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January 31, 2008
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Look for AFSA Education Foundation's UNC Leadership Development and NICCM Brochures in Your Mailbox
The AFSA Education Foundation has rolled out its 2008 Leadership Development Program at the University of North Carolina at Chapel Hill and the National Institute on Consumer Credit Management (NICCM) at Marquette University to help cultivate promising future leaders.
The UNC leadership development program has been shortened from two weeks to six days so executives are not away for the office for too long and to reduce employers’ costs. Professors from the nation’s best schools lead sessions on negotiations, ethics, and organizational effectiveness.
NICCM retains its two-year program for managers in the first stages of their career, with the first year focused on learning and the second on knowledge application.
Send your promising future leaders to the 2008 Leadership Development Program at UNC, July 16-22, or the National Institute on Consumer Credit Management, June 1-6.
Brochures can be downloaded from the Education Foundation’s Web site.
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AFSA Part of Group Releasing Identity Theft Prevention Report
House Judiciary Subcommittee Holds Hearing on Foreclosure Crisis
Annual Independents Survey Helps Members Evaluate Business Practices
SGA Committee Meeting Tackles a Number of Pressing Issues
GE Money Executive Assumes Chairmanship of AFSA Law Committee
In Consumer Finance, Citi Sees Room, Reason to Grow
Daimler Financial Plans Consolidation at Alliance
Clinton Plans Wide Consumer Protection Reform
Credit Card Debt Has Its Price
Arm Teens With Good Credit Skills
House OK's Temporary Increase in Loan Limits
Lawmakers Offer Plans for Homeowner Refinancing
Seven Leading Consumer, Civil Rights Groups Launch Alliance to End the Foreclosure Crisis …
No Problem? Peer Lenders Get Choosier
Increasing Financial Literacy
Viewpoint: There's an Opportunity in Credit Crunch
As Moratorium Ends, Few ILC Seekers Left to Fight
China Regulator Issues New Rules for Auto-Finance Cos.
PIN: Federal Rate Cut May Ignite More Captive Incentives
More Small Dealerships Seek Higher Credit Lines
AFSA Part of Group Releasing Identity Theft Prevention Report
A report on protecting individuals and organizations against identity theft was released today by the Identity Theft Prevention and Identity Management Standard Panel (IDSP), a partnership among 70 public and private sector participants, including AFSA.
The report helps arm business, government agencies and other organizations with tools to protect themselves and their customers against theft and misuse of personal and private information.
Formed in September 2006, IDSP was charged with developing a single, comprehensive catalog of existing standards, guidelines and best practices related to identity theft prevention. AFSA is represented on the panel by Director of E-Standards Mark Zalewski, who co-led one of the report’s three areas of focus and contributed to the report’s drafting.
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House Judiciary Subcommittee Holds Hearing on Foreclosure Crisis
AFSA staff attended the House Judiciary Subcommittee on Commercial and Administrative Law hearing, “The Growing Foreclosure Crisis: Identifying Solutions and Dispelling Myths,” on Tuesday, Jan. 29. The focus of the hearing was largely on H.R. 3609, the Conyers-Chabot bill that would allow bankruptcy judges to alter the terms of a mortgage in a Chapter 13 proceeding. Allowing bankruptcy judges to “cram down” amounts owed to lenders would increase risks for lenders and result in increased borrowing costs and less credit availability. AFSA strongly opposes H.R. 3609 on the grounds that it would counteract industry’s efforts to help consumers by establishing repayment plans or modifying loans. If passed, this bill would encourage borrowers to file for bankruptcy first, rather than viewing bankruptcy as a last resort. AFSA is aggressively conveying this message to policymakers in Washington, through individual meetings and other measures. In addition, AFSA continues to support efforts such as HOPE NOW, which encourages distressed homeowners to contact their lenders as quickly as possible.
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Annual Independents Survey Helps Members Evaluate Business Practices
The annual financial survey developed by RSM McGladrey for AFSA has been created to help member companies gauge their effectiveness in comparison with the independent consumer finance industry as a whole. The survey aims to provide valuable insight into financial ratios such as the return on average assets (pretax basis), delinquency rates, bad debts and recoveries, and operating expenses to total income. Survey results will be presented on Thursday, March 27 at the AFSA Independents Conference in Chandler, Ariz., outside of Phoenix.
Members are encouraged to contact Dawn Edwards at RSM McGladrey at dawnedwards@rsmi.com to obtain a survey packet. For general inquiries about the survey, contact Sheilah Harrison, AFSA Vice President of Membership Services, at sharrison@afsamail.org.
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SGA Committee Meeting Tackles a Number of Pressing Issues
AFSA’s State Government Affairs Committee held its winter meeting in Miami earlier this week. In conjunction with the AFSA Law Committee, the group hosted a discussion on risk-based pricing and credit scoring by a panel of high-profile industry experts, including Allen Fishbein, Director of Housing and Credit Policy for the Consumer Federation of America, and Stuart Pratt, President and CEO of the Consumer Data Industry Association.
The SGA Committee’s full agenda included a working lunch presentation by economist Dr. Manuel Lasaga on the national economic landscape. Other topics addressed were 2008 key legislative priorities, including the mortgage market spillover into other products, Social Security Number restrictions, universal default, Car Buyers' Bills of Rights, and installment lending restrictions.
The next in-person SGA Committee meeting will be June 2-4 in Half Moon Bay, Calif. All SGA subcommittees address priority state legislative issues during a monthly conference call, with the exception of the mortgage lending subcommittee, which holds a weekly call. For more information on these issues or to join the SGA Committee or a subcommittee, please contact Danielle Fagre Arlowe at dfagre@afsamail.org or Alejandra Siles at asiles@afsamail.org.
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GE Money Executive Assumes Chairmanship of AFSA Law Committee
The AFSA Law Committee installed Stephen Ambrose, Jr., as chair during the committee’s January meeting in Miami. As Senior Vice President and General Counsel for GE Money, Ambrose directs the company’s legal, compliance and government relations units. Ambrose received a bachelor’s in economics from the University of Pennsylvania and a law degree from Fordham University.
Ambrose succeeds Jerry Bringard, retired General Counsel of Ford Credit, who led the committee for 11 years and will extend his record of dedicated service as Chairman Emeritus.
The January meeting focused specifically on emerging issues facing the financial service industry. Glenn Canner, Senior Adviser for the Board of Governors of the Federal Reserve System, discussed the Fed’s report to Congress on Credit Scoring, 2006 HMDA data, and the Fed’s proposed HOEPA rule.
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In Consumer Finance, Citi Sees Room, Reason to Grow
American Banker (01/30/08) P. 1; Rieker, Matthias
Citigroup's consumer finance business, CitiFinancial, has 2,500 offices, more than twice the locations of Citibank's bank branches. CitiFinancial President and CEO Mary McDowell says the number of offices will expand this year, which is important as "we see a lot of people pulling back." CitiFinancial intends to launch 125 branches in 2008, about 14 percent more than in 2007, when it shut down 80. McDowell says her growth targets involve California and Texas as well as online originations. When disclosing consumer segment revenue, Citi excludes interest expenses; by that measure, CitiFinancial's revenue increased 8 percent to $1.2 billion in the fourth quarter. Delinquency levels are equal to or just above levels from a year ago, says McDowell, because CitiFinancial makes extremely basic loans. If customers face difficulties, the company will attempt "to figure out how to keep them in their house, and how to keep their loans current," she says.
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Daimler Financial Plans Consolidation at Alliance
Fort Worth Business Press (01/28/08) Forester, Crystal
Daimler Financial Services Americas is moving its various operations to a central location in Alliance, Texas. "We made a decision to concentrate all the operations including customer service, collections, including dealer credit--to concentrate all these operational parts of our business and increase the footprint we have in the Fort Worth area," says Daimler Financial President and CEO Klaus Entenmann. The consolidated divisions will be housed in a new three-story, 160,000-square-foot office building that is still under construction. Employees from Daimler's New Jersey; Detroit; Lisle, Ill.; and Jacksonville, Fla., operations will also move to Fort Worth.
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Clinton Plans Wide Consumer Protection Reform
American Banker (01/31/08) P. 4; Kaper, Stacy
Sen. Hillary Clinton (D-N.Y.) pledged Wednesday to enact legislation aimed at credit card companies. Her plan involves setting annual interest rate caps at 30 percent--including penalties--for credit cards, payday loans, and refund anticipation loans; prohibiting a number of card practices; and creating an independent regulator to protect consumers. The senator said she would like to reduce the cap even further at some point. The cap would be linked to a benchmark and would include a "reasonable" profit. The proposal also includes an end to allocation practices involving applying payments first to balances with the lowest interest rates; prohibiting companies from increasing interest rates due to changes in a borrower's credit score; and mandating written permission from the borrower to change rates. The plan to create an independent regulator is an idea backed by Harvard law professor Elizabeth Warren.
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Credit Card Debt Has Its Price
Los Angeles Times (01/30/08) P. C1; Lazarus, David
Sen. Dianne Feinstein (D-Calif.) recently introduced legislation aimed at protecting credit card users from accumulating more debt by only making minimum payments on their balance. Of the 88 million households that have a credit card, 11 percent make only the minimum payment. This means that millions of people will have to spend years paying off their credit card balance, which grows each month because of interest. Feinstein's bill would require credit card issuers to warn card holders about the downside of making minimum payments. It would also mandate that lenders give specific information to each card holder about how long it would take to pay off their balance and how much interest would be added. "It's unethical and immoral to not let people know what the terms and conditions are," said Feinstein. "The banks basically don't want people to know. They make money off uninformed consumers who get in over their heads." Many credit card issuers have recently increased the required minimum payment from 2 percent of the outstanding balance to 4 percent, which requires debt to be paid off quicker. Many credit card companies support the Federal Reserve's Regulation Z, which also requires a consumer warning and creation of a toll-free number that offers information about the consequences of minimum payments. However, that regulation only requires card companies to include generic information about minimum payments instead of specific information about each account. Card companies say that Feinstein's proposal to tell all customers how much they will be paying would be too costly.
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Arm Teens With Good Credit Skills
Wall Street Journal (01/27/08) Banjo, Shelly
Experts recommend that parents teach their children financial literacy skills at an early age. College lender Nellie Mae says the average college freshman amasses $1,500 in credit card debt by the end of their first year of school. This does not have to occur, according to Money Management International spokeswoman Kim McGrigg, who says parents can and should prepare their children for the financial responsibility that comes with credit. They can begin by introducing credit principles to their children when they believe they are mature enough to grasp them. Whenever that is, McGrigg says it is vital that parents communicate that "credit is a tool of convenience, not an extension of income." Children should also understand spending parameters and be able to distinguish what merchandise qualifies for credit purchase. Financial adviser William Jordan adds that parents should establish online access for accounts and remember to keep track of user names and passwords so they can track their child's spending habits and any poor habits such as missed bill payments and excessive spending. Prepaid cards such as Visa's Buxx Card and MasterCard's Allow Card give kids practical credit experience and are safe to use because users can use only the amount of money loaded on the card.
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House OK's Temporary Increase in Loan Limits
Inman News (01/30/08)
As part of the $150 billion economic stimulus package passed by the House, Fannie Mae and Freddie Mac's conforming loan limit and the maximum mortgage amount under the Federal Housing Administration's guarantee program would be lifted to as much as $729,750 in high-cost markets through year's end. Mortgages greater than 125 percent of an area's median home price would not be eligible, however, meaning that markets with a median home price of $333,600 or less would not see an increase in loan limits. Additionally, HUD will have 30 days from the bill's passage to calculate median home prices. Though Sen. Richard Shelby (R-Ala.) has voiced opposition to boosting the conforming loan limit before legislation to revamp oversight of Fannie Mae and Freddie Mac is passed, higher limits are supported by Senate Democrats as part of their economic stimulus bill.
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Lawmakers Offer Plans for Homeowner Refinancing
Wall Street Journal (01/30/08) P. A10; Scannell, Kara
In an effort to make it easier for struggling mortgage borrowers to refinance, federal lawmakers are considering proposals that would hike the caps on money raised by state housing finance agencies through municipal bonds, a limit that currently stands at $28.19 billion. Sen. Charles Schumer (D-N.Y.) wants the cap to be increased by $10 billion this year, another $10 billion in 2009, and $3 billion in 2010; these hikes would be permanent. Schumer's proposal also would allow multifamily housing, including rentals, to take advantage of refinancing. Meanwhile, a proposal by Sens. Gordon Smith (R-Ore.) and John Kerry (D-Mass.) would temporarily boost the cap by $15 billion over a three-year period. It remains to be seen whether these proposals would be included in the economic stimulus package or passed on their own. In related news, Schumer wants the credit-rating firm Moody's to offer a comparison table that details how it rates tax-exempt municipal bonds, which he believes would reduce costs and jump-start borrowing among states for refinancing purposes.
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Seven Leading Consumer, Civil Rights Groups Launch Alliance to End the Foreclosure Crisis …
PRNewswire (01/29/08)
Seven consumer and civil rights activist groups have banned together in support of two pieces of federal legislation designed to slow the rash of housing foreclosures. The coalition, called the Alliance to End the Foreclosure Crisis, supports the House's "Emergency Home Ownership and Mortgage Equity Protection Act." It also backs the Senate's "Helping Families Save Their Homes in Bankruptcy Act." The Alliance includes members of the Center for Responsible Lending, Consumer Federation of America, Leadership Conference on Civil Rights, National Association of Consumer Advocates, National Association of Consumer Bankruptcy Attorneys, and National Consumer Law Center. The two bills they are supporting would force courts to treat primary residences the same as all other forms of secured debt by permitting judicial modification of existing subprime exploding ARMs as a last resort before foreclosure. A number of banking organizations have attacked the bills, claiming they would worsen the subprime mortgage crisis and cause the secondary housing market to collapse. However, the Alliance has released a list of reasons why these objections are unjustified. First, the House bill only targets a small percentage of loans facing foreclosure. To qualify for bankruptcy the family must prove to the Internal Revenue Service that they have no other way of evading the loss of their home. Second, the bill will not increase interest rates or harm secondary markets as feared because the bill has recently been altered to limit protection to existing loans. In fact, the Alliance claims the bills may reduce costs by streamlining bankruptcy procedures and reducing foreclosures. They feel the bills are necessary because the financial industry's voluntary measures are not sufficient to reduce foreclosure. They estimate over 600,000 homes could be saved through this bill without causing undue stress on bankruptcy courts.
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No Problem? Peer Lenders Get Choosier
American Banker (01/30/08) P. 1; Wolfe, Daniel
Peer-to-peer lending has evolved into a smarter financial choice for individuals with superior credit than what is available in the market, claims Prosper Marketplace CEO Chris Larsen. People utilize the company's site to create three-year unsecured loans, usually at steeper account rates than they could earn by placing their money in savings accounts. Often, these rates are cheaper than what banks charge for personal loans, which enables the site to draw price-savvy borrowers. The number of prime loans dispensed by Prosper lenders in December rose by almost twofold from January, to 43.5 percent of the site's volume. Prosper rates borrowers utilizing Experian credit scores. Individuals with scores of 720 or higher are regarded as prime, while those with scores between 600 and 719 are thought of as near-prime, and those with scores beneath 600 are labeled as subprime. Larsen notes that an increasing amount of borrowers are visiting his site because banks are rejecting them for home-equity loans. While the borrowers and lenders select their own rate for every loan made via Prosper, the average for prime loans in November was 10.2 percent.
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Increasing Financial Literacy
Los Angeles Times (01/27/08) P. M-2
The editors of the Los Angeles Times write that financial illiteracy has become the United States' new type of redlining. They claim the trouble partially results from complications in the current credit markets. During the past 10 years, lenders have often put together loans, sold them off to unseen investors, and avoided any additional responsibility. Because they have not had much at stake, the editors write, lenders have the incentive to loan out increasingly larger amounts of money. Along the way, they frequently burden borrowers with loans they cannot afford or cannot comprehend. While policymakers are dealing with the worst abuses, the editors note, they point out that Americans are responsible for acquiring basic economic skills. "We must learn to save and budget if we want to keep buying more stuff, not to mention if we want to retire with security and comfort," the editors state. The editors say that attempts to upgrade financial literacy in this country are gaining speed, something which gives them hope.
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Viewpoint: There's an Opportunity in Credit Crunch
American Banker (01/25/08) P. 11; Tescher, Jennifer
In spite of the current credit squeeze, banks might experience growth through underbanked and unbanked consumers. This is because in general, the underbanked--who usually have household incomes below $40,000--are less likely to be borrowers. They are also more likely to have thin or no credit history, unlike subprime borrowers who typically have bad histories. A survey conducted in late 2006 by Synergistics Research found that just 12 percent of unbanked respondents and 20 percent of underbanked respondents had a mortgage. In the short term, underbanked consumers need access to fairly priced and well-structured payments and savings products and services. Banks can cater to their needs via fee income and low-cost deposits. Companies that come forward will help establish avenues for consumer loans after the credit crunch subsides. Those banks that took the initiative during better times are poised to realize the benefits of their investments today. KeyBank, for example, introduced check-cashing and other transitional services three years ago to the underbanked market in Cleveland. Its approach included innovative marketing messages, revamped branches, staff training, and determination. Now KeyBank's underbanked section is thriving.
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As Moratorium Ends, Few ILC Seekers Left to Fight
American Banker (01/31/08) Adler, Joe
In the 18 months policymakers at the Federal Deposit Insurance Corp. (FDIC) have had to think about changes to industrial loan company (ILC) legislation, they have made no tough decisions. Indeed, they have made virtually no decisions at all as ILC applications by Home Depot, Wal-Mart, and other big companies have been withdrawn. The moratorium on ILC applications, which went into effect a year and a half ago, comes to an end Thursday. Three of the original 14 applications remain, and only Chrysler Financial's involves a commercial parent company. An additional three applications for financial services companies are pending; these applications were filed after the FDIC made an application exemption for financial companies. Attorney Robert Cook of Hudson Cook LLP says that although the FDIC is likely "relieved that most of the controversy has gone away," a new ILC controversy may be brewing. He says that because the application delay helped to lessen the controversy, there may well be a new slate of applications.
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China Regulator Issues New Rules for Auto-Finance Cos.
Dow Jones Newswires (01/30/08)
The China Banking Regulatory Commission has announced new regulations for auto-financing firms that reduce their minimum capital mandates and broaden their corporate scope. In addition, the new rules provide additional channels for them to generate money to support their infiltration of the new market. Auto-financing firms will be allowed to issue bonds, lend and borrow money on the interbank market, and offer leasing services. The regulator noted that the companies will have to have an 8 percent minimum capital adequacy ratio, compared to the earlier 10 percent. The regulator also terminated the regulation prohibiting one entity from possessing stakes in more than one auto-financing business. The regulator has beefed up other rules for the formation of new auto-financing businesses, claiming the founders must have extensive professional expertise, while non-financial groups interested in creating an auto-financing company must have a minimum of 8 billion yuan in assets, compared to 4 billion yuan before. Foreign auto manufacturers that have already established auto-financing operations in China include DaimlerChrysler, General Motors, and Volkswagen.
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PIN: Federal Rate Cut May Ignite More Captive Incentives
SubPrime Auto Finance News (01/29/2008) Reed, Jennifer
The Power Information Network (PIN) warns that the Federal Reserve interest rate cut could fuel market demand as both captives and non-captives lower their rates. "Since the interest rates used for new-vehicle loans by both captive and non-captive finance sources tend to move in tandem with the Federal Funds Rate, we can expect APRs for both to decline as the Federal Reserve Bank continues to reduce the Federal Funds Rate in the near future," PIN explains. The trend, analysts say, could adversely impact captives as they are compelled to compete with non-captives by adding more incentives. The likelihood of this scenario unfolding is high, PIN says, because "the non-captive rates tend to be more strongly correlated with the Fed rate than the captive rates since the latter are subject to various incentive interventions by their operating companies to prop up consumer demand."
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More Small Dealerships Seek Higher Credit Lines
SubPrime Auto Finance News (01/29/2008)
Nearly one-third of small dealerships said they hope to increase their lines of credit during the next 12 months, according to a recent poll conducted by the Small Business Research Board. The survey also found that 53.3 percent of small dealerships said that their credit needs in 2008 would be unchanged from 2007, while 15.3 percent said they would see a decreased need for credit this year. In addition to asking the owners and managers of small dealerships about their credit needs for the coming year, the survey asked respondents about how easy it was for them to obtain credit in 2007. More than 62.8 percent of dealers said that access to credit was unchanged from 2006 to 2007, while 27.9 percent said credit was more accessible. Seven percent of the dealers surveyed said that credit was more difficult to obtain, and 2.3 percent said it was impossible for them to get credit. Small dealerships were also asked about the status of their relationships with their principal lenders. More than 56.4 percent of the auto and vehicle dealers surveyed said they had an excellent relationship with their principal lenders, while 29.1 percent said they had a good relationship.
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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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