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June 12, 2008
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AFSA Submits Comment Letter on RESPA Reform
AFSA Representatives Share Their Expertise as NICCM Instructors
Top Industry Policy Priorities Examined at SGA Committee Meeting
Law Committee Forms New Litigation Subcommittee
Durbin Introduces Companion Interchange Bill
CIT Secures $3 Bln Financing From Goldman
Bank of America Gets Federal Reserve's Approval to Buy Countrywide
GMAC Financial Services and Habitat for Humanity Collaborate to Develop Housing Opportunities
Obama Hits McCain, Credit Card Companies, on Lending Matters
4M Social Security Recipients Have Debit Card Option
Visa, MasterCard See Gold in Prepaid
Senate Housing Bill: $800M Profit Seen
State Law Slashes Foreclosure Rate, for Now
VA, Congress Assist Veterans in Mortgage Mess
Equifax, Fair Isaac Create Partnership
The Great Seduction
CFSI Underbanked Consumer Study Identifies Eight Underbanked Consumer Types
Resources Rise for Scoring Unbanked Consumers
Interest Rates Up, Amount Financed Down, Reports Fed
Lenders Looking for Bright Spots
AFSA Submits Comment Letter on RESPA Reform
On June 12, AFSA submitted a comment letter to the Department of Housing and Urban Development (HUD) regarding the agency’s proposal to simplify the mortgage process and reduce consumers’ settlement costs. HUD, which published its proposal on March 14th, sought public comment on its amendments to Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA).
While AFSA appreciates HUD’s goal to simplify disclosures, the agency’s proposed rule is “profoundly flawed,” wrote Bill Himpler, AFSA Executive Vice President. Additionally, “many of the issues that HUD tries to address have already been addressed by the Federal Reserve Board’s proposed amendments to the Truth in Lending Act,” he added.
To increase the odds of successful reform, Himpler suggested that “HUD might consider working with the other agencies charged with portions of the residential mortgage credit governance to create a standing body, perhaps like the Federal Financial Institutions Examination Council, to develop mutually consistent regulations, commentary, and guidance on parallel paths.”
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AFSA Representatives Share Their Expertise as NICCM Instructors
The College of Business Administration at Marquette University held the 57th session of the National Institute on Consumer Credit Management (NICCM), June 1 – 6. Seventy-four promising leaders from 14 companies attended the weeklong program, where top executives from the financial services industry shared their personal formulas to be successful in a fast-paced and ever-changing environment.
Several AFSA representatives volunteered their time as instructors and participants of the board of governors. AFSA Chairman Andrew Morrison taught a class on managing rates and profits, while AFSA President and CEO Chris Stinebert conducted a leadership session. AFSA member company executives Stephanie D’Amico, Kelly Malson, Sharon Moore, Mark Roland, Stevan Schmelzer and Tim Stanley taught various courses, and AFSA Director of Federal Government Affairs Matt Gannon assisted in leading the competitive environment session.
Jorge Escobar, World Acceptance Corporation and Shamus Hayes, HBSC Insurance Services were elected representatives for Management I; Dawn McVicker, F.N.B. Consumer Discount Company was elected representative for Management II.
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Top Industry Policy Priorities Examined at SGA Committee Meeting
AFSA’s State Government Affairs Committee held its Spring/Summer meeting in Half Moon Bay last week to discuss key trends and legislation. In conjunction with the AFSA Law Committee, the group hosted a session to identify industry policy priorities, such as the National Mortgage Licensing System and personal loan challenges.
The SGA meeting featured a presentation by Dr. Rickie Keys, Founder and President of Renewal Financial Services. According to Keys, "fringe" financial service organizations picked up the mantel left by the banks due to a “Catch 22” situation between the Community Reinvestment Act (CRA) and Safety and Soundness. As a consequence, said Keys, these financial service organizations delivered often high-priced credit to credit-challenged consumers, and are now being subjected to heavy legislative and regulatory scrutiny and their services are being curtailed.
Other topics of discussion were municipal ordinances being passed by different cities throughout the states calling for the upkeep of vacant properties in foreclosure, arbitration restrictions, and the blurring of the payday and installment loan industry lines.
The next in-person SGA Committee meeting will be held at AFSA’s Annual Meeting in October 25-28 in Irving, Texas.
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Law Committee Forms New Litigation Subcommittee
During AFSA’s Law Committee meeting, June 1 – 3, the committee approved bylaws, which included creating a new Litigation Subcommittee.
The Litigation Subcommittee will review requests for and recommend to the committee instances in which the association should commence litigation, and supervise such litigation once approved. The new subcommittee will also review requests that the association file amicus curiae briefs, recommend to the committee whether or not the association should participate as amicus curiae, and with AFSA's Legal/Regulatory Department coordinate the approach, development and presentation of an amicus curiae brief consistent with the association’s mission.
With the Litigation Subcommittee in the beginning stages, the Law Committee approved the drafting of two amicus briefs in auto-related cases.
The Law Committee’s other subcommittees focus on cards, emerging issues, mortgage lending, personal loans, and vehicle finance.
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Durbin Introduces Companion Interchange Bill
Senate Majority Whip Richard Durbin (D-IL) introduced companion legislation June 5 to a bill by House Judiciary Committee Chairman John Conyers (D-MI) and Rep. Chris Cannon (R-UT) that would regulate interchange fees. S. 3086, the Credit Card Fair Fee Act of 2008 would create a three-member board of lawyers appointed by the Federal Trade Commission and the Justice Department to regulate interchange rates.
The Senate bill is backed by merchants and retail groups but so far has failed to secure GOP support. AFSA strongly opposes this attempt at government-set price controls and will lobby against it in the coming months. Rep. Conyers introduced his bill in March, but no vote has been scheduled to date.
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CIT Secures $3 Bln Financing From Goldman
Reuters (06/09/08) Comlay, Elinor
CIT Group announced on June 9 that it has obtained $3 billion of financing from Goldman Sachs, which drove up its share price 11 percent to $10.20. Barclays Capital analyst Vince Breitenbach described the cost of the facility, which has a 15-year average life and is linked to securities originated by CIT, as "a bit expensive" at $85 million a year even if CIT does not use the funding. He pointed out that CIT did not include this transaction among the options it discussed, and noted that "I think they are trying to show that there are lenders out there that have confidence in the company." In March, CIT tapped its entire $7.3 billion of bank lines, $2 billion of which mature in four months. CIT CFO Joseph Leone said at a recent conference that his company was just over halfway toward selling its railcar leasing business and was also considering selling part of its subprime mortgage portfolio. Among potential suitors for CIT's railcar leasing business is the GATX Corp. lease financing company, which owns one of the world's biggest railcar fleets. Breitenbach expects the railcar leasing business to be sold in the third quarter, and he said the combination of the sale and the $3 billion of financing "probably gets them pretty far in to next year."
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Bank of America Gets Federal Reserve's Approval to Buy Countrywide
Chicago Tribune (06/06/08)
Bank of America Corp.'s acquisition of subprime mortgage lender Countrywide Financial Corp. has been given the green light by the Federal Reserve, and the deal is now expected to be finalized in the third quarter. The sale will go up for a vote before Countrywide shareholders on June 25. Once the deal closes, Bank of America will control 10.9 percent of the nation's insured bank deposits, or $773.4 billion. The all-stock deal will cost the company approximately $4 billion.
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GMAC Financial Services and Habitat for Humanity Collaborate to Develop Housing Opportunities
Earthtimes (06/06/08)
GMAC Financial Services has announced it will provide Habitat for Humanity with funding and 500 volunteers to help build 15 new homes in 2008. Twelve of the Habitat homes will be located in the United States in Charlotte, N.C.; Chicago; Dallas; Detroit; Jacksonville, Fla.; Minneapolis; New York City; Costa Mesa, Calif.; Philadelphia; Waterloo, Iowa; Atlanta; and Winston-Salem, N.C. A further three homes will be constructed in Toronto and Mexico City. GMAC has been working with Habitat for Humanity for more than 15 years and has helped to build and refurbish hundreds of homes.
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Obama Hits McCain, Credit Card Companies, on Lending Matters
Associated Press (06/11/08)
Presidential candidate Barack Obama said Wednesday he would like to see tighter restrictions on credit card companies and said his rival, John McCain, is not doing enough to help consumers stay out of overwhelming debt. Obama said he plans to prevent credit card companies from increasing interest rates without the consumer's backing and from applying those rates retroactively; develop a federal credit card rating system; and prevent interest charges on late fees. Obama accused McCain of being on the side of credit card companies on issues like protecting "teenagers and college students from deceptive credit card practices." McCain's campaign responded to the charges, citing a 2005 vote in which Obama voted against a bill that sought to limit credit card interest rates to 30 percent.
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4M Social Security Recipients Have Debit Card Option
USA Today (06/10/08) P. 1A; Chu, Kathy
The U.S. Treasury Department is offering a new debit card issued by Comerica Bank that gives roughly 4 million Social Security and Supplemental Security Income recipients with no bank accounts an alternative means to access their benefits other than by paper check. The Treasury Department says the need for consumers without bank accounts to use expensive check-cashing services will be eliminated with the new card, while the government would save $42 million annually if all 4 million recipients without bank accounts opted for the card. The Social Security debit card represents the biggest effort thus far to transition to electronic payments, and Treasury's Judy Tillman says "our goal is to move to 100 percent electronic payments" because it is safer and more reliable than checks. Cardholders will be entitled to one free ATM withdrawal per month, but must then pay a fee of 90 cents for each subsequent withdrawal.
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Visa, MasterCard See Gold in Prepaid
TheStreet.com (06/09/08) Kulikowski, Laurie
Prepaid cards represent a huge growth opportunity for electronic payment processors as consumers increasingly use their cards for everyday transactions, and Visa and MasterCard are seeking to capitalize on this trend both inside the United States and globally. "The big vision is that ... people talk about prepaid in the same way they talk about credit and debit," says Visa's Elizabeth Buse. "If we're talking a few years from now, my vision would be we're not talking about prepaid as an innovation, we're talking about prepaid as the third mainstream consumer product." Buse says prepaid products are specifically geared toward traditionally cash- and check-based markets such as employer payroll systems, health care services, rebates, and federal and state government disbursements. General purpose reloadable prepaid cards are viewed as being attractive to low-income or immigrant customers and people who do not have traditional checking or savings accounts. Buse says emerging countries will rapidly adopt prepaid products, while MasterCard's Laura Kelly expects global prepaid card spending to total almost $680 billion by 2015. Nilson Report publisher David Robertson says Visa lags behind MasterCard in terms of gift card share, while the opposite applies in the case of the government market.
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Senate Housing Bill: $800M Profit Seen
American Banker (06/11/08) P. 4; Sloan, Steven
The Congressional Budget Office (CBO) estimates that the federal government's coffers would expand by $800 million as a result of the Senate's housing bill, which would roll out an FHA refinancing program and revamp regulation of the government-sponsored enterprises. Critics insist the bill would cost too much money to implement, but the CBO anticipates $8 billion in revenue. It notes that the refi initiative likely would cost $68 billion rather than the $300 billion cap that was set for the program, but Fannie Mae and Freddie Mac would shoulder the cost through mandatory contributions to an affordable housing fund. Additionally, the CBO says the number of borrowers participating in the refi program could be held down by first- and second-lien holders' reluctance to let them refinance, particularly if they expect the home's value to rise down the road.
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State Law Slashes Foreclosure Rate, for Now
Boston Herald (06/10/08) Kronenberg, Jerry
Foreclosures in Massachusetts have fallen from 3,327 in April to just 390 in May, according to Market tracker the Warren Group, but housing market observers say the 88 percent decline in filings is the temporary result of a new law that forces lenders to wait three months before they can take a home. State officials hope the 90-day "cooling off" period will give lenders more time to work out deals for lowering interest rates and making other concessions, but critics view the law that took effect on May 1 more as extending the six- to 12-month court procedure that lenders follow.
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VA, Congress Assist Veterans in Mortgage Mess
Stars and Stripes (06/08) Philpott, Tom
U.S. Rep. Bob Filner (D-Calif.), chairman of the House Veterans Affairs Committee, wants to make VA-backed loans relevant again by raising the ceiling on loan amounts to $730,000. Meanwhile, Sen. Daniel Akaka (D-Hawaii), chairman of the Senate veterans' affairs committee, has proposed a bill that would lower the equity requirement for a veteran to refinance a mortgage with a VA loan from 10 percent to 5 percent; and Rep. Steve Buyer (R-Ind.) wants the maximum for VA-backed loans for refinancing to be at least $417,000. The lack of competitiveness of VA-guaranteed loans has resulted in their nationwide decline from a recent peak of nearly 500,000 in 2003 to just 133,000 last year. Meanwhile, the Department of Veterans Affairs says its loan counselors have assisted 74,000 homeowners since 2000--including half of all VA loans in serious default last year--and have helped save the government nearly $1.5 billion.
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Equifax, Fair Isaac Create Partnership
Atlanta Business Chronicle (06/10/08)
Fair Isaac Corp. and Equifax have teamed up on a joint venture that will develop and market advanced analytics and scoring technologies. The partnership will unite Equifax's consumer credit data and Fair Isaac's scoring technology to create and sell new FICO analytic products. Right now the companies are collaborating to accelerate testing and introduction of the FICO 08 model for Equifax customers. Equifax Chairman and CEO Richard F. Smith praised the alliance, saying, "This new agreement further solidifies our working relationship and allows both companies to provide better solutions to their customers."
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The Great Seduction
New York Times (06/10/08) Brooks, David
Since the 1970s, the social and institutional standards that encourage frugality have all but dissipated and have left many Americans depraved by wealth, says a new study by the think tank Institute for American Values. "For A New Thrift: Confronting the Debt Culture" claims our soaring debts limit our ability to progress. The wealthy and more educated have access to 401(k)s and investment planning, but low-income workers have fewer resources and are less concerned with saving money. State governments aggressively promote their lottery products and so snare 20 percent of the population on a regular basis. According to one estimate, households earning less than $13,000 spend an average of $645 a year on lottery tickets, or 9 percent of their income. The report offers two suggestions to help break our "debt" culture: raise public awareness about debt and create institutions that encourage saving. Some of these can include financial planning programs for the poor and middle class and KidSave accounts for young children.
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CFSI Underbanked Consumer Study Identifies Eight Underbanked Consumer Types
Business Wire (06/09/08)
The Underbanked Consumer Study, conducted by The Center for Financial Services Innovation (CFSI), recognizes eight underbanked consumer categories and reveals new information about each of their likes and opinions on financial services. It also looks at their credit scores and found that nearly 50 percent do not have a score. "To build specific product, marketing, distribution, and risk management programs that help develop customers from the underbanked market requires a deep understanding of these consumers," says CFSI research director Michael Herrmann. "By breaking this market into a series of actionable segments the CFSI Underbanked Consumer Study can give firms a unique depth of knowledge and a place to start." The eight groups range from "borrowers," current banking consumers utilizing supermarkets, convenience stores, and drug stores for multiple financial transactions, to "Cash is King," people who primarily rely on cash and work outside the financial mainstream. The study also indicates how the underbanked consumers feel about product distribution, product attributes and features, and financial services providers.
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Resources Rise for Scoring Unbanked Consumers
Collections & Credit Risk (06/08) Vol. 13, No. 6, P. 27
Credit-scoring models for people who do not possess bank accounts and those with limited or atypical credit histories continue to grow. The FICO Expansion Score was one of the initial models to utilize unconventional information about consumers such as their histories of paying apartment rent and other bills on time. Experian Inc. recently introduced the Emerging Credit Score, which combines alternative credit information with Experian's typical credit information to manufacture scores for unbanked customers. Meanwhile, TransUnion LLC joined with L2C Inc. in 2007 to provide alternative, historic credit information to lenders concerning rent and household bill payments. In addition, the alternative credit bureau Payment Reporting Builds Credit (PBRC) allows consumers to acquire credit histories by offering their own identification information and rental and household bill-paying histories, and is trying to legitimize and standardize that information. In March, PBRC stated it had arrived at a deal with the National Credit Reporting Association on protocols for information to be included in its consumer credit files.
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Interest Rates Up, Amount Financed Down, Reports Fed
F&I Magazine (06/06/08)
According to a new Federal Reserve Statistical Release, the interest rate on nonrevolving consumer credit rose at an annual rate of 6.5 percent in April. Interest rates at auto finance firms also experienced a slight gain, increasing to 4.54 percent for new cars in April. Loan maturities increased almost one point from 62.3 percent to 63.1 percent, while the loan-to-value ratio, at 94 percent, did not change at all between March and April. The amount financed dropped $776 in April to $27,397.
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Lenders Looking for Bright Spots
Ward's Dealer Business (06/01/2008) P. 11; Finlay, Steve
While problems in the economy are hurting automotive lenders lately, the slowdown may also spur some types of business, according to Mark M. Pregmon of SunTrust Banks. The hike in gas prices will lead to more consumers trading in their large vehicles for smaller, more fuel-efficient ones, while the slowing economy will also likely increase demand for used cars. Pregmon says he is concerned about the growth of longer-term loans of as much as 84 months, because the longer term allows more time for the consumer to run into financial problems. Pregmon says lenders should focus on auto dealers and try to distinguish themselves from other lenders but still stick to fundamentals.
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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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