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April 17, 2008
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AFSA Expresses Concerns over Credit Card Bill’s Free Market Restrictions
Education Foundation Provides Written Testimony for House Financial Literacy Hearing
New Member Welcome
Equifax to Enter Russia Through Investment in Leading Credit Information Company
DiversityInc Ranks Merrill Lynch in the Top Ten Companies for Diversity
Wells Fargo in Sioux Falls to Receive MS Award
EU Says Has Not Given Green Light to Rival System to Visa, MasterCard
Fed Official Meets With Card Firms
Processors Face 'Alternative' Dilemma
39 Mortgage Counseling Agencies to Receive Aid, Hire More Counselors
Why a Lender Bottleneck May Loom for FHA Plans
Broker Licensing Bill Gets Support From Mortgage Brokers
Regionals Ramping Up for Mortgage 'Opportunity'
Student Loan Ideas Multiplying, Diversifying
Bill to Limit Payday Lenders Defanged
Sallie Mae to Halt Role in Loan Program
FDIC to Conduct First Nationwide Survey of Banks' Efforts to Bring "Unbanked Consumers" Into Economic Mainstream
CapitalSource's Second Try at ILC Seems a Better Bet
Fiserv Integrates With WebCEO
ABS Backed by Auto Loans From Detroit-Based Auto Finance Companies Doing OK, S&P Says
AFSA Expresses Concerns over Credit Card Bill’s Free Market Restrictions
On April 17, the House Subcommittee on Financial Institutions and Consumer Credit held a hearing on H.R. 5244, The Credit Cardholders’ Bill of Rights Act of 2008. AFSA submitted written testimony that “this bill would impose significant restrictions on card issuers’ ability to grant credit to consumers ... in the midst of what appears to be the beginning of a 'credit crunch.'"
As part of its testimony, AFSA stated opposition to the bill’s free market restrictions while expressing support for clarifying consumer disclosures. H.R. 5244, AFSA said, “would not allow the operation of a free market in which a financial institution can price on its independent models and allow consumers to choose an issuer based on clearly disclosed terms.”
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Education Foundation Provides Written Testimony for House Financial Literacy Hearing
The AFSA Education Foundation submitted written testimony for the House Financial Services Committee hearing April 15 on “Financial Literacy and Education: The Effectiveness of Governmental and Private Sector Initiatives.”
In its testimony, the foundation focused on the benefits of MoneySKILL® and the curriculum’s growing reach. The testimony also cited the National Council on Economic Education spring 2007 survey of the states on Economic, Personal Finance and Entrepreneurship Education, which revealed that states haven’t made enough progress on their commitment to offer or require personal finance and economic education in our nation’s schools. In response to the survey, the foundation reaffirmed its goal “to make high-quality, detailed personal finance education available immediately to students throughout the United States without any financial burden on the schools, teachers and students.”
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New Member Welcome
AFSA welcomes new active member Victory Management Services and new foreign member LeasePlan Corporation.
Headquartered in Dallas, Victory Management Services, LLC, finances small consumer installment loans through its 29 offices in Texas, New Mexico, and Oklahoma.
LeasePlan Corporation is the European market leader in fleet and vehicle management, operating from offices in 29 countries. Web site
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Equifax to Enter Russia Through Investment in Leading Credit Information Company
Equifax News Release (04/15/08)
Equifax has acquired a 28 percent stake in Russian credit information company Global Payments Credit Services (GPCS) and, pending regulatory approval, will re-brand the company as Equifax Russia and take over operations. The move is part of the company’s plan to expand into the markets of India, Russia, China, and Mexico. GPCS is a leading credit bureau in Russia, having built a database of nearly 20 million records in just three years. The Russian credit market is growing rapidly thanks to the country’s booming economy, with household lending jumping 75 percent in 2006 to $32.5 billion. Retail lending as a percentage of GDP, however, is just 8 percent, indicating much room for growth. Russia recently issued regulations requiring banks to share data with at least one credit bureau, which is boosting the credit information market and improving data for companies like GPCS. The company says it is looking forward to combining its strong database with Equifax’s technologies to solidify its leading market position and boost the overall market’s growth.
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DiversityInc Ranks Merrill Lynch in the Top Ten Companies for Diversity
Business Wire (04/14/08)
Merrill Lynch’s diverse talent pipeline and strong employee resource groups have made it one of DiversityInc’s "Top 50 Companies for Diversity." Companies making the list must show strength in CEO Commitment, Human Capital, Corporate and Organizational Communications, and Supplier Diversity. Merrill Lynch has an executable plan for diversity and accountability for progress, with a focus on eight main areas: research and assessment of best practices, employee professional networks, tracking of progress through measurement and scorecards, rewards for leadership in diversity, awareness programs to train employees and managers in diversity, marketing aimed at making sure the diversity strategy is understood inside the company as well as externally, and governance checks and balances to coordinate the strategy across all business units and regions. Subha Barry, managing director and head of Global Diversity and Inclusion for Merrill Lynch says, "Diversity and inclusion are critical to the future of Merrill Lynch and we have worked very hard to create an innovative and collaborative environment where people are valued and comfortable joining because they know that performance is what matters."
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Wells Fargo in Sioux Falls to Receive MS Award
Argus Leader (04/14/2008)
The National Multiple Sclerosis Society is presenting Wells Fargo Financial Bank in Sioux Falls, S.D., with the Employer of the Year award. Wells Fargo is one of two companies selected from employers across the nation to receive the award. The bank was nominated by employee Deb Jarding, who has Multiple Sclerosis. Jarding told the organization Wells Fargo made changes to her schedule and work space to accommodate her disability.
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EU Says Has Not Given Green Light to Rival System to Visa, MasterCard
Thomson Financial (04/16/08)
A new European credit card system to rival the Visa and MasterCard networks has not been approved by the European Commission, says a spokesman for competition commissioner Neelie Kroes. However, he confirmed that members participating in the initiative have gone to the commission informally. The planned card network would use the same revenue model as Visa and MasterCard by charging multilateral interchange fees, reported Boersen-Zeitung on Tuesday. "The commission is in favor of setting up more competition in that sector but cannot give support or a specific endorsement for an individual project," Kroes' spokesman said. Among the initiative's participants are Deutsche Bank, Commerzbank, and DZ Bank, said Boersen-Zeitung. The initiative must be approved by Kroes, the European Central Bank, and national central banks.
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Fed Official Meets With Card Firms
American Banker (04/09/08) Sloan, Steven
Federal Reserve Board Gov. Randall Kroszner held a private meeting with representatives from the credit card industry on April 8. The purpose of the meeting was to determine plausible definitions for unfair or deceptive card practices under the Federal Trade Commission Act (FTC Act). Kroszner did not give details on which companies participated. However, he stated that the participants' input "will guide the Federal Reserve's work to ensure that consumer disclosures are as clear as possible and that credit card users are protected from unfair and deceptive practices." He also announced that a proposal under the FTC Act would be issued at some point before summer.
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Processors Face 'Alternative' Dilemma
Bank Technology News (04/08) Vol. 21, No. 4, P. 38; Fest, Glen
The use of online alternative payment options to credit and debit cards is poised to flourish, according to research firms Forrester and Javelin Strategy & Research. Consumers appreciate such options because of their convenience while their appeal to merchants lies in their lower costs, yet only a small number of payment processors are integrating nontraditional payment infrastructures into their systems. This hesitancy reflects processors' concern that not all bets on alternative payment methods will pay off, as the failure and consolidation of many ventures are inevitable. Another factor is the tremendous revenue that acquirers still receive from card processing, which Javelin expects to exceed $300 billion in 2012. Yet another consideration causing processors to hold off on entering the alternative payment market is the potential emergence of new and stronger alternatives such as NACHA's Secure Vault Payments format, which promotes consumer use of automated clearing house payments over the Internet. Javelin analyst Bruce Cundiff says Chase Paymentech is leading the alternative payment market with its support of numerous options, such as Bill Me Later, PayPal, and Google Checkout. Javelin expects PayPal, which controls 15 percent of the market, to remain the strongest option, while a report by Forrester analyst Suchurita Mulpuru reasons that Amazon's support of alternative payment options could lead to mainstream acceptance by bringing users to a critical mass.
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39 Mortgage Counseling Agencies to Receive Aid, Hire More Counselors
PRNewswire (04/16/08)
Thirty-nine of California's nonprofit mortgage counseling agencies will receive $5 million in grants to hire 58 new mortgage counselors. The 39 agencies are expected to serve 40,000 home loan borrowers facing financial troubles and foreclosure in the wake of the subprime mortgage fallout. The grants come from the California Reinvestment Coalition with the help of 10 major financial institutions including Merrill Lynch, HSBC-North America, Wachovia Bank, Comerica Bank, Wells Fargo Bank, Countrywide Financial, Citi, Bank of America, Washington Mutual, and JPMorgan Chase. Additional help will come from the San Francisco Foundation and the California Community Foundation. The agencies are hopeful the new counselors will prevent the agencies from continuing to be overwhelmed by the significant increases in homeowners coming to them for aid.
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Why a Lender Bottleneck May Loom for FHA Plans
American Banker (04/16/08) P. 1; Berry, Kate
Although increasing FHA-insured mortgages is a key component of the plans proposed by House Financial Services Committee Chairman Barney Frank (D-Mass.) and Senate Banking Committee Chairman Christopher Dodd (D-Conn.) to ease the housing crisis, experts say such a program would cause major bottlenecks in the lending pipeline. They note that lenders would need more in-house underwriters--because contract underwriting is prohibited under FHA rules--and upgraded technologies to handle demand. "Because the demand for FHA loans had subsided dramatically in recent years, lenders stopped investing in systems and infrastructures to support FHA originations," explains LenderLive Network Inc. President Rick Seehausen. However, Brian Chappelle of the Washington, D.C.-based consulting firm Potomac Partners says lenders do not need new technology to access the Web-based FHA Connection application system, which is compatible with loan origination systems already in place.
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Broker Licensing Bill Gets Support From Mortgage Brokers
Central Valley Business Times (CA) (04/14/08)
Sen. Dianne Feinstein (D-Calif.) has proposed creating minimum national standards for all residential mortgage brokers and lenders, in an attempt to crack down on the abusive lending practices that have fueled the crisis in the subprime mortgage market. Her legislation would also create a federal registry that would allow consumers to determine whether their broker-lender is professionally licensed; require brokers and lenders to pass 20 hours of approved courses, including consumer protection and subprime lending; and prevent people who have felony convictions from acting as brokers or lenders. There is only one way to stop bad actors, according to Feinstein. "And that's minimum federal standards," she says.
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Regionals Ramping Up for Mortgage 'Opportunity'
American Banker (04/11/08) P. 1; Berry, Kate
The housing downturn and mortgage crisis have given regional banks the opportunity to grab market share lost by mortgage brokers. These banks are hiring loan officers who once worked for the top lenders, opening production offices, and joining forces with their peers to get better pricing when they sell loans to Fannie Mae and Freddie Mac. "The longer and more protracted the downturn is, the greater the opportunities," says Michael Koch, senior vice president and director of residential lending at Spokane, Wash.-based AmericanWest Bank. Banks are in the driver's seat in the current market because they have a steady source of funding from deposits and the Federal Home Loan Banks, can outsource secondary-market activities, and are exempt from licensing requirements, according to American Home Bank Chairman and CEO James Deitch. Chuck Quick, president and CEO of Little Rock, Ark.-based Pulaski Mortgage Co., adds that banks benefit from low funding costs and a steep yield curve.
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Student Loan Ideas Multiplying, Diversifying
American Banker (04/16/08) Kaper, Stacy
Lawmakers are introducing proposals that would help fix liquidity problems in the student loan market in a short amount of time. Sen. Christopher Dodd (D-Conn.) wants the Treasury Department and the Federal Reserve Board to use their authority to bring government assistance to the market. Sen. John McCain (R-Ariz.) is suggesting a state-level approach, calling for the Education Department to team up with governors to ensure states are capable of serving as a backstop. Though the House is set to vote on a proposal that would mandate the Education Department act as a last-resort lender for the secondary market and free up capital by buying Federal Family Education Loan Program (FFELP) loans from lenders, some in Congress, including Dodd, believe that bill would take a long time to pass, and witnesses at a Senate Banking Committee hearing said that students have to pick colleges by May 1 and must have loans processed before school begins in August. Since credit has grown more expensive, 50 FFELP lenders have backed out of the program.
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Bill to Limit Payday Lenders Defanged
Los Angeles Times (04/15/08) Lifsher, Marc; Christensen, Kim
A bill that would have capped interest rates on payday loans at 36 percent has been changed by the California Assembly's Banking and Finance Committee over concerns from industry executives who noted that the state law allows rates of up to 459 percent. The industry said the bill would put companies out of business, and committee members said the loans fulfill a legitimate need for working people and there is no viable alternative at the moment. The bill is aimed at stopping predatory lending practices, but now contains only vague language indicating that another version of the bill will offer the California Department of Corporations’ recommended consumer disclosure provisions. In 2006 California consumers borrowed $2.5 billion from payday lenders, with the average amount $254 per loan. Currently lenders make $17.65 on each $100 lent for 16 days, but the bill would have reduced that amount to $1.60 per $100. Industry advocates note that more than two thirds of payday lenders in Oregon went out of business after the state capped interest rates at 36 percent.
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Sallie Mae to Halt Role in Loan Program
Baltimore Sun (04/12/08) Ambrose, Eileen
Citing “significant legislative cuts and severe credit market deterioration,” Sallie Mae has announced that it will no longer participate in the federal consolidation loan program so that it may focus on making loans to students entering school this year. The move is indicative of how far the ripples from the subprime mortgage crisis have spread, as many other lenders have also left the program citing credit market woes and cuts in government subsidies. Sallie Mae said it has $34 billion in lines of credit to make loans to students and parents, but said it is losing money on consolidations and will no longer pay the federal Stafford loan origination fee for students. A third of loan originators have left the student loan program, and Sallie Mae expects demand for loans to exceed supply this year. Students looking to consolidate their loans may still do so through other lenders or the federal direct loan program. Some experts are concerned, though, that the federal program will not be able to handle a big increase in consolidations, which some say could as much as double with Sallie Mae out of the picture.
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FDIC to Conduct First Nationwide Survey of Banks' Efforts to Bring "Unbanked Consumers" Into Economic Mainstream
Trading Markets (04/12/08)
The Federal Deposit Insurance Corp. (FDIC) will administer a survey of FDIC-insured depository institutions across the country to examine how they attend to unbanked and underbanked individuals and families. FDIC-insured institutions will receive survey questionnaires in the second quarter of this year and will be asked questions on topics such as financial education, outreach strategies, and credit products offered to entry-level consumers. The survey aims to pinpoint difficulties institutions may be facing in serving unbanked and underbanked customers.
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CapitalSource's Second Try at ILC Seems a Better Bet
American Banker (04/15/08) P. 1; Adler, Joe
CapitalSource Inc. declared on April 14 its intention to purchase the deposits and some assets of the troubled Fremont General Corp., which was deemed undercapitalized by the Federal Deposit Insurance Corp. (FDIC) in March. CapitalSource would take possession of only certain assets from Fremont Investment and Loan, assuming control of $3 billion of cash and short-term investments, along with participation in a pool of $2.7 billion of commercial real estate loans. CapitalSource agreed to lend Fremont as much as $200 million to help it complete its end of the transaction. CapitalSource allowed an approval order to charter a Utah industrial loan company to expire unsigned last month due to tough regulatory conditions tied to the firm's commercial assets, but observers say the FDIC will probably ease up on restrictions this time around in order to protect the Deposit Insurance Fund. "My guess is they will probably show some flexibility on those conditions just because this investor is taking a troubled institution off their hands," says Venable partner Ronald Glancz. Under the arrangement, Fremont's $5.6 billion of deposits and 22 branches would be incorporated into a new California ILC chartered by CapitalSource. "Obviously, we have had prior experience with the FDIC in terms of what's important to them--with respect to ... passivity agreements, etc.--and I think we understand what their requirements are and expect that not to be an issue," says CapitalSource CFO Thomas Fink. Morrison & Foerster partner Oliver Ireland says distressed conditions may make the regulator more amenable to flexibility, but notes that CapitalSource may also be open to complying to the same limits that scuttled the Utah ILC deal.
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Fiserv Integrates With WebCEO
Subprime News (04/15/08)
Fiserv has integrated its car lending systems with Conquest Systems’ WebCEO desktop reporting tool, which will give lenders the ability to generate graphical reports that will help reduce costs and find new revenue sources in the current turbulent market. The new integrated system can produce reports on average product yield, loan production turnaround times, and default risk, and also offers desktop access to a centralized data repository that will eliminate the problems and inefficiencies caused by having multiple platforms, data sources, and databases. Lenders can create their own customized reports that can be stored for future access to streamline reporting, and templates can easily be modified to add lending data components, business process alterations, and changes in reporting preferences. The system also fully automates the credit and funding process from capturing applications through booking contracts.
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ABS Backed by Auto Loans From Detroit-Based Auto Finance Companies Doing OK, S&P Says
Associated Press (04/11/08)
A new report by Standard & Poor's Ratings Services (S&P) finds that U.S. asset-backed securities (ABS) secured by automotive loans from Detroit's three auto finance companies are performing "moderately well," despite the slowing U.S. economy. ABS issuance rose 7 percent in the first quarter to $14.9 billion. "Historically, the auto ABS sector has experienced predominantly positive trends, and we currently believe that U.S. auto loan ABS ratings will remain generally stable this year," says S&P's Amy Martin. However, S&P adds that the continuing reassessment of risk has frustrated efforts by auto finance companies to bring new asset-backed securities deals to market.
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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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