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November 15, 2007
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Decision Comes in Price v. Wells Fargo Case
AFSA Submits Comment Letter to FTC on Debt Collection
Welcome New AFSA Members!
AFSA Urges House to Vote Against H.R. 3915
GMAC Financial Services Announces Key Executive Appointments
Daimler Financial Services Americas Announces Restructure
Stuff a Bus Campaign Is Great Way to Help the Hungry at Thanksgiving
Growth in Gift Cards Slow as Recipients Get Selective
Heavy Debit Card Use Raises Fraud Alerts
White House Objects to Parts of Mortgage-Reform Bill
Mortgage Crisis Extends Its Reach
Fed Chairman Forecasts Slowdown in U.S. Economy
Panel Likely to Back Student Loan Changes
N.Y. Test Paying Unbanked to Start Saving
The Price of Payday Lending
Legal and Illegal, Welcome
7 Bright Ideas: Virtual Finance
Dodd: Draft ILC Bill Will Be Ready Within Days
Auto Industry Version of L2C Score
An In-Depth Look Into Final Red Flag Regulations
7 Bright Ideas: Auto Savings
Decision Comes in Price v. Wells Fargo Case
On November 14, the U.S. District Court for the Eastern District of North Carolina issued a decision that both affirmed and disagreed with the lower court in the case of Price v. Wells Fargo. (AFSA had filed an amicus brief in this case that was written by Professor James J. White.) The court did find that the bankruptcy court was correct in concluding that negative equity and gap insurance do not come within the definition of “purchase money obligation.” Thus, they cannot give rise to a purchase money security interest.
The court also disagreed, however, with portions of the bankruptcy court ruling and found that “the dual status rule preserves the purpose of the hanging paragraph for vehicle transactions – protecting the creditor from having its secured claim reduced by rapid depreciation of collateral – whereas the transformation rule would completely undermine the hanging paragraph whenever negative equity was rolled in.” In short, the court applied the dual status rule instead of the transformation rule.
AFSA commends Judge Small for reversing, at least part, the bankruptcy court’s decision.
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AFSA Submits Comment Letter to FTC on Debt Collection
On November 13, AFSA submitted a comment letter to the Federal Trade Commission over the issues involved in the Fair Debt Collection Practices Act (FDCPA). AFSA noted its members have greatly expanded the availability of credit to American consumers, largely on the basis of risk-based pricing.
However, unforeseen changes in debt collection business models, the unimagined rapid evolution of communications technologies, and changes in the quality and quantity of debt owed by our nation’s citizens have combined to demand revisions to the FDCPA. Therefore, AFSA wrote that its members believe statutory revisions and new statutory structures would assist the Commission in fulfilling it mission of protecting consumers, while assisting in the effectiveness of the FTC and making its original goals more easily attainable in the 21st Century.
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Welcome New AFSA Members!
Active Membership
Brent D. Fuselier, President
Delta Financial Services
Zachary, LA
www.deltamortgageservices.com
Associate Membership
Michelle Dicks
Insurance and Legal Counsel
OwnerGUARD Corporation
San Diego, CA
www.ownerguard.com
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AFSA Urges House to Vote Against H.R. 3915
In anticipation of today’s House vote on the “Mortgage Reform & Anti-Predatory Lending Act (H.R. 3915), AFSA sent a letter this week to all members of the House of Representatives urging them to vote “no” on final passage of the measure.
The AFSA concerns with the bill include its failure to establish a national uniform standard that expressly preempts state law; the creation of highly subjective duties for lenders that would leave them significantly exposed to potential liability;and anti-arbitration provisions. Please check the AFSA Web site for the most up-to-date information on the pending legislation.
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GMAC Financial Services Announces Key Executive Appointments
Residential Capital News Release (11/13/07)
GMAC Financial Services CFO Sanjiv Khattri will be named executive vice president of corporate development and strategy, beginning Dec. 3. He will report to GMAC CEO Eric Feldstein, as he does currently. Khattri will be responsible for strategic planning and business development. He will continue as CFO of GMAC Residential Capital, LLC (ResCap) and will remain a member of the GMAC executive committee and ResCap board of directors.
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Daimler Financial Services Americas Announces Restructure
SubPrime Auto Finance News (11/13/2007)
Daimler Financial Services Americas announced on Nov. 12 its intentions to restructure its Mercedes-Benz Financial Sector. Employees from the Daimler Truck Financial sector and other Mercedes-Benz Financial employees will be relocated to a central office outside of Fort Worth, Texas. The 204,000 square foot operation will be the new home of 180 Daimler Truck employees, 440 Mercedes-Benz Financial employees from nearby Westlake, Texas, and 38 other Mercedes-Benz Financial workers from around the nation.
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Stuff a Bus Campaign Is Great Way to Help the Hungry at Thanksgiving
Daily Record (Maryland) (11/09/07)
CitiFinancial is among the corporate sponsors of this year's Maryland Food Bank "Stuff a Bus" campaign. On Nov. 17 and 18, CitiFinancial volunteers will pack donated nonperishable food items onto a Maryland Transit Authority bus. The items will be donated to the food bank Nov. 19. CitiFinancial is the primary underwriter of the campaign's radio advertising efforts and collects food at its headquarters and area branches.
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Growth in Gift Cards Slow as Recipients Get Selective
USA Today (11/14/07) P. B1; Fetterman, Mindy
After four years of growth, the National Retail Federation (NRF) says gift card growth will taper off this year. Although gift card sales are expected to increase 6 percent to $26.3 billion in 2007, the performance pales when compared to the 35 percent growth the market posted in 2006. The decline comes in the wake of a TowerGroup report that found that U.S. consumers lost $8 billion in 2006 from unredeemed gift cards. Market researchers attribute the trend to teens and pre-teens becoming more finicky. "Kids are getting bored with gift cards," says Candace Corlett of WSL Strategic Retail, a consulting firm. "Kids want fewer cards with more [money] on them," she says. Alternatively, they want cash-equivalent cards that they can use for the movies or to gas up the car. However, this does not mean that gift cards are on the way out. Of about 8,000 consumers polled by NRF, 88 percent said they intend to purchase two or more gift cards this year.
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Heavy Debit Card Use Raises Fraud Alerts
Boston Globe (11/13/07) Kerber, Ross
Consumers are increasingly using signature-based debit cards instead of credit cards to make purchases, although such transactions generate much more fraud than PIN-based debit. According to Bankrate.com, there were 26.6 billion debit card transactions in the United States last year, compared with 24.4 billion credit card transactions. Most debit card transactions are signature-based transactions, due in large part to the fact that the debit card rewards programs that many financial institutions have encourage customers to sign for their debit card purchases rather than enter their PIN. Financial institutions prefer that consumers use the signature option for debit card purchases because they make more money in fees. However, signature-based debit card transactions also generate much more fraud for financial institutions than PIN-based debit transactions, since it is easy to forge a signature but hard to steal a PIN electronically. Gartner analyst Avivah Litan says the fact that financial institutions are promoting signature-based debit transactions despite their higher rate of fraud shows that they are more concerned about maximizing their revenue than in having consumers use secure payments. However, TD Banknorth's Jeffrey Nathanson rejects that claim, noting that PIN transactions have their own risk of fraud as well.
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White House Objects to Parts of Mortgage-Reform Bill
Washington Post (11/15/07) P. D3; ElBoghdady, Dina
As the House of Representatives prepared for a Nov. 15 vote on mortgage-reform legislation, the Bush administration released a brief statement criticizing portions of the proposal. While bill sponsor Barney Frank (D-Mass.) won bipartisan backing for his effort to curtail unscrupulous lending practices, the White House takes exception to several provisions that also have been challenged by banking interests. Like the mortgage industry, for example, it does not support what it says are "subjective" rules requiring lenders and loan brokers to provide financing only to borrowers who can repay the money. "Any legislation addressing mortgage origination should be mindful of the need to strike the right balance between consumer protection and the consumer's ability to access credit," the White House said in its statement, which bill co-sponsor Brad Miller (D-N.C.) denounced as a "long list of criticisms and demands that are a rote recitation of the worst actors in a crooked business." The Bush administration, he added, has "had nothing constructive to say about this process for seven years."
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Mortgage Crisis Extends Its Reach
Wall Street Journal (11/13/07) P. A1; Hagerty, James R.
The subprime mortgage fallout has made private lenders hesitant to underwrite new mortgages, leaving the government-sponsored entities (GSEs) to pick up the slack. In such an environment, borrowers no longer have easy access to funds and must adhere to strict down-payment requirements and income and credit guidelines. The shift toward government reliance is evident in the fact that lenders increasingly are turning to the Federal Home Loan Banks for funding and are depending more on deposits insured by the Federal Deposit Insurance Corp. Meanwhile, federal lawmakers are no longer arguing that Fannie Mae and Freddie Mac are too big but instead are considering legislation that would allow them to purchase mortgages above the conforming loan limit of $417,000 and relax restrictions on their portfolios. Noting that the GSEs maintained liquidity in the mortgage market even during its low point this summer, Wharton School finance professor Susan Wachter says, "If these government-related entities were not in place, this [mortgage-default crisis] would be a disaster of far greater proportions."
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Fed Chairman Forecasts Slowdown in U.S. Economy
Washington Post (11/09/07) P. A1; Irwin, Neil
U.S. Federal Reserve Chairman Ben Bernanke told the Joint Economic Committee on Nov. 8 that the economy will slow through the first six months of next year, as weakness in the housing and financial markets spread to retail sales and technology stocks. Sen. Charles Schumer (D-N.Y.) committee chairman, urged Bernanke to take aggressive action to curtail mortgage foreclosures by issuing regulations that would outlaw what he calls "irresponsible" mortgages and encourage the Bush administration to earmark funds for nonprofit housing organizations to assist struggling borrowers. "A laissez-faire, hands-off attitude might be appropriate if we had any one of these crises alone, but, confronting all of these problems at once should be a call to action because the danger we face is so much greater," said Schumer. Bernanke, however, urged lawmakers to approve legislation that would reform the Federal Housing Administration so that more subprime borrowers could refinance out of adjustable-rate mortgages and avoid the payment shock when rates reset. Among other things, the legislation would boost the ceiling on insured mortgage amounts.
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Panel Likely to Back Student Loan Changes
Boston Globe (11/14/07)
The House education committee is expected to approve a new bill designed to help reform the student loan industry. Under the new legislation, lenders and colleges would be required to provide students and parents with more information about borrowing. The bill also lays out new guidelines for the student loan process for both colleges and lenders, including a specific mandate addressing tuition inflation at colleges. The bill is expected to pass easily in the House, and a similar version has already been passed by the Senate. Before it is signed into law, a few differences between the two versions will have to be ironed out.
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N.Y. Test Paying Unbanked to Start Saving
American Banker (11/14/07) Vol. 172, No. 219, P. 9; Launder, William
Underbanked New York City residents are participating in a new program that encourages them to save by opening savings accounts at selected banks and credit unions. Privately funded by various nonprofits, and backed by Mayor Michael Bloomberg, the antipoverty program is already generating positive results in test pilots. Carver Bancorp, one of eight lenders participating in the program, reports that it is cross-selling other financial products to 30 percent of the 245 people enrolled in the program. Carver was one of eight institutions to create no-fee accounts for hand-selected participants, who receive $50 to open an account. Since the program began, approximately 820 accounts have been opened by 2,500 families at the eight lenders.
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The Price of Payday Lending
Concord Monitor (NH) (11/11/07) Davidson, Kate
The New Hampshire Legislature is expected to consider a bill in 2008 that would cap interest rates on payday and title loans, but how much to limit these types of short-term loans is still in question. The House Commerce Committee recommended a bill that would cap payday loan interest rates at 391 percent per year. The same bill would only allow title loans to accrue 268 percent interest annually. In spite of the committee's decision, consumer advocates are pushing hard for a version of a bill that would cap these types of loans at 36 percent. Supporters say the bill would have a tough fight on the floor of the Legislature, but they believe they have the backing to reverse the committee's decision. Furthermore, they argue that allowing these kinds of high-interest loans leaves vulnerable consumers open to becoming trapped by debt. Most other states in the Northeast, including Vermont, Massachusetts, Connecticut, Rhode Island, and Maine, have already restricted payday loans or banned them outright. The U.S. Military has also instituted a similar cap for all service personnel. For their part, payday lenders argue that short-term loans are sometimes the only way for those with little or no credit to get access to cash quickly. To institute a rate cap, many say, would likely put them out of business. Whether the pleas of payday lenders or consumer advocates will win out next year remains to be seen, but it is shaping up to be a difficult battle in New Hampshire either way.
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Legal and Illegal, Welcome
Wall Street Journal (11/10/07) P. B1; Jordan, Miriam
The political controversy surrounding illegal immigration has forced large banks to steer clear of serving illegal immigrants, but a growing number of small banks are surfacing to cater to the U.S. Hispanic population. Since 2005, approximately 25 banks that are intended for Spanish-speaking customers have opened or are scheduled to open, particularly in California and the Southeast. The new banks provide nontraditional services to such customers, such as financial literacy and mentoring services, with the long-term goal of helping customers begin to build credit and, eventually, apply for loans. At Banco BuenaVentura in California, bilingual employees help immigrants pay bills, fill out tax forms, and cash checks. Banco BuenaVentura, like many of the new banks, was conceived of by a former big bank executive: James Montgomery, former chief executive of Great Western Bank, who says his bank will satisfy "an unfulfilled need in the marketplace." Indeed, roughly one-third of the 40 million Hispanics living in the United States do not possess a bank account at a federally insured institution, according to the Federal Deposit Insurance Corp. (FDIC). C. Mark Arnold, a former Bank of America investment banker, researched banking regulations before opening Nuestro Banco in North Carolina, and found that no U.S. law prohibits offering services to anyone who desires them, regardless of their legal status. Moreover, the FDIC praises the trend of new banks emerging in immigrant communities. Still, the new banks emphasize that they are not specifically recruiting undocumented immigrants.
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7 Bright Ideas: Virtual Finance
Credit Union Journal (11/05/07) Vol. 11, No. 44, P. 46; Moed, Joyce
A number of product and service innovations were recently developed for implementation at credit unions. One of these innovations, Virtual Finance, entails attracting and instructing Generation Y members about important financial information. While not yet on the market, the first phase of the program will include the establishment of a Web site to handle registration online at Teen Second Life and a Web portal to Virtual Finance. In addition, it will include the creation of a prototype credit union "island" inside Teen Second Life, including an orientation section, credit-union branch, stock-market figures, and additional economic tools. The program's second phase involves incorporation of the first phase's prototype with credit union Web sites and a financial game, as well as the creation of a virtual ATM system that players can utilize to set up virtual accounts with a credit union.
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Dodd: Draft ILC Bill Will Be Ready Within Days
American Banker (11/15/07) P. 1; Adler, Joe
Sen. Christopher Dodd (D-Conn.), chairman of the Senate Banking Committee, expressed on Nov. 14 his intention to soon issue draft legislation to settle the debate over industrial loan company (ILC) ownership before a Jan. 31 regulatory deadline. "In the coming days, Chairman Dodd intends to release a discussion draft of ILC legislation for Committee members to consider over the two-week recess," stated Dodd's office in a press release. "The draft's release represents the next step towards the goal of enacting legislation prior to the expiration of the [Federal Deposit Insurance Corp.'s] moratorium on Jan. 31st." Dodd made his promise in response to Sen. Robert Bennett's (R-Utah) statement that an ILC bill would not happen before February primarily due to Dodd's presidential campaigning activities. "Given the inaction of the Senate Banking Committee ... we will obviously pass the time of the moratorium, rather than a bill having emerged," Bennett said. Bennett expressed his willingness to accept legislation with some limits on the industry to appease House legislators and others who wish to halt the practice among commercial firms of offering retail banking via ILCs. "We're very hopeful that there will be an ILC bill before the moratorium expires, and we're working hard to that end," said Independent Community Bankers of America President Camden Fine.
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Auto Industry Version of L2C Score
American Banker (11/09/07) Vol. 172, No. 217, P. 6; Berry, Kate
The auto industry can now determine scores for customers lacking standard credit histories, thanks to a new version of L2C's Link2Credit Score tool. The new version's score comprises data from as many as seven alternative sources pertinent to the auto industry. Using credit report records, auto lending performance, alternative data sources, and a group of proprietary algorithms, L2C produces a metric that enables auto lenders to accurately appraise the risk connected with lending to "thin file" customers.
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An In-Depth Look Into Final Red Flag Regulations
SubPrime Auto Finance News (11/08/2007) Reed, Jennifer
Industry watchers say red flag regulations will dramatically affect how automobile dealers and finance companies do business. With the last of the final regulations released Nov. 1, red flag regulations, also known as the Identity Theft Red Flags and Notices of Address Discrepancy rule, were drafted in response to the President's Identity Theft Task Force and apply to both finance companies and dealers. Akin to advertising regulations, red flag rules require finance companies and dealers to prove they have an established protocol in place to follow the rules if sued or investigated. Attorney Mike Goodman notes that many businesses "have already been doing a lot of what is required to comply with this new rule. One new step will be to formalize and document that effort." Goodman says finance companies are covered by the new rule, because the rule is applicable to the maintenance of a covered account. Goodman suggests that finance companies and dealers work together to minimize any "duplication of efforts in running their Identity Theft Prevention program."
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7 Bright Ideas: Auto Savings
Credit Union Journal (11/05/07) Vol. 11, No. 44, P. 46; Moed, Joyce
Several product and service innovations, currently available for installation at credit unions, have been created by teams comprised of the Filene Research Institute's i3 Group's members. These upgrades include Auto Savings. Auto Savings is a program that encourages forced savings by providing members the choice of signing a deal to add a particular monetary amount to every car-loan payment that is be placed in a savings account. The program's basis is the realization that numerous Americans merely "exist" between paychecks and are always close to economic ruin.
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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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