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July 10, 2008
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Online Registration for SGA Annual Meeting Opens July 14
Proposed Rule Could Lead to Elimination of Federal Paper Odometer Disclosure
Associate Members Support Financial Literacy Efforts
Countrywide Takeover Will Pay Off, BofA's CEO Says
Wells Fargo Statement of Support of U.S. President's Advisory Council on Financial Literacy
Discover Financial Opens Data Subsidiary in China
Credit Card Bill Waylaid by Fed Rule
Gas Stations Offer Discounts for Cash Instead of Credit Cards
Revolutionary Money: Upstart Challenges the Credit Card Industry
Obama Proposes Changes to Bankruptcy Law
Federal Mortgage Aid to Advance in Senate
U.S. Mulls Future of Fannie, Freddie
Housing Bill's Tax Credit Draws Criticism
FinLit 2: The Classroom Is The Branch
Lenders’-Eye View of the Credit Crisis
Waiting for the Call
TransUnion: Auto Delinquencies Show Big Drop From 4Q to 1Q
The Financial Rationality of Consumer Loan Choices
Online Registration for SGA Annual Meeting Opens July 14
AFSA’s 10th Annual State Government Affairs Forum/NACCA Annual Meeting will include lively and timely sessions on emerging issues, the economic outlook, top regulatory complaints and the fallout of the foreclosure crisis. On Monday, July 14, online registration will open for the forum, which is Sept. 30 – Oct. 2 in Los Angeles. A joint regulator/industry day with the National Association of Consumer Credit Administrators (NACCA) will be among the featured events.
Designed for State Government Affairs professionals, attorneys, licensing staff, and examination staff in the financial services industry and state regulators and their licensing and examination staffs, the meeting provides an in-depth update on important issues affecting the industry at the state and local level.
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Proposed Rule Could Lead to Elimination of Federal Paper Odometer Disclosure
AFSA’s National Title Solutions Forum Committee recently learned that the National Highway Traffic Safety Administration (NHTSA) is seeking comments on proposed changes to the U.S. Federal odometer disclosure requirements to allow the Commonwealth of Virginia to use an electronic odometer disclosure procedure. While waiting for final approval, Virginia has been granted temporary permission.
NHTSA is looking for comments from other states, as well as other interested parties, before making a final decision on the proposed changes. Comments are due by Thursday, July 24. Final approval of the proposed changes will allow Virginia to implement the first "fully" electronic title system, and will also set a precedent for other states to petition NHTSA when they are ready to move to electronic title processing.
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Associate Members Support Financial Literacy Efforts
The AFSA Education Foundation (AFSAEF) and AFSA’s associate members are working together to promote financial literacy. To date, AFSAEF has received financial commitments from Connections Insights, Financial Insurance Management Corporation, Penn Hill Associates, and VantageILM, but the foundation is still a long way from its goal and needs your help. The foundation “is one tangible way for us to show just how involved we really are in helping to improve the quality of our children’s education,” says AFSAEF Chairman Harry Goff. To learn how you can help students become financially literate, contact Susie Irvine, AFSAEF President & CEO, at 202-466-8611 or susie@afsamail.org.
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Countrywide Takeover Will Pay Off, BofA's CEO Says
Los Angeles Times (07/10/08) Reckard, E. Scott
Bank of America expects its Countrywide acquisition to show a profit almost immediately after the books on the deal are closed and believes the acquisition will contribute considerable growth in income once the mortgage industry rebounds. Bank of America plans to use its brand name for its mortgage lending business.
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Wells Fargo Statement of Support of U.S. President's Advisory Council on Financial Literacy
Fox Business (07/08/08)
Wells Fargo salutes the U.S. President's Advisory Council on Financial Literacy's recent decision to accept recommendations to make financial literacy a part of sound subprime lending. The financial services company applauds the Council on Financial Literacy and the Committee's recommendations included in the "The Future of Responsible Sub-prime Mortgage Lending," saying, "We agree with the Council that financial literacy should serve as a foundation to all responsible subprime mortgage lending and understand the Council is continuing its discussions. We look forward to their final determination."
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Discover Financial Opens Data Subsidiary in China
Associated Press (07/07/08)
Due to the increasing demand for data analysis and financial modeling operations in China, Discover Financial Services will open a subsidiary in Shanghai by the end of July. The company will initially hire 45 analysts, and plans for a twofold increase in its workforce by next year.
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Credit Card Bill Waylaid by Fed Rule
American Banker (07/08/08) P. 1; Kaper, Stacy
The financial services industry has begun to lobby against a regulatory proposal on credit card practices issued in May by the Federal Reserve, the Office of Thrift Supervision (OTS), and the National Credit Union Administration (NCUA). The industry thought the Fed, OTS, and NCUA would take a cautious approach to curbing card practices, but the regulatory plan is viewed as one of the more pro-consumer rules the agencies have proposed recently. The Fed rule goes so far in banning certain card practices that lawmakers will need to reconsider their legislative plans because they pale in comparison. Senate Banking Committee Chairman Chris Dodd (D-Conn.) still has not introduced his bill, and the House Financial Services Committee did not vote on a bill from Rep. Carolyn Maloney (D-N.Y.) in June as previously expected. Lawmakers will be too focused on a housing rescue bill to move their credit card bills forward this year, according to observers. Still, the lawmakers could continue to push for legislation to resolve issues the Fed proposal does not address, such as penalty fees and student cards, or use bills on bankruptcy reform or interchange fees to close any remaining gaps in card reform.
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Gas Stations Offer Discounts for Cash Instead of Credit Cards
USA Today (07/08/08) P. 3B; Chu, Kathy
An increasing number of gas stations are trying to persuade customers to pay for fuel with cash instead of credit through discounts and other incentives in an attempt to reduce their credit card fees. For example, gas stations in North and South Carolina are offering customers an eight-cent gallon discount if they pay with cash and PIN debit cards. Station owners pay processing fees for both debit card and credit card purchases, but the fees for debit transactions are significantly less than those for credit transactions, particularly when consumers enter a PIN for the purchase. MasterCard's Sharon Gamsin says higher oil prices are driving up credit card fees for retailers despite the card companies' attempts to reduce card fees at the pump.
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Revolutionary Money: Upstart Challenges the Credit Card Industry
Conde Nast Portfolio (07/01/08) Gustin, Sam
Revolution Money (RM) combines an online payment platform with a credit card company through a Web-linked physical card, RevolutionCard, that offers dramatically lower fees than traditional credit card companies. The card is designed to be appealing to many merchants frustrated with paying high card transaction interchange fees. RM can offer merchants substantially reduced fees because the company uses its own Internet-based payment processing system rather than traditional credit card clearing networks, while the merchants can channel the savings back to consumers as rebates and discounts, which establish a built-in incentive for consumers to use RM's card. "You might get 10 cents off a gallon of gas, or a premium cable channel thrown in just for using the RevolutionCard," says company CEO Jason Hogg. "It's immediate gratification for the consumer." Meanwhile, RM's secure online payment system, MoneyExchange, lets consumers instantly transfer money online at no charge.
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Obama Proposes Changes to Bankruptcy Law
Wall Street Journal (07/09/08) P. A6; Cooper, Christopher; Farnam, T.W.
In a move that reflects Sen. Barack Obama's (D-Ill.) liberal leanings on economic policy, the presidential candidate has introduced a bankruptcy reform proposal that would protect consumers who file. Under Obama's proposal, bankruptcy courts would have the authority to rework mortgage settlements on a debtor's main domicile. The plan also provides additional protections to uninsured people whose hardship stems from massive medical expenses, military personnel on extended-duty tours, disaster victims, and elderly homeowners. Those who file for personal bankruptcy protection will also be spared the bureaucratic steps needed to file. The plan calls for more evenhanded debtor-protection laws across states. The proposal calls for a minimum national "homestead" level of equity for some homeowners seeking protection against creditors. For many observers, the Obama campaign's decision to unveil a plan rich in protections for consumers when the economy is in a near-recessive state is telling and sends the message that the senator is committed to revising the bankruptcy law. "This goes as far as anybody who's had the ability to get things enacted into law has proposed," says University of Illinois professor and bankruptcy expert Robert Lawless. "It's much more targeted, rather than saying, 'I want to go in and undo the 2005 bankruptcy law.' I don't think there'd be any political interest in doing that."
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Federal Mortgage Aid to Advance in Senate
Associated Press (07/10/08) Davis, Jennifer Hirschfeld
Under a massive election-year mortgage rescue plan that is drawing support from both sides of the political aisle, the FHA would guarantee up to $300 billion in new loans to provide struggling homeowners with more affordable, fixed-rate mortgages. The aid package also would allow lenders that agree to take a sizable loss on their mortgages to recoup at least some money and skirt a costly foreclosure. Additionally, the measure includes the long-sought modernization of the FHA and would create a new regulator for and tighter controls on Fannie Mae and Freddie Mac. The plan is far from the finishing line, however, with House legislators expected to rewrite several key portions and President Bush still threatening a veto.
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U.S. Mulls Future of Fannie, Freddie
Wall Street Journal (07/10/08) P. A1; Hagerty, James R.; Solomon, Deborah; Paletta, Damian
Although the Treasury Department and other financial regulators have been discussing for months what the government should do to prevent or manage a failure of Fannie Mae or Freddie Mac as part of its regular contingency planning, sources say the discussions have become more serious as the government-sponsored enterprises' share prices lose value. Officials and analysts generally believe the GSEs will weather the credit crisis, but former Treasury Department general counsel Peter Wallison insists that they cannot be allowed to fail because "the losses would extend through so much of our economy, and so much of the world economy." Among the options analysts say the government could employ are a Federal Reserve credit line, a government equity investment, and an explicit federal guarantee of the GSEs' mortgage debt; but Graham Fisher & Co. analyst Josh Rosner believes the GSEs would probably obtain capital from private investors regardless of the impact such a move would have on shares.
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Housing Bill's Tax Credit Draws Criticism
Wall Street Journal (07/08/08) P. D6; Dale, Arden; Vaughn, Martin
The proposed Housing and Economic Recovery Act intended to help thousands of cash-strapped homeowners refinance to avoid foreclosure also includes a tax credit that Sen. Benjamin Cardin (D-Md.) believes will prompt home buyers to make purchases and jump-start the economy. Buyers who have not owned a home in the last three years would qualify for the credit, which would be equivalent to $8,000 for individuals or 10 percent of the purchase price against tax owed in the year of the transaction--whichever is less. The tax credit is similar to an interest-free loan in that it must be repaid over a 15-year span, with the first payment made in the second year following the home purchase. Urban Institute senior fellow Len Burman says the tax credit would do little to stimulate the housing market and would only complicate the tax-filing process.
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FinLit 2: The Classroom Is The Branch
American Banker (07/07/08) P. 1; Adler, Joe
Banks can now operate inside schools thanks to a new Federal Deposit Insurance Corp. rule allowing them to set up shop for the purpose of teaching financial literacy, and while few such branches are profitable, banks see them as a potential inroad to the underbanked population. The school branches are staffed by students who work as tellers, and parents and teachers can bank there, making prime opportunities for customer outreach to underserved immigrant communities. Some of the students cash their parents’ paychecks for them at the branches, and Mitchell Bank, which runs a full-service branch at South Division High School in Milwaukee, hopes that parents will learn banking skills from their children. Furthermore, students working as tellers have the opportunity to join the bank’s work force as adults. Mitchell’s school branch is a near full-service branch that offers every product available at the bank’s other branches, and the branch is open to the public. "We wanted to get away from the idea that it would just be kids playing 'bank,'" because it would not give students a real experience, says Chairman and CEO James Maloney. He says the main bank gets more small-account customers every day, which he attributes to the success of the school branch.
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Lenders’-Eye View of the Credit Crisis
Inside Higher Ed (07/07/08) Lederman, Doug
The recent annual meeting of the National Association of Student Financial Aid Administrators started with discussion of the student loan credit crisis; the panel was made up nearly entirely of loan providers. The panelists thanked Congress for recent efforts to help banks and restore stability to the student loan market, but also said Congress prompted the problem in the first place with its budget reconciliation bills in 2006 and 2007, which cut their subsidies.
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Waiting for the Call
U.S. Banker (07/08) Krebsbach, Karen
Cell phone banking is being touted as a good way to reach the unbanked, because one billion of the five billion cell phone users in the world do not use financial services. Access to financial services is also empowering for the poor, but banks have been slow to embrace the idea that they can do good while doing business. Banks are conservative and behaving defensively rather than seeking out customers, according to some observers, but their hesitance is losing them a place in a valuable emerging market. There are now more cell phones than ATMs in India, China, Brazil, and Russia, and most developing countries are very technology-literate. Even the illiterate who save their money under their mattresses have cell phones equipped with things like smart cards and fingerprint scanners, and they can be very profitable customers. Citibank has a variety of mobile banking initiatives, the most successful of which is its one-directional messaging project in India that drew 100,000 users in its first year and now has more than two million users and has been extended to 26 other countries; the company is planning to add a mobile wallet feature later this year.
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TransUnion: Auto Delinquencies Show Big Drop From 4Q to 1Q
SubPrime Auto Finance News (07/08/2008) Reed, Jennifer
Auto delinquencies fell almost 18 percent nationwide between the fourth quarter of last year and the first quarter of 2008, according to TransUnion, though the average drop in 60-day auto delinquency rates between the fourth and first quarters has lingered at around 7.6 percent for the past six years. Compared with the first quarter of 2007, delinquency rates remained pretty flat, increasing from 0.64 percent to 0.65 percent. At 1.19 percent, Louisiana had the highest delinquency rate, while delinquencies were lowest in North Dakota at 0.30 percent. Hawaii showed the greatest drop in delinquency between the two quarters, dropping 42 percent from 1.03 percent to 0.60 percent. TransUnion also reported that average auto debt nationwide rose 0.75 percent to $12,833.
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The Financial Rationality of Consumer Loan Choices
Journal of Consumer Affairs (08/01/08) Vol. 42, No. 2, P. 243; Wonder, Nicholas; Wilhelm, Wendy; Fewings, David
New financial alternatives, such as zero-interest loans, have complicated the car-buying process for consumers. A survey showed that consumers generally choose their loan based on the contractual interest rate and length of the contract, which were more important factors than down payment size or rebate. In general, low interest rates, high rebates, moderate down payments, and intermediate contract lengths were preferred by survey respondents. Respondents with high-existing monthly obligations did prefer the long-term loans, though most people were adverse to extreme alternative options. Most respondents even avoided long-term zero down payment loans, even if the loans were made interest free. The study also found that people were attracted to loans with monthly payments that fell just short of multiples of $100, which allows them to round monthly payments.
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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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