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February 21, 2008
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Three New Panels Added to AFSA's Independents Conference Lineup
An already powerful lineup for the 25th Anniversary Independents Conference & Exposition has gotten even better. Three new panel sessions have been added to the lineup of the March 26-29 conference, which will be held near Phoenix.
The program now includes sessions on “21st Century Credit Bureau Enhancements” and "Protecting Risk-Based Pricing: Legislative, Legal and Compliance Challenges." In addition, a panel of past AFSA Independent chairs will discuss “Lessons Learned and Best Practices.”
Note: The hotel reservation deadline is quickly approaching. In order to get the discounted AFSA rate, contact the Sheraton Wild Horse Pass Resort before February 29th. For more information and to register now, click below to visit the conference Web site.
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AmeriCredit’s Miller Assumes Chairmanship of AFSA Vehicle Finance Division
New Senate Housing Stimulus Package Contains Measure to Rollback Bankruptcy Reform
Nearly Half of All States Have Foreclosure Task Forces, Says New AFSA White Paper
Mortgage Advisory Board Meeting Open to All Members
New Member Welcome
Wells Fargo to Give $1.5 Million to National Homeowner Counseling Organizations
GMAC Financial Services Starts Wholesale Business in Russia
Interchange Limits Heat Up on Hill
Will CUs Pay for the Rise of Capital One and PayPal?
Higher Rates Will Keep Credit Cards Profitable
Hope Now Under Fire--Even From Within
Don't Blame FICO for Subprime Mess, Fair Isaac Says
Frank Floats More Foreclosure Ideas
Student Loan Liquidity Push
As Lending Tightens, Education Could Suffer
Payday Loan Limits Passed
Consumer Credit Literacy: What Price Perception?
Hyundai Eyes Car Loans in U.S.
The ILC Treadmill
Overdue Auto Loans Climb to 10-Year High
Used Cars Remain Key Contributor to Profitability as Nation's Auto Dealers Face Challenges in Economy
Justice Dept. Sued Over Inaction on Auto Database
AmeriCredit’s Miller Assumes Chairmanship of AFSA Vehicle Finance Division
Preston Miller, Executive Vice President and Co-Chief Operating Officer of AmeriCredit, was installed as chair of AFSA’s Vehicle Finance Division Advisory Board at the conclusion of the division’s 12th annual conference and exposition in San Francisco, Feb. 6-8.
Miller joined AmeriCredit in 1989, and has held various leadership roles with company, including controller, chief financial officer, and chief operating officer for originations. He assumed his current role in Sept. 2007. Before joining the company, Miller was an auditor with accounting firm Coopers & Lybrand.
Members of AFSA’s Vehicle Finance Division have a significant interest in the financing and leasing of new and used vehicles to consumers. Through the division, member companies exchange information and find solutions to common problems, stay abreast of important developments and take coordinated action when necessary. For more information on the Vehicle Finance Division, contact Sheilah Harrison at sharrison@afsamail.org or 202-466-8602.
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New Senate Housing Stimulus Package Contains Measure to Rollback Bankruptcy Reform
Before Congress recessed last week for the President’s Day holiday, Senate Majority Leader Harry Reid introduced “The Foreclosure Prevention Act of 2008,” S. 2636. In the process, Reid invoked a Senate rule that allows him to bring the legislation to floor as early as next week without it being considered by any of the chamber’s committees that would normally get an opportunity to evaluate such important legislation.
Reid’s legislative package contains a number of provisions that would help at-risk borrowers, such as providing resources for housing counseling and an increasing the mortgage revenue bond cap for states to assist in refinancing troubled home loans. In addition, the bill would expand net operating loss carry-back rules under the Tax Code to five years.
A member of the Bankruptcy Coalition, AFSA has joined with other coalition partners to oppose the legislation because it includes language that would create new authority for Bankruptcy Judges to rewrite the terms of existing mortgage contacts.
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Nearly Half of All States Have Foreclosure Task Forces, Says New AFSA White Paper
More than 20 states now have task forces dedicated to foreclosure prevention, according to a white paper released February 21 by AFSA’s State Government Affairs department. A detailed state-by-state narrative, the paper provides links to state task forces reports as well as information on initiatives at the federal level.
Due to record foreclosures in many states, governors and attorneys general have increasingly come up with initiatives designed to help distressed borrowers keep their homes. Task forces often kick off through communication with subprime lenders – sometimes by summoning them together in a group meeting – to come up with new ways to provide relief to distressed homeowners.
Nationwide, reports from the task forces consistently include recommendations that would:
• Study the scope of the foreclosure problem in the state;
• Implement public awareness campaigns;
• Increase homeowner counseling services;
• Enhance consumer education programs;
• Encourage distressed homeowners to make use of the national foreclosure initiative HOPE NOW and its Web site and toll-free number; and
• Develop loan and refinance programs to help homeowners whose current loans are inappropriate for their financial circumstances.
AFSA’s State Government Affairs department keeps track of state executive task forces and their details, such as goals, outcomes and important dates. An updated chart is distributed weekly to AFSA State Mortgage Lending Subcommittee Members.
To read AFSA’s white paper, please click below.
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Mortgage Advisory Board Meeting Open to All Members
AFSA’s Mortgage Advisory Board will hold its 2008 spring meeting on March 18 in Washington, D.C. The meeting, which is open to the entire AFSA membership, will focus on legislative and regulatory proposals and their impact on lenders’ ability to provide affordable access to credit and to work with borrowers facing resets on existing mortgages. In particular, attendees will help shape AFSA’s response to the Federal Reserve’s new proposals to the Home Ownership and Equity Protection Act and the Truth In Lending Act, as well as Senator Dodd’s Homeownership Preservation and Protection Act (S. 2452). Faith Schwartz, Executive Director of the HOPE NOW Alliance, will talk about the progress alliance members are making in working with borrowers to avoid default or foreclosure.
For more information about the meeting, please contact Bill Himpler at 202-466-8616 or bhimpler@afsamail.org.
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New Member Welcome
AFSA welcomes two new active members: Gulf Islands Credit, Inc. and Summit Financial Corporation.
Gulf Island Credit, Inc. is an Independent consumer finance company operating in Mississippi. Summit Financial Corporation is a specialized automobile finance company, headquartered in Fort Lauderdale, Fla., that services retail installment sales contracts. Summit works with all of the major franchised automobile dealerships located throughout Florida. Founded in 1984, Summit is the oldest automobile finance company located in South Florida.
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Wells Fargo to Give $1.5 Million to National Homeowner Counseling Organizations
Market Wire (02/15/08)
Wells Fargo has announced that it is donating a total of $1.5 million to three organizations that aim to help homeowners facing foreclosure from losing their homes. The organizations--NeighborWorks America, the National Foundation for Credit Counseling, and the Housing Partnership Network--will distribute the $500,000 they will each receive from Wells Fargo to local nonprofit housing agencies that work with homeowners who are unable to pay their mortgages. According to NeighborWorks America CEO Kenneth D. Wade, the funds will help nonprofit housing counselors meet the growing demand for their services. He added that demand for counseling services will likely continue to increase this year as more mortgages reset to higher amounts.
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GMAC Financial Services Starts Wholesale Business in Russia
PRNewswire (02/14/08)
As part of GMAC Financial Services' plan to expand into Europe, wholesale service provider GMAC-CIS has begun vehicle inventory management programs for over 100 dealers in Russia. The company will manage inventory programs for the Opel, Saab, Cadillac, Corvette, and Hummer brands. GMAC already has private-label agreements for expansion in Central and Eastern Europe. One agreement was with Alpha Bank in 2007. GMAC currently has automotive financing units in 32 nations across Europe.
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Interchange Limits Heat Up on Hill
American Banker (02/21/08) P. 1; Kaper, Stacy
Approximately $36 billion in revenue the credit card industry pulls in annually could be threatened by legislation to limit interchange fees that is being drafted by House and Senate Judiciary committee leaders. A draft of a bill that is expected to be sponsored by House Judiciary Committee Chairman Rep. John Conyers (D-Mich.) and Rep. Chris Cannon (R-Utah) would establish a three-member board of lawyers appointed by the Federal Trade Commission and the Justice Department--and with at least seven years of legal experience--to regulate interchange rates, and sources say Senate leaders are considering introducing a similar measure. According to the bill, the panel would ascertain "the appropriate weight to be given to any evidence submitted by a party regarding the rates and terms for access to comparable electronic payment systems, including rates and terms set forth in voluntarily negotiated access license agreements." In addition, the board would be required to "give significantly more weight ... to rates voluntarily negotiated ... that are substantially below those rates reflective of the market power of covered electronic payment systems that existed prior to this act." The legislative initiative to restrict interchange rates is the result of a heavy push by the Merchant Payment Coalition, which is dedicated to lowering the merchant discount fees from which interchange fees stem. The draft legislation says the current interchange fee system favors banks, noting that since "there is no competition between the thousands of rival banks participating in a given electronic payment system regarding these fees and rules, merchants are denied access to the electronic payment system on rates and terms that would have been negotiated in a perfectly competitive marketplace." A group representing retail and banking interests met with Sen. Arlen Specter (R-Penn.) on Feb. 14 to discuss the setting of interchange fees, and sources say Specter has an interest in guaranteeing that the fees are established competitively and intends to continue discussions with both sides.
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Will CUs Pay for the Rise of Capital One and PayPal?
Credit Union Journal (02/18/08) Vol. 12, No. 7, P. 15; Jepson, Kevin
PayPal and Capital One should be of great concern to credit unions because of their growing appeal to online merchants thanks to low card interchange rates and other advantages. Credit unions brought in 19 percent of non-interest income from debit card interchange and 12 percent from credit card interchange for a total of nearly $5 billion by the second quarter of last year, estimates Callahan's 2007 Non-Interest Income Survey. Online payment providers such as Bill Me Later and Google Checkout and mobile payments players such as mFoundry also constitute a sizable threat to credit unions. BECU CIO Butch Leonardson reasons that credit unions must offer alternative payment options to members in order to survive, and a number of unions say they are eyeing XCalibur, a secure, multi-brand, multipurpose payments and smart card. Mobile payments may be another possibility, and Leonardson suggests that credit unions should team up with transaction processors that offer item processing as well as have strong investments in mobile payments, thus preparing the unions for the time when merchants start deploying the readers that accept contactless payments.
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Higher Rates Will Keep Credit Cards Profitable
Chicago Tribune (02/17/08) Lazarus, David
Although the Federal Reserve recently announced a series of rate cuts, many credit cardholders have seen their interest rates rise in recent months. Capital One and Bank of America have increased interest rates to as much as 28 percent for cardholders, even for those who have not missed any payments. Experts say that banks, which lost billions of dollars in the subprime mortgage market, are looking for additional sources of revenue to make up for the losses. The terms and conditions of many major credit card issuers state that interest rates could change "if market conditions change." Critics claim that raising card rates when the federal-funds rate is declining is not a reaction to market conditions, but a case of banks doing "whatever they want." Although both Capital One and Bank of America customers have the option of paying off their balance and moving their account to a different credit card provider, most people do not have the savings to pay off thousands in credit card debt immediately.
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Hope Now Under Fire--Even From Within
American Banker (02/20/08) P. 1; Hopkins, Cheyenne
The mortgage industry coalition backed by the Treasury Department is being criticized as ineffective by some of its own members, which include lenders, regulators, servicers, and community advocates. According to one anonymous member of Hope Now, "It's hard for it to do anything. It has no authority over investors or even its own members." Most of the plans announced by the coalition, including a 30-day halt of foreclosure proceedings, appear to be groundbreaking initiatives but actually are policies already in existence, according to critics. There also are concerns about the coalition being too limiting, because only borrowers who have FICO scores under 600 making timely mortgage payments qualify for the five-year interest rate freeze. Additionally, critics say it is unclear exactly how many loans have been modified and whether statistics have been inflated, with one report indicating that 68 percent of delinquent borrowers received assistance from their lenders during the last six months of last year; in contrast, only 39 percent of delinquent borrowers were helped, according to an earlier report. Financial Services Roundtable President Steve Bartlett acknowledges the internal conflicts and attributes the bumpy road to the sheer number of borrowers in trouble and the fact that implementing solutions is a "consensus-building process."
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Don't Blame FICO for Subprime Mess, Fair Isaac Says
Minneapolis Star Tribune (02/18/08) McGuire, Kara
Some large lenders, along with some securities analysts, believe Fair Isaac should take some of the blame for the subprime mortgage crisis because its FICO credit score is not effective in gauging risk. However, Fair Isaac's Mark Greene insists the blame rests on mortgage lenders, brokers, and credit rating agencies, as the firm provides only a score to be used as a guide. "By failure to do some of the basics of due diligence, checking for collateral and assessing capacity to repay, banks got themselves in trouble," Greene contends. He adds that the use of FICO scores by credit rating agencies to assess mortgage-backed securities risks was inappropriate. Fair Isaac has experienced a drop in earnings and stock price due to the subprime crisis, but it hopes upcoming product releases will bolster its financial position. In addition to the launch of FICO 08, a revamped credit score that is up to 15 percent more accurate in assessing the creditworthiness of subprime borrowers, the company will roll out a credit capacity index to predict the ability of consumers to manage future debt.
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Frank Floats More Foreclosure Ideas
American Banker (02/15/08) P. 20; Kaper, Stacy
House Financial Services Committee Chairman Barney Frank (D-Mass.) has taken the lead in crafting legislation aimed at helping the nation's homeowners stave off foreclosure. He currently is putting together proposals that, among other goals, strive to protect servicers from investor lawsuits and offer refinancing help for those with distressed loans. In developing such measures, Frank has garnered input from such sources as the Treasury Department and Bank of America Corp. He comments, "The fear of lawsuits for people who do modifications when they are acting on behalf of others is apparently a serious issue."
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Student Loan Liquidity Push
American Banker (02/20/08) P. 3; Kaper, Stacey
In the face of the current credit crunch, legislators are urging the departments of Treasury and Education to maintain adequate liquidity for student loans. Twenty-one Democrats, led by Rep. Paul Kanjorski (Pa.), wrote letters to the Secretaries of Treasury and Education to ask them to create regulations to ensure the flow of student loans is not disrupted.
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As Lending Tightens, Education Could Suffer
New York Times (02/19/08) Glater, Jonathan
Commercial education companies like Corinthian Colleges are considering offering student loans as the rising tide of credit problems is making it more difficult for banks to offer loans and for students to pay them back. The companies, which generally offer career programs like business, computers, healthcare, and culinary arts, usually cater to low-income students who are dependent on loans, making their business very dependent on the student loan market. ITT Educational Services announced a deal with three banks to ensure funding for student loans for the remainder of this year, while Universal Technical Institute says it may lose tuition revenue if students default on subprime loans. The problems come as Congress is reducing subsidy payments to student lenders making federally guaranteed loans and loan companies are imposing stricter standards for private loans to students with poor credit or those attending schools with low graduation rates. Students so far have not been terribly affected, but experts say all students--even at major universities--will have fewer borrowing options this fall. Some experts say the troubles in the commercial education sector may not be such a bad thing. "High-risk borrowers with low academic achievement who are pursuing post-secondary training should not go to expensive, low-quality proprietary schools,” says Michael Dannenberg, director for education policy at the New America Foundation in Washington. “They would be better off going to community colleges, which are lower cost and open enrollment, for the most part.”
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Payday Loan Limits Passed
Concord Monitor (NH) (02/15/08) Dorgan, Lauren R.
The New Hampshire Senate has passed a bill that would cap payday and title loans at 36 percent. As a result, the owners of Advance America, which owns 21 locations in New Hampshire, will likely close its locations in the state. Other major lenders are expected to follow suit. In 2006, payday lenders made about 150,000 loans in New Hampshire. Both supporters and detractors of the bill agree the cap will stop payday lending in the state. Some observers worry that by driving the industry away, New Hampshire citizens may turn to illegal activities or become more dependent on local welfare departments. To address this problem, the state Senate has also passed a measure to form a committee that would study alternative consumer credit options.
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Consumer Credit Literacy: What Price Perception?
Journal of Economic Issues (Quarter 1, 2008) Vol. 60, No. 2, P. 125; Courchane, Marsha; Gailey, Adam; Zorn, Peter
A Journal of Economics and Business paper claims that incorrect credit self-assessments result in a higher chance of being denied credit, witnessing a negative economic event, or having a steeper yearly percentage rate on a mortgage. The paper's researchers employed two separate datasets, one being a consumer survey performed in 2000 by Freddie Mac and data obtained from credit repositories on Americans' credit records. The other data lists the almost 1.2 million loans initiated in 2004, and includes Home Mortgage Disclosure Act information. The researchers theorize that consumers who seem to under-assess their credit in relation to their credit scores have bad credit records, while those who seem to over-assess their credit in relation to their credit scores usually have superior credit histories. The researchers claim that credit records entail more data than what is obtained just from FICO scores, and that consumers who are seemingly too optimistic or too pessimistic may be correctly evaluating their credit records. The researchers state this suggests that economic literacy initiatives should concentrate on more than FICO scores, and also include a wider comprehension of credit risk-associated elements. They add that financial literacy has a much more widespread part to play than just offering participants a correct assessment of their credit history.
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Hyundai Eyes Car Loans in U.S.
American Banker (02/21/08)
Hyundai Capital Services Inc. recently announced plans to start offering auto financing services in the United States. The South Korea-based auto financing company is 43 percent owned by General Electric Co. (GE), a connection that could help boost U.S. sales. Hyundai Capital provides financing for 80 percent of the cars sold by Hyundai and Kia Motors Corp. in South Korea. For its part, GE has begun offering financing to Kia customers in Austria, Germany, Hungary, Poland, Slovakia, and Spain. GE Money, which nets approximately 75 percent of its income from overseas markets, has invested in both Hyundai Capital and Hyundai Card.
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The ILC Treadmill
American Banker (02/19/08) Adler, Joe; Kaper, Stacy
A bill to prohibit commercial ownership of industrial loan companies (ILCs) was approved by the Senate Banking Committee by a vote of 11 to 10 on Feb. 13, but Senate rules require the Democrats to have a majority of lawmakers backing the measure physically present. Of the dozen legislators who were on hand then, just six approved the bill, leaving the Democrats in need of one vote to get the legislation passed. A do-over was attempted by Senate Banking Committee Chairman Sen. Chris Dodd (D-Conn.) on Feb. 14 at a hearing on the state of the economy, but he agreed to reschedule after other members complained that they had not received sufficient warning. Although it is uncertain when a do-over will transpire, the vote did shed some light on Sen. Robert Bennett's (R-Utah) ILC industry support. He stressed the importance of industrial banks to niche industries. Most ILCs are localized in Utah.
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Overdue Auto Loans Climb to 10-Year High
Wall Street Journal (02/15/08) P. C2; Park, Jenny
Fitch Ratings reports that auto-loan delinquencies hit a record high in January. According to the rating agency, 0.77 percent of U.S. prime and subprime auto asset-backed securities (ABS) were over 60 days past due in January, up 12 percent from December and 44 percent from January 2007. Subprime delinquencies exceeded 4 percent for the first time since the end of 1997, topping 4.03 percent in January, up 10 percent from December and 43 percent from the same period last year. Meanwhile, Fitch's ABS annualized net loss index hit 1.28 percent in January, down 4.5 percent from December but 44 percent higher than in January 2007.
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Used Cars Remain Key Contributor to Profitability as Nation's Auto Dealers Face Challenges in Economy
Autochannel (02/09/08)
According to Manheim Consulting's 2008 Used Car Market Report, auto financing at good rates remained available in 2007, even with the credit problems in the broader market. However, average auto loan maturities continue to increase, and auto repossessions climbed in 2007 to their highest level since 2003. Retail used vehicle sales volume declined in 2007, as it did in 2006, but the average price rose to $8,186. Meanwhile, new lease originations rose for the fourth year in a row, to 2.8 million units.
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Justice Dept. Sued Over Inaction on Auto Database
Washington Post (02/07/08) P. D2
Three consumer groups have sued the Justice Department for failing to create a national database on used vehicles. Public Citizen in Washington, D.C., Consumers for Auto Reliability and Safety in Sacramento, Calif., and Consumer Action in San Francisco say the Justice Department should be forced to create the National Motor Vehicle Title Information System within 30 days. The law requiring the creation of the auto database was passed in 1992 to crack down on fraudulent sales, including those involving automobiles that were rebuilt after they were wrecked or were stolen. "People's lives are at risk because they are buying used cars that are missing air bags or have other critical safety defects due to their hidden histories as junked or salvaged vehicles," says Joan Claybrook, president of Public Citizen.
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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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