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April 10, 2008
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New Committee on Vehicle Titling Formed Through Merger with NTSF
Comment Letter Submitted to Fed on Proposed HOEPA Rules
Joint Trade Brief Contributed to FCRA Firm Offer Victory
MoneySKILL Updated to Be More User-Friendly for Teachers
Discover Buys Diners
Mortgage Firms Pledge to Help
Travelers Acceptance and American General Financial Services Announce Strategic Alliance for Canadian Home Improvement Business
Financial Literacy Still Declining Among High School Seniors, Jump$tart Coalition's 2008 Survey Shows
CEO Forum: AmEx Chief Talks About Credit's Future
The Credit-Card Fee Market Isn't Working
RFID Payment Fobs Fail to Woo Consumers
White House Presents Plan to Aid Subprime Borrowers
McCain Seeks Aid for Some Homeowners
Clinton Offers Loan-Mod Bill
ID-Theft Fears Keep Clients Off the Web
Can't-Miss Segment? Not So Fast
Automation Has Become a Key Tool in Banks’ Strategies for Serving the Underbanked Market
How Some Are Stemming the Tide of Auto Loans Gone Bust
Saying 'I Do' Doesn't Get Better Auto Loan
Results Vary on How Often Dealers Get Loan Stipulations
New Committee on Vehicle Titling Formed Through Merger with NTSF
On April 7, AFSA announced that the National Title Solutions Forum (NTSF) will merge into the association to form a new Committee of Professional Interest under the Vehicle Finance Division. The new forum will adopt NTSF’s mission to improve titling processes, especially those that involve interaction between vehicle finance companies and Departments of Motor Vehicles (DMV).
The forum also will continue NTSF’s initiative of interviewing authorities in each of the 50 states to compile information on current state requirements and procedures for issuing vehicle titles. AFSA’s vehicle finance division, as well as its federal and state government affairs departments, will work closely with the titling forum to communicate its work and to monitor legislative developments related to the vehicle titling process.
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Comment Letter Submitted to Fed on Proposed HOEPA Rules
On April 8, AFSA submitted a comment letter to the Federal Reserve Board on the agency’s proposed changes to Regulation Z, which implements the Truth in Lending Act (TILA) and Home Ownership and Equity Protection Act (HOEPA) to protect consumers from unfair or deceptive home mortgage lending and advertising practices.
Chief among AFSA’s concerns with the rules are the sections on escrow and on the proposed definition of “higher-priced mortgage loan.” In its letter, AFSA urged the Board to replace the escrow requirement with enhanced disclosure requirements to ensure borrowers’ understanding of tax and insurance payment obligations.
AFSA also commented that the Board’s proposed APR trigger will result in all of the alt-A market as well as a significant portion of the prime market falling under HOEPA. To avoid this, AFSA recommended “that, at a minimum, the Board set the threshold at four percentage points over the index selected by the Board for first-lien loans (and at least six percentage points for subordinate-lien loans).” AFSA went on to caution that unintended consequences could still arise for consumers in the alt-A market.
Additionally, AFSA raised concerns with the rules’ proposed implementation date. Specifically, longer timeframes are needed to develop and implement proposed mortgage loan disclosures, implement a new method of calculating the APR trigger for higher-priced mortgage loans, and allow companies that do not currently escrow to develop compliant escrow systems.
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Joint Trade Brief Contributed to FCRA Firm Offer Victory
On April 3, the U.S. Court of Appeals for the First Circuit issued a decision in Dixon v. Shamrock Financial, a case which dealt with the Fair Credit Reporting Act (FCRA). AFSA, along with several other trade associations, submitted an amicus brief in this case. The Court of Appeals adopted the position argued in AFSA’s amicus brief that a creditor satisfies its obligations under FCRA as long as it honors a “firm offer of credit” after a consumer responds and meets selection criteria, as well as credit and collateral requirements. The Court expressly rejected the plaintiff’s argument that a prescreened mailer must contain detailed loan terms about the credit product offered.
Notably, the Court included in its opinion a lengthy discussion responding to the consumer's complaint that the “firm offer of credit” had resulted in a breach of his privacy. The Court rejected that concern by adopting the position advocated in AFSA’s amicus brief.
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MoneySKILL Updated to Be More User-Friendly for Teachers
The AFSA Education Foundation has incorporated some suggestions from teachers to make MoneySKILL® easier to use with students. The changes will not affect the flow of MoneySKILL with currently enrolled students. Among the changes is that the grade book will now match the order of the modules indicated by teacher in the class setup process. Other modifications allow students to retake a particular module and teachers to duplicate or recreate a course of study used by a previous class.
Teacher feedback in response to the changes has been very positive. Lauretta Doyle of Stoughton High School wrote, “The upgrades you have made are phenomenal and came right at the right time for my students.”
More than 1,800 teachers throughout the country received MoneySKILL training in 2007, and the foundation expects this number to be exceeded in 2008. More than 33,000 students have enrolled in MoneySKILL in the current school year to date. MoneySKILL is constantly being updated to help teachers reach more students.
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Discover Buys Diners
Chicago Sun-Times (04/08/08) Jackson, Cheryl V.
Discover Financial Services announced that it will acquire Citigroup subsidiary Diners Club International in a deal worth $165 million. Discover will assume control of Diners Club's payment network, brand, and license agreements, while the provision of credit to Diners Club cardholders will continue to be facilitated by Citigroup and other existing institutions that issue the cards. Through the deal, U.S.-based merchants that accept Discover will handle more Diners Club cards, which are generally held by high-class travelers and businesses. The acquisition comes as Discover strives to expand its acceptance outside the United States and among major corporate spenders, and as Citigroup divests itself of assets it has deemed to be non-essential. Diners Club, which has been in business for nearly six decades, is accepted by 8 million merchants globally and is popular in Greece, Japan, Brazil, and Spain. Over 80,000 commercial and business clients spend upwards of $30 billion annually with Diners Club cards outside of North America, and Discover executive Harit Talwar says the acquisition "strengthens the current business strategy and opens up a range of new opportunities and possibilities."
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Mortgage Firms Pledge to Help
Cleveland Plain Dealer (OH) (04/08/08) Rollenhagen, Mark
Nine mortgage servicing companies have agreed to make a good-faith effort to contact Ohio homeowners who are having trouble making payments as soon as possible and try to modify the terms of their loans, in an effort to keep borrowers in the state from becoming victims of foreclosure. The non-binding agreement with Ohio comes a year after Gov. Ted Strickland warned that he would consider new legislation or tougher regulation if mortgage lenders refused to sign on to a formal agreement. Bill Cosgrove, president of the Ohio Mortgage Bankers Association, praised the state for continuing the discussion with mortgage lenders. Carrington Mortgage Services, Citi, GMAC ResCap/Homecomings Financial, HSBC Finance, Litton Loan Servicing, Ocwen Financial, Option One Mortgage, Saxon Mortgage Services, and Select Portfolio Servicing entered into the agreement with Ohio. The national companies service mortgages for about 55 percent of subprime borrowers in the state.
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Travelers Acceptance and American General Financial Services Announce Strategic Alliance for Canadian Home Improvement Business
CNW Group (04/07/08)
Travelers Acceptance Corp. has announced it has formed a partnership with American General Financial Services (AGFS). According to the terms of the deal, Travelers Acceptance will offer finance options to Canadian consumers who are customers of U.S.-based manufacturers, distributors, and retailers for which AGFS provides consumer financing. Travelers hopes the new deal will improve its access to the Canadian home improvement products and services markets, while AGFS will be able to provide its Canadian vendor base with more complete services.
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Financial Literacy Still Declining Among High School Seniors, Jump$tart Coalition's 2008 Survey Shows
Jump$tart News Release (04/09/08)
The Jump$tart Coalition for Personal Financial Literacy announced April 9 that while the financial literacy scores of high school seniors who participated in Jump$tart's most recent biennial survey are lower than the scores of high schoolers who graduated two years ago, financial literacy scores among college students are higher. The survey, which was funded by the Merrill Lynch Foundation, revealed that high school seniors answered a mean of just 48.3 percent of the questions correctly, a decrease from 52.4 percent in 2006. "The survey demonstrates that graduating high school seniors continue to struggle with financial literacy basics," said SUNY Buffalo School of Management professor Lewis Mandell. "Perceptions of current economic conditions, particularly the housing market, may have contributed to the decreases," Mandell noted. Students scoring 27 or higher on the ACT college entrance exam correctly answered 59 percent of the questions, while seniors scoring 20 or lower on the ACT exam correctly answered only 43 percent of the questions. The 2008 survey was the first to look at college students' financial literacy. Sixty-two percent of college students answered the questions correctly, with seniors doing better than freshmen. "The data suggest that not only age, but problem-solving ability are important factors in students' abilities to grasp and apply financial information," said Laura Levine, executive director of the national coalition. "This year's survey underscores that while we must continue teaching personal finance to high school students, reinforcing and repeating financial literacy efforts at the college level yields positive results."
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CEO Forum: AmEx Chief Talks About Credit's Future
USA Today (04/09/08)
According to American Express CEO Kenneth Chenault, as long as consumers are still spending, the credit card business should perform well. The industry is still in a tolerable range of write-offs and AmEx's portfolio is broad enough that it should be able to perform well, even if the mortgage crisis and economic downturn result in cardholders being unable to pay on time. Both democratic presidential candidates have proposed a series of reforms for the credit card business. Sen. Hillary Clinton (D-N.Y.) would create a Financial Product Safety Commission and cap interest rates at 30 percent, while Sen. Barack Obama (D-Ill.) would require contracts to be written in simpler language and create a five-star scale for rates and fees. Chenault acknowledged that reform does need to take place, but hopes that people who need credit and can use it responsibility will continue to be able to obtain credit. The company recently began expanding into the gift card sector, which has been criticized for encouraging people to leave their money on the table by not spending them by the expiration date. Chenault said that his goal is to have full transparency and disclosure, making sure that consumers understand the terms they are entering into.
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The Credit-Card Fee Market Isn't Working
Wall Street Journal (04/08/08) P. A18; Conyers, John; Cannon, Chris
In a letter to the Wall Street Journal concerning a March 29 editorial entitled "Credit-Card Wars," Reps. John Conyers (D-Mich.) and Chris Cannon (R-Utah) claim the newspaper stated that "as consumers we'd like to see interchange fees come down too, but through market innovation and competition, not Congressional fiat." Conyers and Cannon state they concur, which is why they proposed the Credit Card Fair Fee Act, which eases direct negotiations between retailers and the credit card sector on interchange fees. Conyers and Cannon claim this approach is mandatory due to worries about price fixing among issuers, resulting in less competition and steeper rates. The two men note that Americans pay almost threefold what Europeans do in credit card interchange charges for the same kinds of services--almost 2 percent of each retail purchase. Conyers and Cannon point out that the Wall Street Journal editors stated the market will fix the problem and reduce credit card interchange costs, something the two men claim is not likely unless there are negotiations and proceedings as described in their bill. "In an economy in which, as the Journal notes, credit transactions are now king and cash has been dethroned, how can the vast majority of merchants turn down plastic from the two major credit card companies, who control approximately 80 percent of the market?" Conyers and Cannon write. They stress they proposed the Credit Card Fair Fee Act to establish an open atmosphere that does not currently exist, one that will both persuade the leading credit card firms to negotiate reasonably on interchange and facilitate cheaper interchange credit card brands.
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RFID Payment Fobs Fail to Woo Consumers
RFID Journal (04/04/08) O'Connor, Mary Catherine
American Express' decision to drop its RFID-based ExpressPay key fob due to a lack of consumer interest does not spell doom for contactless payment products, according to industry analysts. ABI Research analyst Jonathan Collins says some consumers may be less enchanted with key fobs than with traditional cards, but ABI estimates that the global market for contactless technology in transportation ticketing and contactless payments increased over 15 percent last year. Collins projects that the contactless payments technology market will skyrocket from about $200 million to more than $820 million between now and 2013. He says the popularity of contactless payment will be fueled by the advent of mobile phones outfitted with RFID modules that comply with the specification for near field communication. Card-issuing banks "may see [contactless] cards as an interim step to NFC phones, because NFC phones will bring additional benefits [to banks]," Collins says. Among these benefits will be greater inroads into traditional cash-based transactions and more rapid provisioning of new accounts, with Collins noting that accounts can be set up almost instantaneously with NFC phones. Javelin Strategy & Research's Bruce Cundiff says the area with the most momentum for contactless payments is NFC, because "the only contactless-only device that really resonates with consumers, to date, is having the [payment] capability embedded in a mobile handset."
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White House Presents Plan to Aid Subprime Borrowers
Washington Post (04/10/08) P. D1; Montgomery, Lori; ElBoghdady, Dina
FHA Commissioner Brian Montgomery announced a plan on April 9 that would allow subprime borrowers who have missed a few mortgage payments to refinance through the agency. Approximately 100,000 borrowers would be assisted by the program, which also would urge lenders to write down the mortgage debt in accordance with home-price declines. To qualify, borrowers who missed three payments in the last year would need 10 percent equity; and borrowers who missed two payments would need 3 percent equity. While consumer groups criticize the plan for failing to help a larger segment of homeowners facing foreclosure, Democrats say it indicates the White House understands that a more aggressive stance is needed to ease the housing crisis.
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McCain Seeks Aid for Some Homeowners
Associated Press (04/10/08) Quaid, Libby
Homeowners with burdensome mortgages would have an opportunity to obtain more manageable loans that reflect the value of their property under a plan proposed by Sen. John McCain (R-Ariz.) on April 9. The original lender and the government would also benefit because they would receive a certificate that guarantees a share of the value of the original loan. McCain--who believes market forces should be allowed to resolve the crisis in the mortgage industry--said that lenders will need to write off losses, restructure balance sheets, and raise more capital. Meanwhile, the presidential hopeful suggested that the Justice Department should create a task force to investigate mortgage lending and securities firms for criminal wrongdoing, such as defrauding homeowners or forging loan application documents.
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Clinton Offers Loan-Mod Bill
American Banker (04/07/08) P. 17; Sloan, Steve
Mortgage lenders that modify home loans would gain some protection against investor lawsuits under a bill introduced on April 4 by Sen. Hillary Clinton (D-N.Y.). Concerns about legal challenges have led many lenders to oppose efforts to have them change the terms of mortgages in order to assist troubled borrowers who are facing foreclosure. The Mortgage Enhancement and Modification Act encourages mortgage providers to waive prepayment penalties, freeze rates on adjustable-rate mortgages, establish payment plans, or write down payments. "Mortgage modification will help stabilize the financial market at a time when the housing crisis has already resulted in trillions of dollars in losses of housing wealth and investment capital," Clinton said in a press release.
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ID-Theft Fears Keep Clients Off the Web
Bank Technology News (04/08) Sowerby, Joe
Banks are seeing their electronic transactions and communications with customers decline as many become increasingly concerned about online security. Banks do not want to give up the efficient electronic channel and return to the costly brick-and-mortar way of doing business, because they have invested millions of dollars in their online businesses. So far banks have covered the costs of customer losses due to identity theft, but as losses increase, it is likely that banks will back away from covering large losses, exacerbating the customer exodus even more. Banks are now looking to offer multi-factor security, which would prevent criminals from accessing a customer’s funds, but still would not prevent identity theft and may result in prohibitive costs and hassles. The best possible option is the development of a completely new channel that is closed to online criminals, which would give control back to banks and convenience back to customers.
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Can't-Miss Segment? Not So Fast
American Banker (03/27/08) P. 1; Fajt, Marissa
Several banks that were established to serve mainly Hispanic customers have decided that their focus is too narrow and are expanding their targeted customer base, indicating that the fast-growing Hispanic population is not as profitable as originally expected. Security One Bank in Falls Church, Va., says it is still committed to the Hispanic market, but needs to become profitable in order to continue its mission. "Any bank needs to be successful first, and we are going to be able to serve the Hispanic population better as a successful bank than one that isn't growing as fast," says founder Carl Dodson. The company has lost more than $3 million since opening its doors in April 2006, but since hiring commercial lenders its assets have doubled. Likewise, Libertdad Bank in Austin, Texas, has lost $1.9 million since its opening and is beginning to target commercial customers, saying that the bank will never be profitable serving a strictly Hispanic customer base. Attracting deposits has been the bank's biggest challenge; it had hoped to educate and attract the business of consumers who had before been distrustful of banks. And while the bank has been successful at bringing in new Hispanic customers, their deposits tend to be too low for the bank to be profitable. Also cutting into the banks' efforts is a recent push by large mainstream banks to court Hispanic customers. Some experts say a bank needs at least three niches to be profitable, and focusing on a single market will lead to failure.
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Automation Has Become a Key Tool in Banks’ Strategies for Serving the Underbanked Market
Bank Systems & Technology (03/27/08) Feig, Nancy
Technology is making it profitable for banks to reach out to the underbanked. Transactions are generally small among this portion of the population, but automation has made these transactions profitable and lowered the cost of opening checking accounts. Some banks are venturing into check-cashing services for customers who do not have accounts, hoping that the service will build trust and eventually bring those customers in to open traditional accounts. Integrating the check-cashing system into a bank’s main platform makes the process quicker and more profitable than keeping it on a separate platform, experts say. El Banco de Nuestra Comunidad has launched Chexar, a technology, processing, and network company that offers centralized risk management and consulting services to banks looking to offer check cashing. Remittance services are another area banks are looking into, as unbanked immigrants send almost $400 billion a year back to their home countries and most transactions are currently carried out by Western Union. Wells Fargo’s ExpressSend remittance product offers transfers to both customers and noncustomers, and while so far the majority of remittances are cash-to-cash transactions, the bank says account-to-cash remittances are slowly growing. Most of the technology for the product was built in-house, and the bank has a patent pending for its proprietary system.
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How Some Are Stemming the Tide of Auto Loans Gone Bust
Credit Union Journal (03/31/08) Vol. 12, No. 13, P. 18; Santiago, Steve
Credit unions only hold about 0.1 percent of repossessed auto loans, but are trying to slow down the rise in loan delinquencies with programs like WALKWAY Protection, which is a vehicle return program that allows customers to keep their credit rating intact when walking away from an auto loan or lease in the event of involuntary, life-changing events. To qualify, members must have experienced one of four situations: involuntary unemployment, medical-related loss of driver’s license, overseas employment transfer, or self-employed personal bankruptcy. The program gives credit unions a competitive edge because it keeps the customer relationship intact and gives the member a reason to come back when they are able to buy another car.
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Saying 'I Do' Doesn't Get Better Auto Loan
Ward's Dealer Business (03/01/2008) P. 8; Finlay, Steve
Lenders who give better car loan rates to married people are being prosecuted for violating the Equal Credit Opportunity Act, as federal regulators crack down on discriminatory lending practices. In U.S. vs. Compass Bank, the bank agreed to stop charging different rates for married and “non-spousal consumers,” though it did not admit to marital-status discrimination. The government said the bank charged one to two percentage points higher for unmarried couples and also sent a letter to 700 car dealers saying that non-spousal co-applicants should not be given access to certain loan programs. The bank also agreed to re-train its loan officers and set up a $1.75 million fund to compensate customers who unfairly paid higher rates.
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Results Vary on How Often Dealers Get Loan Stipulations
Ward's Dealer Business (03/01/2008) P. 39; Finlay, Steve
The goals of auto lenders and dealerships are often at odds, because car dealers want to sell as many cars as possible while lenders want to get enough information about borrowers to feel assured their loans will be paid back. Dealers are supposed to collect “stipulations,” or bits of information such as references, evidence of residence, and proof of income, but some are more thorough about obtaining the information than others. David Kelly of Eastern Automotive Group says his company gets as many stipulations as possible before a test drive, but admits that some dealers find it “too much to ask.” Some dealers send in stipulations with missing information, says Paul Rule of Chase Auto Finance’s Custom Vehicle Group.
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Abstract News © Copyright 2008 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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