September 27, 2007
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Trade Groups Express Opposition to H.R. 3609
AFSA Announces New Board Members
AFSA's Chris Stinebert Interviewed by Automotive Digest--Funding Weekly
Countrywide's Mozilo Sees 'Opportunity'
CIT's Jeff Peek Resigns From Freddie Mac Board
U.S. Investigating Fees Charged for Credit-Card Use
Steve Case Backs New Internet-Based Credit Card
Credit Unions Preferred for Plastic
Win-Win Credit Card Solutions for the Unbanked or Underbanked and Lenders
Lenders Pitch Their Services as Consumer-Friendly
Bill Would Let Bankruptcy Courts Impose Loan Mods
Congress Is Urged to Limit Response to Mortgage Crisis
House Panel Set to Vote on Overdraft Restrictions
Equifax Joins Rival, Will Permit 'Freeze'
Payday Lender to Close Oregon Stores
Payday Lender Rules Change Oct. 1
Pricing of Autos Targeted
Software Helps Auto Dealer Track Debtors
Trade Groups Express Opposition to H.R. 3609
On September 24, AFSA joined eleven other trade groups in a letter expressing concern about proposed major changes to the bankruptcy law. The changes, contained in Emergency Home Ownership and Mortgage Equity Protection Act of 2007, came up for a hearing before the House Judiciary Subcommittee on Consumer and Administrative Law. To see the entire letter, go to the AFSA Web site.
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AFSA Announces New Board Members
The following executives have joined the AFSA Board.
1) Andre P. Bohy, President of Omni Financial Group
Mr. Bohy is president of OMNI Financial Group, which was started shortly after WWII. Today, Omni has offices across the country and in Europe. He has been with OMNI since 1989 holding various positions. Mr. Bohy is an Advisory Board Member of the AFSA Independents Section and is also a licensed Certified Public Accountant.
Mr. Bohy’s nomination takes effect immediately.
The two other new members will take their places after the AFSA annual meeting at the end of October.
2) Mary McDowell, President and CEO CitiFinancial North America
Mrs. McDowell was recently promoted to President and CEO, having been with Citi since 1991. She served as CFO for American Health & Life (now Citi Assurance), CitiFinancial, CFMC, and CTB. In 2003, she was named President of CitiFinancial Auto, where she integrated three disparate auto-financing brands. Since July 2006, she has served as the President and Chief Operating Officer for CitiFinancial North America, with responsibility for managing the operations of the 2,500-branch network in the U.S., Canada and Puerto Rico.
3) Robert O’Han, Regional General Manager of HSBC North America
Mr. O’Han is Regional General Manager for the South Central Region – Consumer Lending headquartered in Raleigh, North Carolina. He is responsible for five divisions within the consumer lending branch operations that encompass 404 branches throughout the Southeast United States. He also has senior management responsibilities for Consumer Lending’s IREP relationship. His primary focus is overseeing the production and profitability for the Region and ensuring all areas of importance to branch operations are properly managed.
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AFSA's Chris Stinebert Interviewed by Automotive Digest--Funding Weekly
American Financial Services Association (AFSA) President and CEO Chris Stinebert offers an overview of AFSA and its Vehicle Finance Division in an interview in the Sept. 25 issue of Automotive Digest--Funding Weekly. With approximately 200 members, AFSA's Vehicle Finance Division serves as a meeting ground for vehicle finance companies to swap ideas, network, and examine legislation that affects their industry. The division also partners with other organizations such as the National Automobile Dealers Association on issues of mutual interest. Stinebert cites car buyers' "Bills of Rights" initiatives as one of the most important issues facing AFSA and its members at the state level right now. The Vehicle Finance Division is working on that issue, as well as identity theft and fraud prevention. Another issue the division is working on is e-titling and e-contracting. Stinebert says getting more states to offer e-titles will encourage the conversion to a paperless system. Subprime mortgage lending issues and reforms may also affect vehicle finance. Stinebert says this issue is one of several that will be discussed at the Vehicle Finance Conference and Exposition in San Francisco next year.
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Countrywide's Mozilo Sees 'Opportunity'
Los Angeles Times (09/19/07) Streitfeld, David
Angelo Mozilo, Countrywide Financial's chief executive, announced that the lender is responding to the home mortgage market's new realities by looking for opportunities that accompany the turmoil. For example, Mozilo unveiled plans to double the number of Countrywide financial centers over the next few months. The expansion will help finance the company's lending operation through the deposits accumulated at the financial centers. In response to the growing defaults in the subprime sector, Countrywide--like most lenders--has restricted its subprime operations, though it will continue to issue a limited number of such loans to Fannie Mae and Freddie Mac. In addition, a quarter of Countrywide's loan personnel are currently working to help homeowners steer clear of foreclosure. Mozilo praised the Federal Reserve for decreasing a key interest rate, but added that more steps need to be taken to control the crisis. For example, government-chartered loan buyers such as Fannie Mae should raise their loan limits, argued Mozilo.
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CIT's Jeff Peek Resigns From Freddie Mac Board
Reuters (09/19/07) Wilchins, Dan
CIT Group CEO Jeff Peek resigned from Freddie Mac's board of directors Sept. 17. His resignation follows Freddie Mac's stated interest in purchasing CIT assets.
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U.S. Investigating Fees Charged for Credit-Card Use
Bloomberg (09/25/07) Rowley, James
The Justice Department is conducting an investigation into the interchange fees that MasterCard, Visa, and their issuing banks charge merchants, Thomas O. Barnett, Justice's chief antitrust enforcer, told a hearing of the House Judiciary Committee on Tuesday. When asked by lawmakers how long the investigation would take, Barnett noted that the Justice Department conducted an investigation into Visa and MasterCard for several years before filing an antitrust lawsuit against them. That case resulted in a 2001 ruling that forced Visa and MasterCard to allow their member banks to distribute cards issued by rival credit card companies. Barnett said the current investigation is much more recent, and will take "some time." The antitrust division is "very focused on the issue," Barnett said, and has "significant resources devoted to evaluating' the market. MasterCard's Sharon Gamsin said that her company was not aware of the Justice Department investigation. Visa refused to discuss the investigation.
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Steve Case Backs New Internet-Based Credit Card
Wall Street Journal (09/25/07) Kingsbury, Kevin
Revolution LLC, AOL co-founder Steve Case's investment company, has unveiled an online payment system anticipated to reduce merchants' credit card acceptance costs by approximately 75 percent. According to the company, merchants currently pay an average of 1.9 percent per credit card transaction, but the new system, called Revolution Money, reduces such fees to 0.5 percent. Jason Hogg, founder and CEO of Revolution Money, says the new system uses the Web "to circumvent the traditional interchange system, providing a drastically reduced fee structure that could create billions of dollars of merchant and consumer savings." Revolution is also launching a new credit card called RevolutionCard with "significantly lower interchange fees" for companies that accept it, the firm said. Users' names or account numbers will not be imprinted on the card, and the card will also feature PIN-based encryption technology. Another program called MoneyExchange described as the first Internet-based payment platform for social networks and instant messaging networks was launched Sept. 24 for selected users. The company says MoneyExchange can be used to securely transfer funds via the Internet to anyone, including merchants, for free. The program is expected to be universally available by the end of 2007.
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Credit Unions Preferred for Plastic
Consumer Reports (09/20/07)
A Consumer Reports survey revealed that customers preferred credit unions over the nation's leading banks for customer satisfaction with credit cards. The USAA Federal Savings and the Navy Federal Credit Union were among the credit unions receiving top scores from customers, while JPMorgan Chase, Bank of America, Citibank, Capital One, and HSBC ranked at the bottom of customers' preferred lists. The top five MasterCard and Visa issuers were cited for charging unfair late fees, unexpected rate increases, and having mediocre customer service. Providian, now run by Washington Mutual, and Direct Merchants charged the highest interest rates, according to the survey. Providian was also noted for sending customers their bills late and for imposing late fees even after customers had sent their payments in on time. Penalty fees for late payments have more than doubled since 1995, with fees currently ranging between $28 and $39. Some cardholders also get charged interest rates up to 32 percent for making one late payment.
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Win-Win Credit Card Solutions for the Unbanked or Underbanked and Lenders
CardRatings.com (09/20/07) Arnold, Curtis
Credit experts such as Arnold Curtis, founder of CardRatings.com, say there are several ways lenders can boost their business, such as lowering or eliminating credit card fees like late payment fines, and focusing on improving the incentives they provide to responsible cardholders. For instance, cardholders appreciate getting cash back, while lenders can secure more business. Wells Fargo recently conducted a study that involved offering a phone card to college students in exchange for completing an online credit education program. The students who completed the program achieved better payment records compared to a control group, even though the experimental group used their credit cards more frequently than the control group. Those in the experimental group were also less prone to carrying a balance or had smaller balances and also paid off more. This indicates that educating individuals about credit early helps both students and banks. Although just 6.65 percent of the experimental group completed the online program, Wells Fargo believes the results warranted the creation of an online offering designed to teach students with new accounts.
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Lenders Pitch Their Services as Consumer-Friendly
Inman News (09/26/07) Carter, Matt
Mortgage lenders increasingly are working to become more consumer friendly as a means of winning repeat and referral business at a time when borrowers are worried about broker compensation and predatory practices. LoanInsights Inc. of San Francisco offers an online search platform that lets borrowers anonymously input down payments and view different loan types from numerous lenders so that they can choose the best deal for themselves. LoanInsights President and CEO Jonathan Strike says the platform "automates the function of a mortgage broker," adding that allowing consumers to do the initial legwork lets the company discount fees by 25 percent to 50 percent. Meanwhile, BuySide Mortgage of Chicago uses salaried "loan coordinators" to arrange loans for borrowers, giving them bonuses tied to customer satisfaction--regardless of whether or not a loan is closed.
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Bill Would Let Bankruptcy Courts Impose Loan Mods
Inman News (09/25/07)
The Emergency Home Ownership and Mortgage Equity Protection Act of 2007, sponsored by Rep. Brad Miller (D-N.C.) and backed by House Financial Services Chairman Barney Frank (D-Mass.), would allow mortgage modifications to be handled by bankruptcy courts. Miller estimates that 600,000 homes could be spared from foreclosure if the bill passes. A recent poll of subprime mortgage servicers by Moody's Investors Service indicates that just 1 percent of adjustable-rate mortgages whose rates reset in January, April, and July were modified; of those not modified, 5 percent to 15 percent fell into delinquency.
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Congress Is Urged to Limit Response to Mortgage Crisis
Investor's Business Daily (09/21/07) P. A1; Higgins, Sean
In testimony before the House Financial Services Committee, Federal Reserve Chairman Ben Bernanke said federal regulators and the financial markets are handling problems in the subprime mortgage sector and urged Congress to consider legislation only to revamp the Federal Housing Administration. Bernanke opposes allowing Fannie Mae and Freddie Mac to purchase bigger loans--except on a temporary basis--because he believes it would imply that the entities have government backing. The economist, who was joined by HUD Secretary Alphonso Jackson and Treasury Secretary Henry Paulson at the hearing, said lenders should work with borrowers to modify mortgages and minimize foreclosures. However, House Financial Services Committee Chairman Barney Frank (D-Mass.) insisted that the subprime crisis could have been avoided if the government had imposed stricter regulations.
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House Panel Set to Vote on Overdraft Restrictions
American Banker (09/25/07) Vol. 172, No. 185, P. 1; Kaper, Stacy
A bill sponsored by Rep. Carolyn Maloney (D-N.Y.) tightening overdraft regulations has caused a stir in the banking industry. The bill would require consumers to give written consent to be enrolled in overdraft protection programs, require that repeated overdraft charges be disclosed to the customer in an interest rate format, and that consumers approve overdraft charges on any ATM transaction. The bill also states that after charging a customer three overdraft fees within one calendar year, future overdraft fees would be subject to the Truth in Lending Act. Banking lobbyists claim there is insufficient technology to implement such measures, while the provisions are also costly. A Republican staffer noted that the bill would most likely follow a vote breakdown along party lines. Consumer groups have been lobbying for the bill's passing in light of a Center for Responsible Lending report that noted consumers aged 18 to 24 pay overdraft fees of roughly $15.8 billion a year.
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Equifax Joins Rival, Will Permit 'Freeze'
Atlanta Journal-Constitution (09/22/07) Paul, Peralte C.
Equifax has announced that, beginning next month, the company will allow consumers across the country to "freeze" their credit reports in an effort to prevent identity theft. The company's decision comes on the heels of TransUnion unveiling its own freeze plan, which will launch on Oct. 15. Under TransUnion's freeze policy, consumers must pay a $10 fee to freeze or unfreeze their credit reports, though victims of ID theft can use the service for free. After TransUnion announced its plan, the AARP, the Consumers Union, and other large consumer rights groups lobbied the other two major credit bureaus to create an equivalent or superior freeze plan, as a security freeze at only one credit reporting agency would be ineffective at battling new account identity theft. Currently, 39 states possess freeze laws, and Equifax has now committed to extending the file-freeze capability to the 11 other states; Experian is expected to follow suit. When freeze file laws first went into effect, they were criticized by retailers and some financial services firms, including Equifax, for their costliness and low consumer adoption rates. In addition, identity theft can occur through avenues other than new account openings, notes David Rubinger of Equifax. However, upon learning that credit bureaus can unfreeze an account in15 minutes, the Georgia Retail Association has decided to support file freezes, because they will not prevent consumers from making emergency purchases.
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Payday Lender to Close Oregon Stores
KTVZ (09/21/07)
Advance America, Cash Advance Centers Inc., has announced it will close its stores in Oregon because the stores have become unprofitable. Advance is one of many payday loan companies to leave Oregon, according to the newspaper The Oregonian, since the state established a 36 percent interest rate limit on the loans. The new rules became effective in July, and let payday lenders and car title lenders charge a $10 origination fee per $100 loaned, up to a limit of $30 for a loan of any amount. Payday loans must be in place for at least 31 days. When taking fees into account, lenders can charge the equivalent of an annual interest rate of roughly 154 percent for a 31-day loan, which is much less than the 500 percent rate usually charged before the law was enacted.
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Payday Lender Rules Change Oct. 1
Navy Compass (09/21/2007) Brown, Alexis R.
The new federal Military Lending Act goes into effect on Oct. 1. As of this date, military personnel will pay interest rates of 36 percent or less. Furthermore, payday and car title lenders will be forbidden from extending loans to military personnel. In an effort to replace these lending practices with what it views as more beneficial financial services, the military is working to institute better on-base lending programs. Military-run banks and credit unions like USA Federal Credit Union and North Island Credit Union will offer revised versions of programs like short-term payday loans, but without as much financial risk to service members.
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Pricing of Autos Targeted
National Post (CAN) (09/26/07) P. FP1; Middlemiss, Jim
Major auto makers in Canada and the United States will soon face a $2 billion class-action lawsuit regarding their allegedly unethical sales practices. Claimants allege that the companies, along with the Canadian Automobile Dealers Association and the National Automobile Dealers Association, conspired to unreasonably increase the cost of Canadian vehicles and to deter Canadian consumers from accessing cheaper cars in the United States, in violation of the Competition Act. The lawsuit charges the defendants with a concerted, joint endeavor via manipulative actions such as imposing "no-export clauses" in sales contracts to stop consumers from taking cars across the border and neglecting to respect warranties from cars bought on the border's other side. The defendants have also been charged with punishing dealers who sold vehicles that were ultimately exported and with intimidating Canadian dealers into compliance. Automotive analyst Dennis DesRosiers reported that there is a standard price gap of $1,000 between the two countries, though the differential can rise as high as $7,960 for an intermediate SUV. However, with the exchange factored in, competition's natural laws should yield comparable prices, according to Henry Juroviesky, the plaintiffs' lawyer. Still, the lawsuit could run into trouble, because competition law distinguishes between horizontal and vertical relationships, according to Ariel Katz of the University of Toronto.
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Software Helps Auto Dealer Track Debtors
Wall Street Journal (09/24/07) P. B4; Flandez, Raymund
Auto Town Pontiac GMC was struggling to locate the debtors who owed a combined total of $270,000 to the dealership. The delinquent accounts were primarily the result of bounced checks for car down payments. Jessica Batugo, collections manager at Auto Town, found a better solution than attempting to contact the debtors through phone calls and letters, which was a slow-moving "nightmare" of a process, in a software program called "Bill Collector in a Box." Since adopting the software, 90 percent of the down payment checks received by Auto Town are vetted within two weeks, thanks to software features that enable Batugo to investigate a customer's credit history and current financial status. The software issues automated alerts when checks do bounce, which facilitates the money's recovery. Simply by clicking a button, Batugo can print out collection letters that adhere to state regulations and inform credit bureaus of delinquencies. Automatic reminders to send out follow-up letters are another helpful feature of the software, as is the skip-tracing function to help find debtors who may have skipped town. Over the past two years, Batugo and her team have cut Auto Town's list of delinquent accounts down to 242 debtors and have recouped the original debt amount of $270,000 plus an additional $130,000 in outstanding debt.
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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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