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June 26, 2008
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AFSA Staff Attends Fed’s Consumer Advisory Council Meeting
AFSA Supports Efforts to Crack Down on Mortgage Fraudsters
New Member Welcome
GMAC Financial Services Honors 2008 Presidential Scholars
Robert H. Nelson Joins Dealers' Financial Services, LLC as President and Chief Executive Officer
BofA Sets Closing Date for Countrywide Purchase
Toyota Financial Services Donates $10,000 to China Earthquake Relief
Wells Fargo Expands Into Morgan County
India's Young Spenders
US FTC, DOJ: Anti-Trust Concerns on House Interchange Fee Bill
PCI Standard 'Ignores' Insider Threat
Senator Stalls Housing Relief With Call for Energy Credits
Nationwide Mortgage Licensing System Expands to 14 States
U.S. Housing Rebound to Be Prolonged: Harvard Study
Viewpoint: Scaling Back Is The Wrong Direction to Take
Students Flock to Financial Literacy Test
Let the Lender Beware
Cerberus Application May Renew ILC Tensions
AFSA Staff Attends Fed’s Consumer Advisory Council Meeting
On June 19, AFSA staff attended the Federal Reserve Board’s Consumer Advisory Council (CAC) summer meeting. Among the topics the CAC discussed was the Board’s proposal to prohibit unfair or deceptive acts or practices by banks in connection with credit card accounts and overdraft services for deposit accounts. During the discussion, Mark Metz, Senior Vice President and Deputy General Counsel of Wachovia Corporation, cautioned that labeling acts or practices as “unfair or deceptive” that were widespread throughout the financial services industry could create significant risks and suggested that the Federal Reserve enact regulation under another statute than the Federal Trade Commission Act.
The CAC also discussed proposed regulations that generally would require a creditor to provide a consumer with a risk-based pricing notice when, based in whole or in part on the consumer’s credit report, the creditor offers or provides credit to the consumer on terms less favorable than those it offers or provides to other consumers.
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AFSA Supports Efforts to Crack Down on Mortgage Fraudsters
The Federal Bureau of Investigation (FBI) charged more than 400 individuals with mortgage fraud on June 19 as part of the agency’s “Operation Malicious Mortgage.” AFSA issued a statement supporting the FBI’s efforts to free the mortgage marketplace from those trying to defraud American consumers. The National Mortgage News quoted AFSA President and CEO Chris Stinebert, who said, "We support efforts to prosecute unscrupulous operators who give the mortgage industry a bad name," in its report on the crackdown.
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New Member Welcome
AFSA welcomes new active member Basic Finance, Inc., and new associate member Sunshine State Tag Agency.
Headquartered in North Carolina, Basic Finance provides secured personal loans. The Sunshine State Tag Agency, headquartered in Bradenton, Fla., is capable of providing title and registration solutions in all 50 states. Web site
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GMAC Financial Services Honors 2008 Presidential Scholars
PR Newswire (06/23/08)
GMAC Financial Services will recognize 139 accomplished high school seniors during the Presidential Scholars' National Recognition Week. Joined by the White House Commission on Presidential Scholars, the U.S. Department of Education, and the Presidential Scholars Foundation, GMAC will pay tribute to the students, who were hand-selected from a pool of more than 3,000, for outstanding academic achievement, artistic excellence, leadership, citizenship, and community and school service. GMAC has served as a proud sponsor of the leadership development program for over 10 years, and donated more than $2 million in underwriting support. "We are proud to support National Recognition Week as it celebrates the accomplishments of these scholars and encourages them to use their gifts and energies to strengthen communities," says Sharon Sayles Belton, director of community relations for GMAC. "This is an incredibly gifted group of scholars and we are happy to honor our country's future leaders." In addition to sponsoring the event, GMAC is giving the scholars a chance to obtain the financial tools they need to make sound investment decisions with an invitation to attend its SmartEdge financial literacy seminar.
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Robert H. Nelson Joins Dealers' Financial Services, LLC as President and Chief Executive Officer
Dealers' Financial Services News Release (06/23/08)
Robert H. Nelson has been named Dealers' Financial Services' (DFS) president and CEO. Before joining DFS, Nelson served as COO and CFO for a number of companies in both the public and private sector. He was one of the founding members of United Auto Group, where he served as both COO and CFO and was a member of the Board of Directors. He was directly responsible for United Auto Group's wholly owned auto finance and warranty companies.
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BofA Sets Closing Date for Countrywide Purchase
Wall Street Journal (06/20/08) P. C2; Hagerty, James R.; Bauerlein, Valerie
Bank of America Corp. has set a July 1 closing date for its acquisition of Countrywide Financial Corp. Investors viewed the announcement of a target date as a positive step. Phoenix Partners Group reports a drop in the yearly cost of default protection for five years on $10 million of Countrywide bonds to $195,000 from $240,000 after the announcement was made, signaling investor confidence that Countrywide will not default on its debt.
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Toyota Financial Services Donates $10,000 to China Earthquake Relief
Canada NewsWire (06/20/08)
Toyota Financial Services has made a donation of $10,000 to the China Sichuan Earthquake Relief Fund, following in the footsteps of other Toyota units in Canada and around the world in helping those impacted by the May 12th earthquake that shook China's Sichuan province. "Although this disaster occurred on the other side of the world, its devastation has been felt here at home--particularly within Canada's Chinese community," said Toyota Financial Services President Larry Baldesarra. "It is our hope that this donation will offer support and comfort to those in need."
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Wells Fargo Expands Into Morgan County
Rocky Mountain News (06/19/08) Milstead, David
Wells Fargo has announced plans to purchase Farmers State Bank of Fort Morgan, Colo. By doing so, Wells Fargo, which was already the number one bank in the state by deposits, has become the number one bank in Morgan County. Farmer's State Bank is an attractive target for Wells Fargo because it has profited from the recent agricultural boom.
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India's Young Spenders
Washington Post (06/24/08) P. D1; Wax, Emily
The economic growth rate in India has averaged about 9 percent in recent years, but financial experts in Mumbai are concerned about a possible decline to about 7 percent, which could result in the loss of thousands of jobs. India has one of the largest economies in Asia, and offers a large number of good-paying outsourced technology and call-center jobs. More than 70 percent of the population is under 35, and the country's young have been willing to spend their large disposable incomes rather than save. Many people in their mid- to late 20s are putting iPods, designer sunglasses, and cellphones on credit cards, and taking out loans to buy cars and to get an apartment. "The India story today is about the consumer confidence among our young people who are willing to spend like mad," says Kamal Basu, chief executive of the Mumbai branch of the advertising agency Saatchi & Saatchi. "In many ways, India is the most exciting market in the world because it's so young and the growth has been so fast."
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US FTC, DOJ: Anti-Trust Concerns on House Interchange Fee Bill
Dow Jones Newswires (06/24/08) Yoest, Patrick
Legislation that would set up a new government panel to resolve arguments over fees assessed to merchants that take credit cards is of concern to both the U.S. Justice Department and the Federal Trade Commission (FTC), as both have cited anti-trust concerns. The bill aims to manage the total costs of interchange fees, which merchants say have contributed to skyrocketing operating costs since more customers are paying with credit cards. The bill would permit any merchant to bargain with banks and card companies for reduced fees and would also create an anti-trust exemption to enable groups of banks and merchants to directly negotiate. The Justice Department stated that the House bill "may well increase, not decrease any existing harm to competition and consumers." FTC Chairman William E. Kovacic argued that "a governmental process for setting prices for private transaction is at odds with the Commission's mission and experience in promoting open market competition." The Justice Department's Anti-Trust Division and the FTC would be in charge of selecting and supervising the three-judge panel.
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PCI Standard 'Ignores' Insider Threat
VNUNet (06/23/08) Williams, Ian
Section 6.6 of the Payment Card Industry (PCI) standard contains new measures requiring that companies dealing with stored credit card and other consumer financial data must either perform a review of all customer application code to look for common vulnerabilities or deploy firewalls around all Internet-facing applications, but the Secerno database security firm warns that these measures will not address the threat of insider breaches and data theft. "PCI was historically written for e-commerce rather than general retailers where breaches have actually been taking place," says Secerno founder Paul Davie. "It is generally inadequate for addressing the sort of internal threat that can be exploited easily, such as by general or privileged users." The insider threat can range from employees motivated to obtain or sell data for financial or other reasons, to data thieves who infiltrate organizations. Davie notes that the PCI standard does not address malware besides viruses, nor does it define a policy for encryption of internal data.
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Senator Stalls Housing Relief With Call for Energy Credits
Washington Post (06/26/08) P. D1; Montgomery, Lori
Progress on the Senate's foreclosure relief measure took a step backwards after a legislator demanded that tax incentives to promote renewable energy be tacked on to the measure. The refusal by Sen. John Ensign (R-Nev.) to give his approval leaves the bill hanging in the balance as Congress prepares to recess for the July 4th holiday. A final vote is now unlikely to take place until after that, according to Senate Majority Leader Harry Reid (D-Nev.) who remains confident that the Senate ultimately will pass the proposal. Ensign notes that few measures pass muster during an election year but that "the housing bill has a great chance of being signed into law, and that's why we're trying to get this renewable tax credit on this piece of legislation."
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Nationwide Mortgage Licensing System Expands to 14 States
PR Newswire (06/24/08)
Six more states have joined the Nationwide Mortgage Licensing System (NMLS), according to the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. Eight states are already using NMLS; these states are Idaho, Iowa, Kentucky, Massachusetts, Nebraska, New York, Rhode Island, and Washington. Connecticut, Louisiana, Mississippi, North Carolina, New Hampshire, and Vermont will join their number as of July 1. So far, a total of 42 state agencies representing 40 states have promised to participate in the program. NMLS is a web-based system that allows state-licensed mortgage lenders, brokers, and loan officers to apply for, amend, update, or renew a license online using one set of applications for all state agencies that agree to participate in the program.
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U.S. Housing Rebound to Be Prolonged: Harvard Study
Reuters (06/23/08) Adler, Lynn
A recent study from Harvard University's Joint Center for Housing Studies indicates that the residential property market could take longer than expected to recover, as it has been hit hard by home price declines, surging foreclosures, a drop in consumer spending, rising mortgage rates, tighter underwriting standards, and slower economic growth. According to center director Nicolas Retsinas, "Historically, housing markets recover only after the economy has entered a recession and a combination of falling mortgage interest rates and house prices have improved housing affordability. It will take longer this time to rebound given the unusually high levels of foreclosures and constrained credit markets." The study states that substantial home price declines, a decrease in rents, a drop in interest rates, and significant income growth are needed for homes to be as affordable as they were eight years ago, prior to the housing boom.
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Viewpoint: Scaling Back Is The Wrong Direction to Take
American Banker (06/20/08) Vol. 173, No. 119, P. 11; Bird, Anat
According to this opinion piece appearing in American Banker, many supercommunity banks are exiting certain business lines because they are too scale-sensitive, volatile, and unprofitable, and while their concerns are valid, the result is that they are limiting their business base and fee revenues and increasing their reliance on net interest margins, which have been declining for 20 years. Narrowing a bank’s product line actually increases enterprise risk because it reduces diversification, the commentary says. A bank’s best opportunities come from leveraging relationships with existing customers; therefore, offering more products to meet customers’ every need can only improve business. It increases customer retention, customer profitability, and tenure of income, all of which boosts a bank’s stability and earnings predictability. Wells Fargo is a case in point. The company has 86 product lines for its various customer bases and one of the best cross-selling ratios in banking. Wells is a very large bank, of course, but smaller banks can still learn from its example. Wealth management has been problematic and unprofitable for some smaller banks, for example, but it has been successful for those who manage it well and need not be the exclusive domain of larger banks, the commentary concludes.
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Students Flock to Financial Literacy Test
Crain's New York Business (06/19/08) Marshall, Samantha
Over 11,000 New York high school students participated in the financial literacy certification test held by New York nonprofit Working in Support of Education. About 8,400 of the 11,300 students who took the certification test earned passing scores. The test, which was taken by 22,511 students in more than 20 states, is intended to challenge students to improve their financial literacy and obtain the education they need to make sound investment decisions. The test has an even more urgent message for students in light of the uncertainty surrounding the economy, rising tuition costs, and the student loan credit crunch. The need for students to manage their costs is even greater in New York, where children from lower- and middle-income families have a tendency to spend rather than save, and where research shows that almost 50 percent of students do not have a bank account.
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Let the Lender Beware
Ward's Auto World (06/08) Finlay, Steve
Auto lenders are facing numerous challenges these days, including tighter credit, greater risks, and a poorer economy. In addition, car dealers are working to finance as many deals as they can, especially because sales are down. This has caused increased risks and lengthier loan terms that are meant to make monthly payments more bearable, but are often becoming a problem for the lending industry. Car-loan terms of between 84 months and 89.9-months loans now comprise 4.1 percent of all car loans. These loans remove car purchasers from the market for extended periods, and heighten the chance of loan defaults, which impacts everyone involved. Long-term loans almost always wind up with negative equity, with the buyer owing more on the car than it is worth. As such, lenders are pushing dealerships to obtain detailed and correct client data for loan applications. Vehicle leasing may be a solution to the challenge of consumers taking on overextended loan deals to get cars they cannot actually afford to purchase.
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Cerberus Application May Renew ILC Tensions
American Banker (06/24/08) P. 1; Adler, Joe
New York private-equity firm Cerberus Capital Management's attempt to retain its $30 billion-asset industrial loan company (ILC) in Utah has become the latest flashpoint in the battle over commercial ILC ownership. Cerberus was granted provisional approval to acquire the GMAC Bank two years ago as a special exception to the Federal Deposit Insurance Corp.'s (FDIC) moratorium on such applications. With expiration of this approval looming, Cerberus has applied to the FDIC for permanent ownership of the ILC, and this appears to have instigated a split in the FDIC's board. Observers report that old conflicts about whether commercial companies should be allowed to own a bank may have been revived, with Moody's Investors Service analyst Mark Wasden noting that FDIC approval of the firm's application would mean that Cerberus "would not be subject to the same kinds of disclosure requirements that any normal bank holding company would be." The ILC debate triggered by Wal-Mart's application stalled Cerberus' and several other investors' attempt to acquire a controlling stake in GMAC two years ago as the FDIC suspended such applications in the wake of the controversy, but in November 2006 the agency gave Cerberus and the other members of the investor group a two-year waiver from the moratorium because the holdup of the GMAC deal by the issue of General Motors' Utah ILC threatened to inhibit the automaker's restructuring. At the conclusion of the two-year period, the investor group would be required to register as a bank holding company, divest control of the ILC, end its depository institution status, or apply to continue its ownership. It was the FDIC's expectation that Congress would clarify federal ILC policy before the GMAC decision resurfaced, but the Senate's attempts to approve a bill limiting commercial ILC ownership have stalled. According to observers, uncertainty about GMAC's future in view of its financial deterioration in recent months--much of it attributed to mortgage lending--may be playing a role in the FDIC's dilly-dallying on Cerberus' application.
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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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