer relations and management of the membership database. Jenny also works with Sheilah Harrison to develop and implement the association’s membership marketing program. Jenny has more than 10 years experience in association management. Most recently, she served as Manager, Member Services for the National Association of Real Estate Investment Trusts (NAREIT).
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Wells Fargo Auto Finance Names Stagecoach Winners
SubPrime Auto Finance News (11/06/2007)
Wells Fargo Auto Finance has announced the winners of its Stagecoach Award for the third quarter of 2007. The Stagecoach Award is given to auto dealers selected every quarter by Wells Fargo Auto Finance. Fifty-two honorees were selected out of 19,000 North American dealers. One Stagecoach winner, Jeff Lampkin, attributed the selection of his Park Cities Ford dealership to several factors including a good relationship with its buyer and area sales manager as well as the strengths of Wells Fargo's nonprime program.
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Cerberus Chairman Positive on GMAC, Sees Chrysler Turning Around
Dow Jones Newswires (11/05/07) Wisnefski, Stephen
Cerberus Capital Management is optimistic about the potential of GMAC Financial Services, according to Cerberus Chairman John Snow. "We think GMAC is a terrific property. It will reward our investors over time," Snow said. According to Snow, reduced consumption stemming from falling housing prices will slow broader economic growth to about 1.5 percent, though it will rebound to between 2.5 percent and 3 percent by late 2008 or 2009. Snow added that the rebound in economic growth will help Chrysler, which Cerberus acquired in August.
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Gift Cards With a Personal Touch
BusinessWeek (11/05/07) No. 4057, P. 26; Edwards, Cliff
In an effort to grab a larger share of the $90 billion gift card market, currently dominated by retailers, Visa is introducing a service that will allow consumers to personalize a Visa gift card with their own photos or engraved messages. The service, which will go live on Nov. 15, will be available on GiftCardLab.com. From there consumers will be able to upload personal pictures or use stock images from the site. Visa plans to charge $5.95 for the cards, which can be loaded with $10 to $250 of value. The personalized cards will be mailed to the buyer or to the recipient. This is not the first time that a company has offered a service that allows consumers to personalize gift cards. Two years ago, Wal-Mart introduced a service that allows customers to pay 88 cents to upload a digital photo to its Web site and have the image imprinted on a store gift card. Another Web site, Cardways.com, allows consumers to personalize gift cards from Circuit City and Napster.
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Gift Cards Still Stylish This Year
Prepaid Trends (11/02/07) Vol. 2, No. 22, P. 1; McCullough, Amy
Gift cards are on track to capture $35 billion in sales this holiday season, almost 35 percent more than they took in last year, according to an Archstone Consulting poll of 1,128 gift card buyers and recipients. "Gift cards are a bigger retail category than any other category," says Seastone President Eric Childs. "As a retailer you don't want to ignore that." Childs attributes his company's massive growth every year since its inception to the value that packaging adds to the gift card. Archstone practice leader Dave Sievers takes note of a trend toward prepaid debit cards this year, meaning that recipients can spend the gift card anywhere debit cards are accepted. Besides prepaid debit cards, gift cards to discount retail stores will experience the most growth, according to Archstone.
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Amid Data Thefts, Visa's Software Rules Align More Closely With PCI
Digital Transactions (11/02/07)
The alignment between Visa's Payment Application Best Practices (PABP) and the Payment Card Industry data-security standard is increasing now that merchant acquirers, processors, and independent sales organizations must comply with a quintet of new mandates by the end of the decade. Some analysts say compliance may turn out to be the cure for an epidemic of cardholder data thefts. "There are too many bad applications out there that are doing bad things with data," says Hypercom's Bill Pittman. Such things include older payment-processing software applications' storage of magnetic-stripe track data, Card Verification Value security codes, and PIN blocks from debit cards, which goes against network rules. Computer hackers can create bogus credit and debit cards with possession of such knowledge. PABP guidelines require acquirers not to book merchants using known vulnerable payment applications by Jan. 1, 2008, and processors and ISOs are not allowed to certify any software to their platforms that is known to be susceptible. PABP also mandates that processors and ISOs can only certify new payment software to their platforms that is PABP-compliant by July 1, 2008, while by Oct. 1, 2008, newly booked Level 3 and Level 4 merchants must be PCI-compliant or employ PABP-compliant applications. By Oct. 1 of the following year, ISOs and processors have to decertify all vulnerable payment applications, and by July 1, 2010, acquirers must guarantee that their ISOs, processors, and merchants exclusively use PABP-compliant applications. Merchant payment software often stores track data without the retailer's knowledge, and a Visa bulletin that announced the deadlines for meeting the new PABP mandates said the leading cause of card data breaches was vulnerable payment applications, especially among small merchants.
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Credit Risk: Who's Going to Go Bankrupt?
Bank Technology News (11/07) Adams, John
Visa and Experian are working together to develop several credit risk management products and services, including a subscription service that can predict bankruptcies up to two years in advance. The product, called Bankruptcy Predict, uses transaction data from payment cards and other credit accounts as well as credit file information from Experian to create a risk score. The risk score is given to financial institutions, which take it and other risk information into account when making a decision on when to offer financial education or other help for cardholders trying to recover from financial problems. The service will be available early next year.
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House Panel Clears Bill on Lending
Wall Street Journal (11/07/07) P. A5; Paletta, Damian
The House Financial Services Committee approved a mortgage overhaul bill proposed by Chairman Barney Frank (D-Mass.), and the full House will cast their votes in the coming week. The legislation would force lenders to consider whether borrowers can afford mortgages when the interest rates reset and only write refinance loans that give borrowers a "net tangible benefit." The measure also contains a provision holding secondary market investors liable for problem subprime mortgages, bans yield-spread premiums, and mandates licensing for mortgage brokers. The banking industry opposes the bill--particularly a provision that permits states to impose stricter regulations--and insists that borrowing costs will rise and mortgages will be more difficult to obtain. It is uncertain when a similar bill will be proposed by Senate Banking Committee Chairman Christopher Dodd (D-Conn.), but he says it is in the works.
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Lenders to Home Buyers Tighten Further
Wall Street Journal (11/06/07) P. A2; Reddy, Sudeep
The Federal Reserve's recent survey of senior loan officers at 52 domestic and 20 foreign banks reveals an increase in the number of institutions imposing stricter mortgage underwriting standards due to economic uncertainty, less of an appetite for risk, and reduced secondary market liquidity. The number of banks with more stringent standards for prime mortgages rose to 40 percent in the October survey from 15 percent in July, while the number of banks tightening criteria for nontraditional mortgages climbed to 60 percent from 40 percent over the same time span. Meanwhile, the number of banks offering subprime loans that tightened lending standards held steady at about 56 percent. The survey also indicates a drop in jumbo-loan originations at 45 percent of the banks polled.
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Banks Fear Democrat Bids to Aid Mortgage Borrowers
Wall Street Journal (11/05/07) P. A6; Paletta, Damian
The mortgage industry is concerned about legislation sponsored by U.S. Reps. Brad Miller (D-N.C.) and Linda Sanchez (D-Calif.) that would permit mortgage interest rates, lengths, and balances to be revised by bankruptcy judges to help struggling borrowers avoid foreclosure. Industry representatives warn that such a move would make it more difficult for certain borrowers to obtain financing because the market will react by building in hedges against risk, such as by hiking interest rates and down-payment requirements. Additionally, there are concerns that lawmakers might respond to the measure by further scaling back the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 by providing relief to cash-strapped borrowers on other types of debt. The bill is up for consideration by the House Judiciary Committee; and while observers have noted GOP opposition to the legislation, rising foreclosures in the Midwest and other regions could prompt some lawmakers to change their minds.
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Governor OKs New Mortgage Counseling
Chicago Tribune (11/03/07)
Illinois Gov. Rod Blagojevich has signed legislation that alters a measure that mandates mortgage counseling for certain home buyers in Cook County, Ill. Mortgage brokers are also required to adhere to stricter disclosure requirements. The new law obviates HB 4050, which Blagojevich suspended earlier this year due to allegations that the law unfairly required counseling in areas with large minority populations. The new law has some sections applicable to Cook County and others that apply to the state as a whole. Beginning June 1, brokers across the state will be required to fully disclose certain material facts about the loans, including how brokers will be remunerated. Beginning July 1, the law will mandate that first-time home buyers and refinancers in Cook County who get an interest-only loan receive counseling. Counseling will also be required for people who receive loans with negative amortization, prompting the principal to rise; loans with points and fees that amount to more than 5 percent of the loan; loans with a prepayment penalty; and adjustable-rate mortgages of three years or less. Brokers are concerned that the strict disclosure requirements will create administrative delays. They are also concerned about a $300 counseling fee to be paid by the broker.
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Banks, CUs to Fill Payday Gap? Maybe
American Banker (11/07/07) Vol. 172, No. 215, P. 1; Carr, Matt
While payday lending is close to being banned in Washington, D.C., consumers will continue to require access to brief, emergency loans. As such, credit unions are promoting what they refer to as inexpensive options to the typical payday loans, and consumer-finance companies are providing products that could be appealing to individuals who have utilized payday lenders. There is no certainty, though, that such loans are lucrative. A North Carolina credit union, for instance, has made over $800 million of "salary-advance" loans since the start of 2001 and continues to lose money on them. Washington, D.C.'s Payday Loan Consumer Protection Act, which would cap the yearly percentage rate on payday loans at 24 percent, is currently before Congress, and would probably take effect by Jan. 8 if approved. Payday lenders in the city have contended that the caps would stop them from making money on loans and would probably terminate their businesses in Washington. They add that consumers would feel the impact since they would have less choices for short-term, small loans. Microfinance International Corp. spokeswoman Yasuko Fumoro states her company provides a consumer product that could be an alternative for Washington's inhabitants in the form of a loan that has a 24 percent interest rate and ranges from $500 to $3,000, which consumers could pay back in installments.
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FDIC OKs a FACT Act Proposal
American Banker (11/06/07) Vol. 172, No. 214, P. 4; Sloan, Steven
The Federal Deposit Insurance Corp. (FDIC) has signed off on a proposal that would activate a Fair and Accurate Credit Transactions Act provision. Under the proposal, organizations would be required to provide data to a credit bureau to probe consumer disputes; however, the provision does not require companies to supply a consumer's history of employment or some other form of investigation of claims outside of its jurisdiction. The proposal also gives a company the right to turn down a request to investigate a dispute it considers "frivolous or irrelevant" so long as it notifies the consumer within five days. The notice of proposed rulemaking would also force companies to draft written policies and protocol to make sure the credit information passed on is accurate.
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E-Finance Is the Latest Mantra
24-7PressRelease.com (11/05/07)
As online banking has expanded, many banks have begun offering Internet-based loans. Complex loans that used to take days or weeks can now often be processed in minutes. Auto loans, personal loans, debt loans, and refinancing loans are among the products being offered by a number of financial institutions. Like any Internet transaction, online loans are not without risks. Consumer privacy, fraud, and identity theft are just a few of the major concerns lenders must face when preparing to offer Internet loan services. Despite the risks, many consumers are attracted by the convenience and speed of online processing. For this reason, banks like Citifinancial, HDFC, ABN Amro, and IDBI have joined the Internet-loan revolution.
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VA Localities Push Lawmakers to Cap Payday Loan Interest Rates
Associated Press (11/04/07) Potter, Dena
Approximately one dozen localities in Virginia have adopted resolutions endorsing a 36 percent cap on consumer loans, and are calling on the state's General Assembly to reconsider its anti-cap stance. The city of Staunton was the first to pass such a resolution, which aims to protect consumers from exorbitantly high interest rates. However, payday lenders say a ceiling of 36 percent would prevent them from charging over $1.38 for each two-week, $100 loan. Currently, for every $100 loaned up to $500, the industry charges $15. The figure translates to a 400 percent annual interest rate, but industry advocates say the figure is misleading, as the fee does not accumulate. Industry supporters also point out that needy individuals use payday loans when they experience a temporary financial crisis, because they do not possess credit. In 2006, almost 434,000 individuals obtained payday loans in Virginia, according to the Bureau of Financial Institutions. Some legislators would prefer to reform the industry rather than institute the 36 percent cap, but the pro-cap movement is gaining momentum, with dozens of additional localities considering passing pro-cap resolutions.
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Experian Provides Used Market Overview by Risk Scores
SubPrime Auto Finance News (11/06/2007) Reed, Jennifer
New research compiled by Experian Automotive finds that the nation's top 10 lenders accounted for 30.31 percent of all financed used vehicles in July, but according to Experian Automotive Credit director Melinda Zabritski, their patterns differed. "GMAC, Toyota Financial Services, DaimlerChrysler Financial Services, and American Honda Finance dominated in the prime lending space with more than 50 percent of their volume comprised of this low risk segment," she said. On the flip side, Capital One Auto Finance, AmeriCredit Finance Services, and CitiFinancial Auto catered to the below subprime risk tier. Analysis also showed a change in the consumer composition in the prime risk and below subprime risk categories.
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Betting on Subprime Auto Loans While Others Run Away
Credit Union Journal (11/05/07) Vol. 11, No. 44, P. 30; Messmore, Scott
Subprime auto lender FORUM Credit Union has speeded up the time it takes for the company to approve car loans by employing its FORUM Solutions, which provides a solution known as TAPS Enterprise Lending Software to outside credit unions to automate their lending procedures. Besides underwriting, TAPS provides cross-sell suggestions, specially tailored business regulations to promote tiered pricing, and total incorporation of reports and forms. In regard to auto loans, TAPS interfaces with car sellers via DealerTrack. The business protocols released inside TAPS then automatically send applications it labels as subprime to the scoring model provided by Capital Lending Strategies to rapidly offer an approval or rejection, as well as produce a loan rate. Subprime loans at FORUM are currently handled in under five minutes, as opposed to an hour. As such, the credit union is predicting growth of more than $25 million in outstanding subprime car loans. The portfolio's delinquency rate is 5.07 percent and its charge-off ratio is 0.87 percent, generating a 16.25 percent gross yield.
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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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