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April 3, 2008
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Past Chair Honored with AFSA Outstanding Independent Award
All Secured Lenders in Rhode Island Required to Register Under Mortgage Licensing System
AFSA Testifies on Captive Vehicle Finance Issue
AFSA Appoints New Staff Liaison to Independents Section
G.E. Swaps Units and Also Makes a Sale
Visa Europe Boss Expects to Negotiate Deal to Settle European Union Antitrust Probe
Visa Says Common View Emerging That Interchange Fees 'Not Illegal'
Gift Card Program Drives Chicago Car Title Loans Business
Fed Report Gives the Prepaid Market a Large Downsizing
Senators Move on Housing Relief
Paulson Plan Begins Battle Over How to Police Market
FHA May Aid Those 'Underwater' on Loans
Fla. Ruling May Alter the Payday Business
Lending Plan Won Prize, But Will It Work Here?
Credit Turmoil Raises Student-Loan Worries
Viewpoint: Savings Bonds Ought to Make a Comeback
Paulson Plan Would Open Charters to All Comers
Experian Automotive Announces Industry's First Automotive Credit Report
Wolters Kluwer Financial Services Introduces New Customizable Motor Vehicle Lease Agreements in Electronic Format
High-Tech Gear Disables Car if Borrower Misses Payment
Past Chair Honored with AFSA Outstanding Independent Award
Ray Biggs, President of Security Finance Corporation of Spartanburg, received AFSA’s Outstanding Independent Award during the opening session of AFSA Independents Section’s 2008 Annual Conference & Exposition held March 26-29 in Phoenix.
The Outstanding Independent Award is given to an individual who has contributed significantly to the success of the financial services industry and the AFSA Independents Section through active involvement and participation in the community and the association.
A member of AFSA since 1995, when he joined Security Finance, Biggs has been active on its Board of Directors, serving as the 2002-2003 Chairman. He has also been active on the Independents Section Advisory Board, serving as the 2001-2002 Chairman.
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All Secured Lenders in Rhode Island Required to Register Under Mortgage Licensing System
Effective March 31, Rhode Island is requiring all licensed lenders making secured loans in the state to register through the Nationwide Mortgage Licensing System (NMLS), which was created by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR).
Rhode Island is the only state under the NMLS that requires all licensed lenders making secured loans in the state to register under the system. This regulation has raised concerns within the vehicle finance industry as they will have to register under a system intended to centralize mortgage licensing. AFSA has expressed the concerns of its vehicle finance members to Rhode Island regulators. In conjunction with CSBS, AFSA has also hosted a webinar for its mortgage lending and vehicle finance members on the system.
As of March 29, 1,000 companies had registered under the NMLS. According to the executive counsel of Rhode Island’s Department of Business Regulation, anyone not registered by the deadline is not permitted to act as a mortgage lender or broker. It is uncertain how the licensing requirement will affect other non-mortgage lending companies. AFSA will continue to monitor the regulation and its potential impact on members operating in the state.
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AFSA Testifies on Captive Vehicle Finance Issue
Representing AFSA, Chris DiPietro, Executive Director of The Mid-Atlantic Financial Services Association, testified on March 25 before Maryland’s Senate Judicial Proceedings Committee against Senate Bill 943. The bill affects AFSA captive vehicle finance company members as it would constrain the ability of captive finance firms to manage risk. The bill also singles out captives for additional regulation, unfairly restricting their ability to compete effectively. Less vigorous competition would mean higher prices and less credit being available for consumers.
One of the most unsettling aspects of the bill is that it defines a “captive finance” company, and the industry does not consider the definition to be accurate.
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AFSA Appoints New Staff Liaison to Independents Section
Tom Morano, AFSA Vice President of Meetings and Conferences, has been appointed the new staff liaison for the Independents Section. He will assume the role from Sheilah Harrison, AFSA Vice President, Member Services, who continues her role as the staff liaison for the Vehicle Finance Division. Harrison will remain actively involved in the section, working on recruitment and Web site improvements. Morano will continue to orchestrate the Independents Section’s annual conference, and will serve as the section’s key contact within AFSA. Morano will also work closely with Independents Section Chairman Tim Stanley to achieve the section’s goals.
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G.E. Swaps Units and Also Makes a Sale
Associated Press (03/27/08)
GE Money and Commercial Finance has entered into a $1.57 billion deal with Spain's Banco Santander to exchange several European banking assets. The deal calls for Banco Santander to acquire GE Money's units in Germany, Finland, and Austria as well as its credit card and auto businesses in Britain. GE Money will obtain Interbanca, the Italian corporate bank Banco Santander acquired when it bought ABN Amro Holdings, and will make it part of its commercial finance division. Meanwhile, the American Express Co. is expected to complete a deal with GE in which it will pay $1.1 billion in cash for GE's commercial card and corporate purchasing business unit.
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Visa Europe Boss Expects to Negotiate Deal to Settle European Union Antitrust Probe
Associated Press (04/02/08) White, Aoife
Visa Europe CEO Peter Ayliffe announced on Wednesday that his firm expects to negotiate a settlement with the European Commission concerning an antitrust probe over its cross-border card fees, which may unfairly inflate retailers' costs and increase prices for consumers, according to European Union (EU) allegations. Card payments by Europeans exceed 23 billion and are valued at $2.1 trillion annually, but using cards in another European country entails additional costs, which EU officials say hinders efforts to establish a single EU market. Ayliffe said he was notified by EU officials that they desire the negotiation of a binding agreement with the card industry to conclude the investigation, which Visa also supports as the 4,600 banks it represents prepare to invest heavily in the pan-European streamlining of banking payments. He added, however, that Visa would maintain its average 0.7 percent interchange fee it charges for processing cross-border credit and debit card payments, because it benefits shops and shoppers and gives banks a solid business case for managing foreign payments. Visa says card payments are less expensive than handling cash, and Europeans would realize more than $1.5 billion in savings with additional card payments. Visa is also against any revisions to the "honor-all-cards" rule requiring retailers to accept all Visa-branded cards even if they come with a higher interchange fee.
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Visa Says Common View Emerging That Interchange Fees 'Not Illegal'
Thomson Financial (04/02/08)
The legal validity of interchange fees made on payment card transactions is emerging as a common view, according to a statement from Visa Europe. Visa says there is "recognition of interchange's role in payment systems" and that "economic and technical justifications" for the fees' industry role exist. The European Commission (EC) announced at the end of March that it was opening an investigation into Visa's multilateral interchange fees (MIFs) to evaluate how compatible they are with European Union laws on restrictive business practices. Six years ago the EC adopted an exemption decision on Visa's MIF after the credit card giant offered "substantial reforms," but the exemption expired at the end of 2007. Late last year the EC deemed MasterCard's interchange fee payments network within the European Economic Area to be unlawful, concluding that the fees inflated retailers' card acceptance costs without yielding proven efficiencies. MasterCard has to withdraw the fees within six months or face stiff fines.
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Gift Card Program Drives Chicago Car Title Loans Business
eWorldwire (03/31/08)
Chicago Car Title Loans has instituted a program that rewards customers with $50 gift cards redeemable at major retailers, as part of an effort to boost goodwill and give customers the kind of treatment usually given to large-loan customers. The company has also refurbished its home office for a more "high-class" experience and focuses on personal attention and respect for all customers, who generally are seeking title loans as a result of unfortunate circumstances.
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Fed Report Gives the Prepaid Market a Large Downsizing
American Banker (03/31/08) P. 1; Bills, Steve; Launder, William
The Federal Reserve Board recently reported that spending on prepaid credit cards was below $50 billion in 2006, though other researchers previously estimated that prepaid debit cards are worth hundreds of billions of dollars each year. The Fed report discovered there were 3.1 billion closed-loop transactions, which can only be used at one retailer, and 321.8 million open-loop purchases, which can be used at multiple locations. The closed-loop transactions totaled $36.6 billion, while the open-loop purchases were worth $13.3 billion. There are some possibilities as to why the Fed's numbers were lower than other numbers. Tim Sloane, the director of debit advisory services at Mercator Advisory Group Inc., which estimated that $197.9 billion was put on to prepaid cards in 2006, noted that the Fed's report excludes categories that his report did not such as government benefit cards, phone cards, and campus closed-loop systems. The Fed also did not count ATM withdrawals and did not include data from every participant in the payment chain. "We want to count the payment once and only once. There's a lot of double counting [that typically takes place]," said Edward Bachelder, the director of research and analytics at Dove Consulting, which conducted the Fed's study. The study also relied on estimations for some of the biggest prepaid services providers who chose not to participate. The lower figures may prompt some companies to rethink whether they want to remain in certain segments of the market while comforting other prepaid card companies that may have wondered why their sales results did not match earlier forecasts.
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Senators Move on Housing Relief
Wall Street Journal (04/03/08) P. A3; Lueck, Sarah
Several key senators this week came to terms on a $15 billion bipartisan plan aimed at bolstering the struggling housing market. To get the package up for debate in front of the full Senate, Democrats dropped a bankruptcy provision opposed by Republicans and agreed to halve funds for counseling at-risk homeowners to $100 million. For their part, GOP lawmakers agreed to a smaller tax credit for homeowners than they initially sought and accepted $4 billion in block grants for communities to buy and refurbish foreclosed homes. The plan would not only increase the size of loans backed by the FHA to $550,000, it also would raise the down-payment requirement to 3.5 percent from 3 percent. Additionally, the legislation includes $10 billion of mortgage-revenue bonds that states can issue for refinancing and for first-time home buyers, a $6 billion tax break for builders, and a provision to allow the nearly 28 million homeowners who do not itemize their taxes to get a deduction on their property taxes.
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Paulson Plan Begins Battle Over How to Police Market
Wall Street Journal (03/31/08) P. A1; Paletta, Damian; Ip, Greg; Phillips, Michael M.
Treasury Secretary Henry Paulson will formally draw up a plan to merge or remove institutions of long standing such as the Securities and Exchange Commission (SEC) and establish the Federal Reserve as a major authority in an effort to fix what he deems to be a broken financial regulatory system. His plan calls for a short-term strategy of creating a Mortgage Origination Commission to monitor the adequacy of each state's mortgage lending supervision; an intermediate-term strategy of combining the SEC and the Commodity Futures Trading Commission; and a long-term strategy of expanding the Fed's powers so that it can oversee "market stability." "Anything that moves the current fragmented regulatory system forward to more coordinated structure is good," said Lehman Brothers Holdings Inc.'s Thomas Russo. Though bankers think the plan could be positive in easing and simplifying regulation, they are also concerned that their profits could be undercut by rules designed to increase the safety of the financial system. The Fed, meanwhile, is worried that it could lack the explicit authority to enforce the new market stability oversight duties it would be given under Paulson's proposal. "I think we rely very, very heavily on market discipline," stated Paulson. "Having said that, I still think we need a system that is more efficient and gives us a better chance, gives us more tools to try to solve problems." Economists warn that impetuous decisions and costly errors are born out of a crisis mentality.
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FHA May Aid Those 'Underwater' on Loans
Wall Street Journal (03/28/08) P. A6; Paletta, Damian
A proposal from HUD would allow the FHA to insure a portion of mortgages whose balances exceed the home's worth in an effort to curtail foreclosures. The plan would be smaller than one already under consideration by Congress, which would permit the agency to insure another $400 billion in mortgages after lenders write down the loans so that they can be refinanced. "We will insure 80 to 85 percent of the loan--give ourselves some leeway even if it falls a little more," HUD Secretary Alphonso Jackson reportedly told the Washington Times. Housing industry officials have expressed concern about the FHA's ability to help struggling borrowers, given that those who missed a payment in the last six months do not qualify for an FHA loan. If the White House's Office of Management and Budget approves HUD's proposal, more borrowers would qualify for FHA refinancing.
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Fla. Ruling May Alter the Payday Business
American Banker (04/01/08) P. 7; Launder, William
The Florida Office of Financial Regulation won a lawsuit against payday lenders last week, which ruled that EZPawn Florida violated usury laws that cap interest at 18 percent. The company charged 18 percent on loans brokered from Integrity Florida Funding and also collected a fee of $15 to $30 on every $100 lent, which the judge ruled violated the law; he recommended a cease and desist order be issued by the regulator. The order would apply only to the one company, but would set a precedent that could be used against other payday lenders. Texas-based Cash America International has already said it may consider changing its model for a product that has similar characteristics. Florida regulators said they may begin looking at other payday lenders that use credit service organizations.
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Lending Plan Won Prize, But Will It Work Here?
New York Times (04/01/08) P. 5; Fairbanks, Amanda M.
Grameen Bank, the organization that won the Nobel Peace prize for its "microloans" to third-world entrepreneurs, has begun establishing similar lending groups in the United States to reach the 40 percent of the population that is underbanked and who often must resort to expensive payday loans and check cashers. The company has lent more than $250,000 to more than 100 women in Queens, N.Y., to fund businesses such as elder care, housecleaning, and flower-arranging. The company plans to expand to other states if the program is successful, though some observers doubt it will be a successful model in this country. The model relies on peer pressure rather than collateral to enforce repayment, and some say the small loans, which are capped at $3000, will not be enough to lift anyone out of poverty. Under the Grameen model, borrowers must attend mandatory weekly meetings to learn money management skills and to make payments in front of the entire group, and if anyone falls behind, no one in the group can get a new loan. So far all of the women in the Queens group are current on their payments. The company directs its loans to women, who they say have proven more reliable and more comfortable in the group model. Other companies that have attempted a microlending model in America have found it to be unsuccessful, citing discomfort with the group environment and lack of trust among members.
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Credit Turmoil Raises Student-Loan Worries
Wall Street Journal (03/28/08) P. A6; Tomsho, Robert
With credit tightening, Congress and other policy authorities are calling for the establishment of an emergency backup for the federal government's student guaranteed-loan program. Pressure to develop an emergency lending channel, or "lender of last resort" program is picking up after several banks and other lenders that participate in the federal government's guaranteed-loan program disclosed they are withdrawing from the program due to the credit crunch. Federal law allows the Department of Education to forward U.S. Treasury funds to student loan guaranty agencies around the country if a sufficient number of private lenders pull out of the federal loan program. The urgency to come up with a backup program comes just as thousands of students are taking steps to arrange financing for the coming school year. Approximately 7.6 million students and parents are expected to borrow $95.3 billion from private lenders for the 2008-2009 academic year. To address a potential shortfall, the education department recently sent a letter to guaranty agencies informing them that a plan to release the advances is still being worked out. "Should the need arise, additional information and guidance will be issued," wrote Lawrence Warder, the education department's acting COO for federal student aid.
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Viewpoint: Savings Bonds Ought to Make a Comeback
American Banker (03/28/08) P. 10; Tescher, Jennifer
Savings bonds are a good option for consumers because they can be purchased for just $50, have a principal guaranteed by the government, and Series I bonds are indexed for inflation; however, the traditional ways of buying bonds have become challenging. Few tellers or human resources managers know how to facilitate a purchase. The Treasury also no longer accepts credit cards, only taking orders from consumers who have bank accounts. Some individuals, however, are hoping to bring back the savings bond trend through their own start-up efforts. Professor Peter Tufano of Harvard Business School started a nonprofit a few years ago, called the Doorways to Dreams Fund, that provides low-income tax filers the opportunity to put a portion of their refunds toward the purchase of savings bonds. More than 1,000 people, 65 percent of whom reported having no savings, ordered about $200,000 in bonds through the program this tax season. Entrepreneur Brian Lawe is also hoping to make it easier for consumers to buy savings bonds through his company, USgiftBonds LLC, which aims to allow people to purchase savings bond gift cards from retailers.
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Paulson Plan Would Open Charters to All Comers
American Banker (04/03/08) P. 1; Adler, Joe
The Treasury Department's proposal to overhaul the financial regulation system would open the floodgates for all kinds of commercial firms to own and manage banks, although the Federal Reserve Board would be holding the reins in terms of supervision. Specifically, the plan would let such entities own "federally insured depository institutions," which would constitute a consolidated federal charter for banks, credit unions, and thrifts. "The history of commercial firms affiliating with insured depository institutions has not supported the view of greater risks present in such structures," the proposal states. In May, the House of Representatives approved a bill banning charters from going to primarily commercial entities, but Senate Republicans are exercising solidarity in their opposition to the legislation.
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Experian Automotive Announces Industry's First Automotive Credit Report
PR Newswire (03/31/08)
Experian Automotive has come out with a new credit report that gives a more accurate picture of a borrower's credit profile. Automotive Credit Profile offers at-a-glance information to help lenders expedite the financing process with easy-to-understand credit information and even sorts, ranks, and lists the automotive tradelines at the beginning of the profile. Information presented in this format makes it easier for lenders to make the best financing option in a quick and timely manner while mitigating risk, according to Experian President Scott Waldron. "Having quick access to all of the automotive-specific credit information in an easy-to-understand format is invaluable to anyone financing vehicles in today's increasingly competitive market," Waldron says. "Experian's Automotive Credit Profile is a key tool in helping dealers and auto lenders achieve their ultimate goal: to drive the most profitable sales and more of them."
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Wolters Kluwer Financial Services Introduces New Customizable Motor Vehicle Lease Agreements in Electronic Format
Business Wire (03/31/08)
Wolters Kluwer Financial Services has come out with new customizable automotive lease agreements in an electronic format. The documents can be adapted to the specifications of the lender's leasing policies and business practices, according to Kevin Kopp, director of Indirect Lending for Wolters Kluwer Financial Services. "The new lease agreements are yet another example of how Wolters Kluwer Financial Services excels at recognizing market needs and providing solutions that address lender compliance and dealership usability," Kopp says. "We are facilitating e-contracting by offering the new lease agreements in an electronic format or via our Web-based DocOne document engine, which ultimately helps ease the burden of both compliance and document maintenance." The new lease documents are offered in all 51 jurisdictions of the United States and covered under Wolters Kluwer Financial Services' compliance warranty.
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High-Tech Gear Disables Car if Borrower Misses Payment
USA Today (03/31/08) P. 3B; Woodyard, Chris
In a bid to ensure auto loan payment from subprime borrowers, some subprime auto loans now include high-tech equipment on the inside of vehicles that remind borrowers their payments are due and that disable vehicles if the customer does not key in a code confirming that payment has been sent. The feature is an added incentive to make auto-loan payments on time, according to Hamilton Classic Cars' Jeff Hamilton, whose family-owned company makes use of the plastic boxes that light up when payments are almost due and beep on the day payments are expected. "We've used it as a tool to keep the repo rates down," says Hamilton. "We don't have to go after them as much." Other subprime lenders agree that the boxes give lenders added peace of mind in their bid to avoid loan defaults and frees them to lend to people in need of help. "We are able to help a lot of people who otherwise might not be able to get a vehicle," says Star Loan Acceptance Center's Cedric Brown.
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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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