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October 25, 2007
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TO: AFSA Annual Meeting Registrants From AFSA CEO
Based upon the latest information received today from San Diego authorities, we are moving forward with AFSA’s Annual Meeting and Leadership Conference at the Four Seasons Aviara. AFSA’s staff will begin arriving tomorrow in San Diego and looks forward to seeing you there.
I am including correspondence from Robert Cima, General Manager of the Four Seasons Aviara, providing an update on the situation. In his message, Mr. Cima provides the City of Carlsbad’s Web site for member companies interested in updates about local air conditions.
In addition, we are looking into an arrangement that will allow AFSA member companies and individuals to make on-site donations to a charity providing relief to local residents affected by the fires. More details will be provided once we have them.
If you have any questions, please feel free to contact me at 202-466-8614 or cstinebert@afsamail.org.
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Dear Chris,
You most likely are aware of the fire activity in the Greater San Diego region. Despite earlier concerns, the Four Seasons Resort Aviara continues to provide the Four Seasons experience to the guests currently in-house with us. There has been some smoke and residue in the area from the fire, however our restaurants are welcoming guests and local clients, our golf course has lots of activity and is green and lush, our pools are open and families are enjoying them.
We are fortunate that our San Diego Coast line has been spared from any fire activity and the San Diego International Airport, the World Famous San Diego Zoo and other attractions remain open.
Officials have lifted the earlier precautionary evacuations in our well known neighboring coastal towns as the current winds have returned to normal and the ocean breezes are helping to clear the air. We are optimistic that there will be no disruptions in our area. If you have concerns about the fire activity or associated air quality issues, please visit the City of Carlsbad's website at http://ci.carlsbad.ca.us/
Our entire staff is poised and eagerly looking forward to your visit.
If we may be of further assistance, please do not hesitate to call on us.
Best regards,
Robert
Robert D. Cima
Regional Vice President and General Manager
Four Seasons Resort Aviara
7100 Four Seasons Point
Carlsbad, CA 92011
phone: (760) 603-6860
fax: (760) 603-6822
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House Financial Services Committee Holds Hearings on Chairman’s Legislation
Welcome New AFSA Members!
Countrywide and NACA Announce Groundbreaking Initiative to Help Borrowers Preserve Homeownership
Bills Expand Advertising Options for Companies
Decoupled Debit Presents Threats and Opportunities to Banks
Class Action Takes Aim at Common Debt Practice
Critiquing Fed's Card Disclosure Proposal
Brakes Slammed on Effort to Alter Bankruptcy Law
More Debtors Use Bankruptcy to Keep Homes
Lenders Curb New Mortgages in Weaker Areas
Bill Would Tighten Mortgage Standards
Parsing Candidates' Student-Loan Proposals
Borrowing Between Friends Just Got Easier
Panel Votes Against Bill Curbing Rates on Loans
Payday Loan Shops Fight Back
Helping Clients Build Credit
CPS Purchases More Contracts This Year
Not to Be Left Out, CPCU Offers 'Hoopty' Auto Loans
US Loan Default Problems Widen
House Financial Services Committee Holds Hearings on Chairman’s Legislation
In written testimony submitted on October 24, AFSA noted that the “Mortgage Reform & Anti-Predatory Lending Act” (H.R. 3915), sponsored by Chairman Barney Frank (D-MA), could actually eliminate certain product choices for borrowers and thus, worsen the current foreclosure problem.
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Welcome New AFSA Members!
James Parrish
Managing Partner
Eastern Carolina Auto Finance LLC
Wilmington, NC
Louise Kelly
President & CEO
EnerBank USA
Salt Lake City, UT
www.enerbank.com
Robert W. Aiken
President & CEO
Lendmark Financial Services, Inc.
Covington, GA
www.lendmarkfinancial.com
Thad Peterson
Division Vice President
Maritz, Inc.
St. Louis, MO
www.maritz.com
Scott A. Wisniewski
President & CEO
Western Shamrock Corporation
San Angelo, TX
Dennis L. Wise
Manager Member
Wise Finance, LLC
Springfield, IL
Michelle Dicks
Insurance and Legal Counsel
OwnerGUARD Corporation
San Diego, CA
www.ownerguard.com
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Countrywide and NACA Announce Groundbreaking Initiative to Help Borrowers Preserve Homeownership
PRNewswire (10/23/07)
Countrywide Financial and the Neighborhood Assistance Corp. of America (NACA) have announced a new initiative to reach out to struggling homebuyers. The initiative will leverage Countrywide's home retention programs and NACA's model for counseling borrowers. Among the options consumers will be able to take advantage of are payment plans, modification, refinancing, and restructuring. Countrywide already contacts borrowers who are in financial difficulty, but many borrowers are reluctant to talk to their lenders. NACA, a nonprofit counseling agency, offers an alternative form of assistance.
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Bills Expand Advertising Options for Companies
Pantagraph (10/21/07) Lawton, Christopher
Ford Motor Co.'s Ford Motor Credit automotive-financing unit has begun using "transpromotional marketing," a new strategy in which promotional offers are printed directly onto statements or bills. In 2006, the division switched from invoices preprinted on company-branded paper to color invoices patterned on the customer's vehicle preference. Using data gathered on customers, Ford Motor Credit incorporates customized service reminders, financing deals, and new car offers into the 200,000 invoices printed daily. According to Dennis McClure of Ford Motor Credit, the change was motivated by color printing's falling cost and by the rising quality and speed of the printouts. Though more expensive than utilizing pre-printed forms, Ford Motor Credit sees transpromotional marketing as a valuable investment, according to a company spokesperson. Indeed, the new invoices demonstrate that Ford Motor Credit appreciates and safeguards its relationship with its customers, as the new tactic stops the company from "inundating them with meaningless communication," says McClure.
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Decoupled Debit Presents Threats and Opportunities to Banks
Bank Systems & Technology (10/23/07) Bruno-Britz, Maria
Non-bank entities can now issue uncoupled debit cards through NACHA's automated clearing house network. This new form of payment could pose a major threat to banks' monopoly on the debit card business. For this reason, some banks are themselves getting into the uncoupled debit card market. There is some risk in using uncoupled debit cards, since, unlike traditional debit cards, there is no way of immediately knowing if the money is actually in the account. However, the far greater risk for banks is getting left behind in this market.
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Class Action Takes Aim at Common Debt Practice
American Banker (10/23/07) Vol. 172, No. 204, P. 7; Jalili, H. Michael
A class action suit charges Midland Credit Management with breaching the Fair Debt Collections Practices Act by disclosing a delinquent debtor's information to a potential card issuer. The Fair Debt Collections Practices Act bars communication about debt collection between a debt collector and anyone who is not the debtor or creditor, unless the debtor has given his or her consent. Midland was also charged with "threatening" to impart debtors' data to third parties in a March 2007 class action; an Illinois federal court ruled against Midland in that case. Jonathan D. Jerison of Buckley Kolar LLP contends that plaintiffs in both Midland cases interpreted the law in a "very technical" way to challenge debt collectors' technique of seeking out a source of financing for the debt to be repaid. Indeed, the 1978 law merely aimed to avert the harassment or embarrassment of consumers, says Jerison. In addition, orchestrating the shift of a charged-off balance to a new credit card, as Midland did, is a common industry practice, according to Jerison.
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Critiquing Fed's Card Disclosure Proposal
American Banker (10/22/07) Vol. 172, No. 203, P. 1; Adler, Joe
The Federal Reserve Board's plan to overhaul credit card disclosures has been met with objections from many financial institutions, though such critics also admit that they prefer the Fed's proposal to other, stricter bills pending in Congress. Still, banks argue that certain plan provisions may compel bankers to raise their rates. For example, a rule that would require financial institutions to inform customers 45 days in advance of a penalty rate hike could oblige some issuers to raise rates to offset their inability to make risk-based adjustments to the account terms as needed, according to Discover Bank President Christina Favilla. The 45-day change-in-terms issue is contentious, and some argue that the Fed should go further and establish an opt-out provision for penalty rate increases. Others argue that an opt-out provision would be redundant, as many state laws already include a similar stipulation. Financial institutions were in accordance, however, in lobbying the Fed to eliminate the obligation to divulge the "effective" annual percentage rate. Overall, the financial industry supports the Fed's proposal, unlike some consumer groups that feel the proposal is too soft on practices considered misleading or unfair. Credit unions and the National Credit Union Administration denounced the proposal the most strongly, calling it onerous. Consumers, on the other hand, commended the Federal Reserve Board for working to enhance transparency and clarity.
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Brakes Slammed on Effort to Alter Bankruptcy Law
American Banker (10/25/07) P. 3; Sloan, Steven
More than a dozen Blue Dog Democrats and eight Republican lawmakers want efforts to push through bankruptcy reform legislation slowed down, prompting the bill from Rep. Brad Miller (D-N.C.) that would permit modification of primary mortgages during bankruptcy proceedings to be pulled from the list of measures under consideration by the House Judiciary Committee on Oct. 24. The Blue Dogs--a group of conservative Democrats--are concerned that the legislation would result in an unwarranted alteration of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Observers believe the mortgage industry will approve of the delay, because there are concerns about the impact of bankruptcy reform on the value of mortgage portfolios. According to a letter to the House Financial Services Committee by the eight Republican members who oppose the bill, "Mortgage originators will no longer be sure that the money they lend is truly secure. This uncertainty will require higher interest rates and larger down payments to offset the risk and will push many lenders out of making certain mortgages."
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More Debtors Use Bankruptcy to Keep Homes
Wall Street Journal (10/23/07) P. A1; Merrick, Amy
The American Bankruptcy Institute reports a nearly 23 percent jump in bankruptcy filings during the year-over-year period ended in September and a 44.76 percent increase during the first nine months of 2007 from the corresponding period last year. The number of debtors filing for Chapter 13 bankruptcy rose to 40 percent from 30 percent in 2005, which experts attribute to attempts to delay foreclosure proceedings; Chapter 13 filings have risen dramatically in the most troubled housing markets--including California, Massachusetts, and the Chicago area. Congress presently is considering proposals to revamp the Bankruptcy Code so that mortgages on primary residences can be restructured, which some lenders believe would make it more difficult for low-income borrowers to obtain financing and also would reduce the value of mortgage-backed securities. Experts say Chapter 13 is a viable option for homeowners only when difficulties making mortgage payments are tied to temporary financial problems.
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Lenders Curb New Mortgages in Weaker Areas
Wall Street Journal (10/23/07) P. D1; Simon, Ruth
Following an across-the-board tightening of lending criteria in response to the slowdown in the residential property sector, major mortgage providers now are becoming ultra-selective about which borrowers to fund in weakening housing markets like Florida and California. In these areas, which are characterized by declining home values, lenders are lowering the ceiling on how much borrowers can finance and also are more closely scrutinizing appraisals. Right now, most borrowers can skirt the tougher restrictions by simply approaching another lender; however, as more and more lenders adopt the new policies, even consumers with solid credit histories could find it increasingly difficult to arrange a mortgage unless they have a substantial down payment.
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Bill Would Tighten Mortgage Standards
Washington Post (10/23/07) P. D3; ElBoghdady, Dina
Legislation proposed by House Financial Services Committee Chairman Barney Frank (D-Mass.) aims to reform the mortgage process to curtail foreclosures. Among other stipulations, the bill would prohibit prepayment penalties on subprime mortgages, ban yield-spread premiums, require bank loan officers and mortgage brokers to be licensed, and allow borrowers to file suit against securitizers to rescind mortgages made in violation of the law. The banking industry is especially concerned about a provision mandating that lenders and brokers select the best product for borrowers and ensure that they can repay the loans. One expert questions, "What is the best product, and is that the same for every one and how is it going to be determined?" He notes that litigation will likely arise from confusion about a lack of standards for all borrowers.
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Parsing Candidates' Student-Loan Proposals
Wall Street Journal (10/25/07) P. D1; Chaker, Anne Marie
Disintermediating the college loan process to boost loan affordability is a plan promoted by Democratic presidential front-runners, and commercial banks and lenders are obviously unhappy with such proposals. A plan by Sen. Hillary Clinton (D-N.Y.) seeks to eliminate the Federal Family Education Loan (FFEL) program, which gives commercial lenders subsidies to issue federal loans to students; the program's removal was also included in proposals made by former Sen. John Edwards (D-N.C.) and Sen. Barack Obama (D-Ill.). With FFEL's phase-out, the exclusive provider of federally supported student loans would be the William D. Ford Federal Direct Loan program, which permits students to borrow directly from the federal government via their school's financial-aid office. The argument goes that the dissolution of FFEL would enable students to receive the same amount of financial aid at basically the same terms while saving taxpayers money by making it no longer necessary to subsidize commercial lenders. Lenders defend FFEL, claiming that its benefits far outnumber those offered by the Direct Loan program, giving borrowers who make on-time payments rebates and rate reductions, for example. "Not only are you going to eliminate competition [if you get rid of FFEL], but there's another factor: What if the system fails?" contends one expert. Diane Jones with the Department of Education says maintaining both the FFEL and Direct Loan programs is essential, because families need loan options. Nelnet representative Eric Solomon says that in the long run, jettisoning the FFEL program "would eliminate choice, forcing schools to operate under one government-run program."
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Borrowing Between Friends Just Got Easier
Los Angeles Times (10/21/07) Kristof, Kathy M.
Loans granted to relatives or friends total roughly $89 billion each year. However, when such agreements fail to clearly delineate terms, payment plans, and payment options, problems often arise. A third party, like Virgin Money, can help by performing the calculations, filing mandatory paperwork like promissory notes, and preventing clients from accidentally violating arcane tax rules. Virgin Money will also talk the lender and borrower though various rates and payment options, and will suggest multiple options for dealing with missed payments. According to Asheesh Advani, CEO of Virgin Money, most of the company's loans enable the lender to earn more money than would have been earned on an annuity, despite the fact that most lenders choose to set rates at 2 percent to 3 percent less than market rates. Advani adds that retirees may be glad to bring in 5 percent on their money, particularly those who avoid the stock market. However, fees charged by the third-party loan administrator for facilitating the loan can range from $99 to $2,500, depending on the type of loan. Currently, Virgin Money coordinates personal loans, business loans, mortgages, and reverse mortgages, and will begin coordinating student loans in 2008.
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Panel Votes Against Bill Curbing Rates on Loans
Union Leader and New Hampshire Sunday News (10/19/07) Fahey, Tom
A New Hampshire House commerce subcommittee will advise the full House to reject legislation that would prohibit payday lenders and title lenders from charging 300 percent interest rates. The bill proposes capping interest rates at 36 percent. Some industry experts argue that such a cap would drive lenders out of business, and the subcommittee's majority agreed with such reasoning. Rep. Marshall "Lee" Quandt (R-Exeter) added that payday lenders will soon have to compete with the credit unions that are entering the short-term loan sector with substantially lower interest rates. Other critics of the ceiling note that borrowers depend on storefront lenders for swift access to cash for unexpected necessities like car repairs. A dearth of payday lenders could therefore force borrowers who lack credit cards or credit history to use other, potentially illegal methods for obtaining the money. However, the bill's co-sponsors, Rep. David Smith (D-Nashua) and Sen. David Gottesman (D-Nashua) vow to continue fighting to protect consumers. Smith and Gottesman are not satisfied with the subcommittee's passage of two other pieces of legislation aimed at strengthening state regulations governing such lenders, arguing that lenders will find and exploit the loopholes in any policy.
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Payday Loan Shops Fight Back
Birmingham Business Journal (10/18/07) Cooper, Lauren B.
The Alabama Council for Fair Lending, a group of over 200 cash advance lenders and title loan lenders, has launched a campaign to defend the industry's lending practices, the ethics of which have come under fire in recent years. Called "Borrow Smart Alabama," the campaign will be broadcast via radio commercials and television commercials, along with in-store instruction on achieving financial stability. Council spokesperson Charles Hunter says that advocacy groups striving to help low-income citizens of Alabama have misunderstood the payday loan industry, which serves individuals who need to reestablish their credit and who rely on loans from such lenders during financial emergencies. In addition, the council's members have pledged to operate their businesses with "fairness, honesty, and integrity in all practices." However, high-interest lending has received much negative press, which could result in state-mandated regulatory oversight and class-action litigation from consumers.
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Helping Clients Build Credit
Federal Reserve Bank of Boston (10/01/2007) P. 3; Frank, Vikki
Credit scores are a crucial factor in borrowers obtaining low interest-rate loans, but borrowers without a credit score run the same risk as those with poor scores of borrowing from high-cost lenders. Part of the problem is how the mainstream financing system is set up. Automated underwriting systems (AUS) and credit scores have become increasingly important in the credit assessment process over the last 10 years as regional and community banks have combined into giant national financial lenders. Changes in the lending landscape have forced the banking sector to rely more on credit scores and AUS, which tends to be less helpful to people without a credit score than to families with good scores. Lack of access to affordable credit means fewer opportunities to take advantage of competitive interest rates and safe loan products and an increased likelihood of using the services of payday and subprime lenders. In a bid to address the problem, Credit Builders Alliance has developed membership criteria for community lenders to report client repayments to credit bureaus, thus establishing a payment history for scoreless borrowers and making it easier for them to qualify for low-interest rate loans.
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CPS Purchases More Contracts This Year
SubPrime Auto Finance News (10/23/2007) Reed, Jennifer
Consumer Portfolio Services (CPS) reported that in the third quarter of 2007 it bought contracts from dealers valued at $340.2 million, versus $346 million in the second quarter and $254.4 million in the third quarter of 2006, and although third-quarter contract acquisitions were less valued than second-quarter acquisitions, CPS actually comes in above 2006's three-quarter total thanks to earlier contract purchases. According to executives, contract buys in 2007 represent a 30.7 percent gain compared to the same period last year. CPS' managed receivables amounted to $2.0531 billion as of Sept. 30, a 38.7 percent increase from $1.4807 billion as of Sept. 30, 2006. Third-quarter pretax income expanded from $4.3 million in the third quarter of 2006 to $6.3 million in 2007's third quarter, said CPS officials. Between third-quarter 2006 and third-quarter 2007, net income fell from $4.3 million to $3.7 million, although a provision for income tax expense was not included in the net income for the third quarter of 2006. Total revenues rose 39.4 percent to $102.8 million, while total operating expenses increased 38.8 percent to $96.4 million. Revenues increased approximately $86.1 million to $285 million for the nine-month time frame, and total operating expenses climbed $76.8 million to $267.1 million. "In the third quarter we achieved our 10th straight quarter of pretax income growth and were able to navigate the turbulent capital markets to successfully close our regular quarterly term securitization," said CPS President and CEO Charles Bradley Jr. "Our volume of new contract purchases remained strong and credit performance met our expectations."
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Not to Be Left Out, CPCU Offers 'Hoopty' Auto Loans
Credit Union Journal (10/22/07) Vol. 11, No. 42, P. 4; Messmore, Scott
The Carolina Postal Credit Union (CPCU) has launched a loan program designed to help members finance a cheap or dilapidated car, also known as a "hoopty." The idea arose during a staff meeting when loan officers lightheartedly proposed a loan program for beat-up cars, which are used by many Carolina Postal letter carriers to deliver mail. Many letter carriers must traverse country roads of dirt and gravel and have not been issued a federal postal vehicle. As a result, many opt to use a cheap vehicle in lieu of their own cars. According to CPCU vice president Deb McLean, CPCU loan officers had been arranging small loans for hoopty car purchases to eligible members for years. Now, the company has simply branded the process, which fulfills a valid, genuine, and previously unmet need of members. Standard hoopty loans cost between $150 and $1,000 and are intended to do nothing more than keep the car running on a daily basis. The loans are not conventional vehicle loans; because the vehicle has no value, there is no note on the vehicle, explains McLean. The loans are based on the member's history and credit with CPCU. In addition, many parents have been purchasing the same loan for an adolescent's first car.
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US Loan Default Problems Widen
Financial Times (10/21/07) P. 17; White, Ben; Mackenzie, Michael
The proliferation of credit woes once restricted to high-risk mortgage borrowers to other consumer sectors is suggested by disappointing quarterly results from U.S. banks over the past two weeks. U.S. banks have elevated reserves for loan losses by a minimum of $6 billion over the second quarter and by even larger amounts from 2006. Such hikes apply to reserves on car loans, in addition to defaults on mortgages. "What started out merely as a subprime problem has expanded more broadly in the mortgage space and problems are getting worse at a faster pace than many had expected," stated Deutsche Bank analyst Michael Mayo. "On top of this, there is an uptick in auto loan problems, which may or may not be seasonal, and there is more body language from the banks that the state of the consumer was somewhat less strong [than thought]." Punk Ziegel analyst Dick Bove reported that bank earnings imply "problems with consumer debt that extend beyond the well-known issues in the real estate markets." He noted that auto loans in particular are causing worry.
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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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