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February 14, 2008
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AFSA Education Foundation Survey on Personnel Training
This week, the AFSA Education Foundation distributed an online survey to determine members' interest in the development of a comprehensive online training program for new hires and entry-level employees that would be offered at a reasonable price. The program would include training modules, tests, and a company administration site for employee enrollment and tracking.
All survey responses will be kept confidential, and results will only be shared in a cumulative fashion. Please direct any questions regarding the survey to Susie Irvine at 202-466-8611 or susie@afsamail.org.
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12th Vehicle Finance Conference Held in San Francisco
Industrial Bank Legislation Narrowly Passes House Banking Committee
Bankruptcy Code Changes Considered, One Voted Down in House
AFSA Leadership Meets with Pentagon Staff on Military Lending
Countrywide to Aid More Mortgage Borrowers
GE Money Moves HQ to UK Capital
FTC Releases List of Top Consumer Fraud Complaints in 2007
Visa Says 'Business as Usual' on Interchange Fees While EU Talks Continue
PCI Releases PIN Device Approval Listings
Viewpoint: Card Lenders Should Prep for Scrutiny
Worried Bankers Seek to Shift Risk to Uncle Sam
Plan to Aid Borrowers Is Greeted by Criticism
HUD Raises Concerns About Changes to FHA Loans
Credit Woes Hit Funding for Loans to Students
Viewpoint: New Tools Offer Better Access to the Unbanked
A Credit Score for Medical Bills?
Narrow Pass Spells Trouble for ILC Bill
Cerberus Chairman: Will Restructure Chrysler and GMAC
NADAguides.com Launches RV Financing Center
Despite Bumps, Brookline CEO Likes Auto
12th Vehicle Finance Conference Held in San Francisco
Nearly 400 people attended AFSA’s 2008 Vehicle Finance Conference & Exposition, which featured a full lineup of high-profile speakers and informative sessions.
Conference highlights included a keynote address by Cerberus Chairman and Former Treasury Secretary John Snow. During the CEO Panel, chief executives from Ford Motor Credit Co., AmeriCredit, Toyota Financial Services, Chase Auto Finance and the American Honda Finance Corp. shared their priorities for the future, which include managing and implementing change, differentiating themselves from the competition, maintaining a shared vision within the company, access to capital, gaining investor and consumer confidence, managing technological changes, and managing growth in countries like Brazil, Russia, India and China.
The conference preceded the National Automobile Dealers Association (NADA)’s Convention for the fifth straight year and included participation from NADA’s leadership during the general session, “Straight Talk with Dealers.” AFSA Chairman Andrew Morrison spoke of the importance of membership in the association while AFSA President and CEO Chris Stinebert gave an update on AFSA’s initiatives as well as Americans Well-informed on Automobile Retailing Economics (AWARE).
Morrison, Stinebert and Preston Miller, Chair-Elect of AFSA’s Vehicle Finance Division and Co-Chief Operating Officer of AmeriCredit, recognized Don Gottwald, the Division’s Outgoing Chair and Executive Vice President, HSBC Auto Finance, for his leadership and many contributions.
In addition to several stimulating presentations, the conference included a series of six roundtables covering a variety of topics from Emerging Issues at the State and Federal Level to Creating and Maintaining Higher Performance Relationships with Customers and Dealers.
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Industrial Bank Legislation Narrowly Passes House Banking Committee
On Wednesday, the Senate Committee on Banking, Housing and Urban Affairs narrowly passed the Industrial Bank Holding Company Act of 2008 by a party line vote of 11-10. The one-vote margin indicates that some Members of Congress have reservations about the legislation.
The legislation would prevent non-financial companies from owning industrial banks, with an exception for automobile manufacturers. Existing industrial banks would be allowed to continue to operate under a “grandfather” clause, but subject to additional regulation.
AFSA maintains its long-held position on the issue that all industrial banks, regardless of whether they are financially or commercially owned, should continue to compete in the financial services marketplace. Because the Industrial Bank Holding Company Act of 2008 is not consistent with this notion, AFSA does not endorse the legislation.
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Bankruptcy Code Changes Considered, One Voted Down in House
On Feb. 6, 52 House Democrats joined Republicans to defeat a measure sponsored by Rep. Danny Davis (D-Ill.) that would have made it far easier for people to wipe away student debts in bankruptcy. Had it passed, it would have largely undone a provision of the 2005 law.
Current law allows student loans to be discharged in bankruptcy if "undue hardship" can be shown. This policy protects truly unfortunate borrowers while at the same time preserving the integrity of the bankruptcy system. This balanced federal policy is designed to ensure that a sufficient volume of loans are available to meet the financial needs of students across the country. The Davis amendment would have undermined this policy by allowing private sector student loans to be discharged five years after starting to make payments without a showing of "undue hardship."
AFSA opposed the Davis amendment and was influential in conveying the dangers to Democratic policymakers who ultimately voted against the measure.
The Senate Judiciary Committee is expected to address bankruptcy reform, as it related to home mortgages, after the Presidents’ Day Recess.
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AFSA Leadership Meets with Pentagon Staff on Military Lending
AFSA Chairman Andrew Morrison, President & CEO Chris Stinebert, and Executive Vice President Bill Himpler met with the Department of Defense’s Office for Personnel and Readiness to discuss progress being made under new rules governing loans made to the military and their families. Noting that the regulations only went into effect in October of last year, they emphasized that it is still early in the process in terms of being able to report about whether the rules have been effective in eliminating abusive products being marketed to military personnel.
During the meeting, the Pentagon staff asked AFSA to specifically comment on how installment loans differ from payday loans and how they provide access to affordable credit without trapping consumers on a “cycle of debt.” AFSA members and staff are working to provide written commentary to the Defense Department in advance of its report to Congress.
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Countrywide to Aid More Mortgage Borrowers
Reuters (02/11/08)
Countrywide Financial Corp. has partnered with the Association of Community Organizations for Reform Now to help borrowers of various subprime mortgages who may or may not be delinquent. The expanded plan would allow borrowers with subprime hybrid adjustable-rate mortgages to refinance into prime mortgages or take advantage of a five-year interest-rate freeze, while those with fixed-rate subprime mortgages could choose from short-term repayment plans, interest-rate freezes, and other modifications to help bring their loans current.
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GE Money Moves HQ to UK Capital
BBC News (02/08/08)
GE Money recently announced that it is moving its global headquarters from Stamford, Conn., to London. The shift is designed to put the company closer to its 10 million U.K.-based customers. Cumulatively, that customer base generates about $25 billion in revenues annually for General Electric's finance arm. Most of the 200 people who currently work in the company's Stamford location will remain.
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FTC Releases List of Top Consumer Fraud Complaints in 2007
Federal Trade Commission (02/13/08)
For the seventh consecutive year, identity theft is the top consumer complaint, according to the Federal Trade Commission. Of the more than 813,000 complaints received by the agency in 2007, 32 percent dealt with identity theft. Credit card fraud accounted for 23 percent of the identity theft reported, followed by utilities fraud at 18 percent, employment fraud (14 percent), and bank fraud (13 percent). Fraud losses topped $1.2 billion, and the median loss was $349 per person.
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Visa Says 'Business as Usual' on Interchange Fees While EU Talks Continue
Thomson Financial (02/11/08) Zekaria, Simon
Visa Europe's existing interchange fees will continue to apply even while it holds talks with the European Commission (EC) over the current levels of those fees, the credit card company announced. Those talks follow the expiration of the EC's 2002 decision to grant Visa an exemption on its multilateral interchange fees (MIFs), which are fees levied on each payment at a retail outlet when the payment is processed. Although it remains unclear what the commission will do with regard to those fees, its recent ruling on MasterCard's interchange fee payments network within the European Economic Area could be some indication. In mid December, the commission ruled that MasterCard's interchange fee payments network within the European Economic Area was illegal since its MIFs increased retailers' costs of accepting cards and did not lead to proven efficiencies. MasterCard was ordered to withdraw those fees within six months. MasterCard objected to the ruling, saying that market forces, not regulation, should be the main driver behind the setting of interchange fees and retailers' choices of which forms of payment to accept. MasterCard has appealed the decision.
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PCI Releases PIN Device Approval Listings
Dark Reading (02/11/08)
The Payment Card Industry (PCI) Security Standards Council has posted the criteria for meeting the PCI PIN Entry Device (PED) Security Requirements and a list of equipment that meets those requirements on its Web site. The move makes the PCI Security Standards Council the only source of information about PED. Before the information was posted on the PCI Web site, PED was jointly administered by JCB, MasterCard Worldwide, and Visa. In addition, the PCI Security Standards Council's takeover of the administration of PED will "ensure a level playing field for the device marketplace" by removing conflicting requirements, says PCI Security Standards Council general manager Bob Russo, and will ease the burden on merchants and service providers.
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Viewpoint: Card Lenders Should Prep for Scrutiny
American Banker (02/08/08) P. 11; Sandler, Andrew L.; Raman, Anand S.
In the wake of the subprime mortgage crisis, card lenders will likely face a crackdown on unfair or deceptive lending practices, according to this American Banker opinion piece. In addition to consumer groups and plaintiffs attorneys, the Federal Trade Commission, banking regulators, state attorneys general, and Congress have all been taking a closer look at card lenders. Already federal and state agencies have issued enforcement actions designed to regulate rates, fees, advertising, disclosures, ancillary processes, and collections. These restrictions are expected to tighten even further as mortgage credit continues to dry up. Card companies must be particularly careful about the types of rates and fees they enact, especially for low-limit cards. Recent enforcement activity has focused on excessive annual fees; activation charges; up-front processing fees; late, over-limit, and penalty fees; and interest rate adjustments based on default, reduced credit scores, and use of other credit. Marketing practices are another area of scrutiny, especially ancillary product sales and fair-lending practices. To mitigate their regulatory risks, lenders need to ensure their rates and fees are reasonable, that they practice succinct and accurate disclosure, and that all marketing policies accurately represent the nature of the product being offered; in short, card lenders should review their compliance practices before the crackdown becomes more severe.
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Worried Bankers Seek to Shift Risk to Uncle Sam
Wall Street Journal (02/14/08) P. A2; Paletta, Damian
Sen. Charles Schumer (D-N.Y.) says lawmakers are "seriously" considering a proposal from Credit Suisse Group to allow the Federal Housing Administration to guarantee refinancings for delinquent mortgage borrowers. Under the plan, 600,000 subprime borrowers with loans worth $89 billion would qualify for refinancing; but concerns remain because the federal government would shoulder the loss if borrowers default. Another plan would establish an industry standard for "principal charge offs," allowing banks to more easily write-off unpaid loan balances to reduce the amount owed by borrowers so that they might qualify for refinancing. Without an industry standard, though, mortgage servicers are hesitant to make such write-offs for fear of litigation from mortgage-backed securities investors.
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Plan to Aid Borrowers Is Greeted by Criticism
New York Times (02/13/08) P. C4; Grynbaum, Michael M.
The Bush administration--with the support of Bank of America, Citigroup, Countrywide Financial, Wells Fargo, Washington Mutual, and JPMorgan Chase--launched Project Lifeline on Feb. 12. The program will allow borrowers whose mortgage payments are three months or more late to request a 30-day halt in foreclosure proceeds while they seek loan modifications. Lenders are not required to change the borrower's loan terms, however, and homeowners cannot participate in the program if they will be bankrupt or in foreclosure in a month's time. The effort is being criticized for failing to go far enough, with experts insisting that just a fraction of the 425,000 borrowers who qualify for the plan will receive assistance. According to Sen. Charles Schumer (D-N.Y.), "It is encouraging that lenders and servicers are willing to temporarily pause foreclosures, but only meaningful and long-term loan modifications will help keep people in their homes."
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HUD Raises Concerns About Changes to FHA Loans
STLToday.com (02/12/08) Crittenden, Michael R.
Despite widespread support for FHA reform, the Bush administration and congressional legislators continue to butt heads over the best strategy to revamp the agency. Just this week, HUD Secretary Alphonso Jackson dispatched a letter warning Congress that certain proposed changes could limit the FHA--specifically, resistance in the House and Senate to the FHA's push for greater flexibility in setting premiums. The agency wants the authority to impose higher fees on riskier borrowers while charging lower costs to low-income borrowers who have relatively good credit. Without that relationship between risk and premium level, Jackson insists that "FHA becomes a full-fledged subsidy program."
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Credit Woes Hit Funding for Loans to Students
Wall Street Journal (02/13/08) P. A1; Rappaport, Liz; Smith, Randall
The credit crunch has so far caused over $100 billion in losses for major investment firms, but the latest casualty of the subprime mortgage crisis could be educational trusts. Already the Michigan Higher Education Student Loan Authority has cut back on student loan programs because of capital-market problems. Insiders say student loan troubles are due to the freeze in the auction-rate securities market. To raise capital for loans and other funding projects, borrowers auction off securities with interest rates that change on a weekly basis. Investors who normally buy these securities have been shying away, effectively pushing up borrowing costs as high as 18 percent. Funds exposed to this market include those that finance Carnegie Hall, San Francisco's de Young Museum, and state-loan authorities in Mississippi and Montana. Although Michigan is the only state thus far to announce a student loan halt, the Education Finance Council indicates it will not be the last state to do so. Even worse, many of these securities are covered by troubled bond insurers like MBIA Inc. and Ambac Financial Group. These organizations will likely lose their triple-A credit ratings due to subprime mortgage exposure, leading to further panic over the securities they back. And loan groups are not the only ones that will suffer if the auction-rate securities market continues to tank. Bristol-Myers Squibb recently recorded a $275 million charge tied to auction-rate securities. So far, investment managers are unclear as to how far the damage will spread, but more closed-end mutual funds are expected to attempt to unload this type of security as their financing costs increase.
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Viewpoint: New Tools Offer Better Access to the Unbanked
American Banker (02/08/08) P. 10; Vemuri, Ashok
The annual meeting of the World Economic Forum was recently held in Davos, Switzerland. Out of that meeting two new technology-enabled business models emerged as promising solutions to help individuals in emerging markets access financial services, according to this American Banker opinion piece. Most large financial institutions have been reluctant to market to the unbanked because of insufficient infrastructure and excess risk. These concerns are largely addressed by new collaborative financing models like mobile banking and peer-to-peer lending. Over the past several years, the mobile phone market has skyrocketed in developing nations, achieving penetration levels between 60 percent and 100 percent in some locations. Currently, Nokia Corp. estimates there are 3 billion mobile phone subscriptions worldwide, a number expected to grow to 5 billion by 2015. Mobile phones give users easy and instant access to financial transactions, allowing banks to greatly improve their customer reach. Peer-to-peer lending is also changing the face of global financing by offering loans to individuals with unestablished credit. Peer lenders provide loans to peer borrowers, opening the door to alternative credit scores that could lead the way to establishing credit for currently unbanked customers. Although technology enables both of these processes, technological advancement is not enough to save the global economy. Financial institutions must also remain innovative in other areas including product development, business processes, delivery channels, and customer service and education.
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A Credit Score for Medical Bills?
ABC15.com (Phoenix) (02/07/08) Ducey, Joe
"Med-fico" could help hospitals determine whether patients can pay their medical bills, according to Fair Isaac. The firm says it will collect payment histories from hospitals across the nation, analyze it, and determine if a score can be attributed to each patient to signify their ability to pay for medical care. Consumer advocates are concerned the scores could be used to deny patients' care, hospital stays, or follow-up visits; they also note employers could use the scores to determine whether or not to offer insurance. It is unclear if the medical score, which is in the development stage, violates the Fair Credit Reporting Act.
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Narrow Pass Spells Trouble for ILC Bill
American Banker (02/14/08) P. 1; Adler, Joe
The Senate Banking Committee has voted to pass a bill prohibiting commercial ownership of industrial loan companies (ILCs), with several Republicans complaining about an exemption for automakers--but despite calls for compromise, Senate Banking Chairman Sen. Chris Dodd (D-Conn.) promised to continue to support the legislation, and warned that Republicans would shoulder the blame if the bill fails to pass the full Senate. A bill that the House passed earlier with broad bipartisan support would have banned the ownership of ILCs by companies that derive over 15 percent of their revenue from commercial activities without an exemption for automakers, although House Financial Services Committee Chairman Rep. Barney Frank (D-Mass.) said last year that he was ready to insert an exemption if it would help garner Senate support. Supporters of the Senate bill insist that the exemption is needed to eliminate a lack of competitive parity in the auto industry, with Sen. Richard Shelby (R-Ala.) arguing during the vote that "if the committee has concluded that the commercial ownership of banks presents an unjustifiable risk to our financial system, certainly the ownership of banks by automobile manufacturers should be no exception." Shelby also said that the hearing record for the legislation did not adequately justify numerous amendments the proposal would impose, pointing out that ILC owners would face consolidated supervision by the Federal Deposit Insurance Corp. Sen. Robert Bennett (R-Utah) also believes that the ILC bill is excessive. "It's clear we're not in ground where we can make a deal yet," he noted following the markup. "I've always said that I'm willing to talk about some changes, but these are not the changes that I would go for."
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Cerberus Chairman: Will Restructure Chrysler and GMAC
Dow Jones Newswires (02/08/08)
Cerberus Capital Management Chairman John Snow says the company is intent on doing "a lot of restructuring" at GMAC Financial Services and Chrysler. The move reflects Chrysler's efforts to cope with lower demand for new vehicles in the face of turmoil in the housing market, high fuel prices, and tighter credit, and GMAC's exposure to subprime mortgages. In remarks made at the American Financial Services Association's Vehicle Finance Conference, Snow indicated that Cerberus and Chrysler management would be making adjustments to Chrysler's operations and build on its strengths. "You're going to see a different Chrysler. You're going to see a different GMAC, too," Snow said. While he did not disclose how much it would cost, he said that "discussions are under way" to cut the number of Chrysler dealerships. As for GMAC, Cerberus plans to concentrate more on credit quality. "You're going to see a reliance on analytics," Snow said. "Getting away from some of the practices that got the finance industry in trouble, which was simply using models and not getting a deep study of credit quality of your counterparts."
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NADAguides.com Launches RV Financing Center
PRNewswire (02/05/08)
Vehicle pricing and data Web site NADAguides.com has announced the rollout of competitive financing services for recreation vehicles. The RecreationVehicle Financing Center, which appears in the RV section of NADAguides.com's site, offers a full array of financing services supplied by Essex Credit. To obtain a recreation vehicle loan, visitors simply complete an online application. Applicants are notified about their eligibility and loan terms within minutes. Damon Bennett, director of business development at NADAguides.com, says the service is the product of rising consumer demand for a comprehensive slate of easy-to-use, online recreation vehicle products and services. "NADAguides.com is the world's largest publisher of RV pricing and specification information," Bennett says. "Not only are we committed to offering our Web site visitors with more RV information than anyone else on the market, we're also committed to providing millions of RV enthusiasts with convenient online financing services."
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Despite Bumps, Brookline CEO Likes Auto
American Banker (02/05/08) P. 1; McGeer, Bonnie
Brookline Bancorp Chairman and CEO Richard P. Chapman is still optimistic about automobile lending, despite a turbulent fourth quarter. For now, Chapman says he is comfortable with Brookline concentrating on lending instead of chasing fee income through money management or insurance. "We have pretty much stuck to the old-fashioned business of living off margin income," he says. One reason this strategy has worked well for Brookline is because its auto lending is primarily done through dealers in New Hampshire, Rhode Island, Massachusetts, and Connecticut, which is handling the downturn better than other parts of the country. Chapman adds that auto lending has also allowed Brookline to expand its portfolio, 50 percent of which comprises mortgages.
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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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