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March 27, 2008
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Business Guidelines for Data Safeguarding Under Development by Identity Theft Fraud Control Committee
FTC Issues 2008 Fair Debt Collection Practices Report to Congress
AFSA Committee Releases White Paper on Vehicle Driver/Owner Liability Shifting
New Member Welcome
AFSA Submits Amicus Brief in MA Mortgage Lending Case
CBA, With Ad Council, Launches National Awareness Campaign on How to Improve Consumer Credit Scores
H&R Block Signs Definitive Agreement to Sell Option One Mortgage Servicing Business to Affiliate of WL Ross & Co. LLC
Jump$tart Coalition and Citi Create On-line Map Tracking States' Status on Financial Education Requirements
CRIF Expands Its North American Presence With the Acquisition of Magnum
EU Opens Antitrust Proceedings Against Visa Europe
Prepaid Patent Lawsuits Hit Retailers; Are Banks Next?
Visa IPO Prompts Talk of Issuer Network Start-Up
Dodd Seeks New GSE Mandate
Clinton Details Mortgage Plan
Fed May Buy Mortgages Next, Treasury Investors Bet
Colleges Turn Away From Private Lenders
Microlending for Microbankers
Credit Crunch Might Stall Student Loans
Subprime Auto Lending Firm Emerges From Ashes
Better Auto Lending Via Old Technology, the Fax
Avoid the Subprime Mess
Business Guidelines for Data Safeguarding Under Development by Identity Theft Fraud Control Committee
The AFSA Identity Theft Fraud Control Committee advanced a project in developing “Business Guidelines for Data Safeguarding” during a committee meeting on March 11 in Washington, D.C. Comprised of voluntary submissions of policies and procedures from AFSA companies, the document identifies guidelines on the proper handling, transit, protection and destruction of data. Once adopted and published, this document will serve as a useful resource for privacy practitioners at AFSA member companies of all sizes. This publication will also help AFSA distinguish itself to the public sector as a leader in customer protection among financial services organizations.
“Business Guidelines for Data Safeguarding” is scheduled to be completed by June 2008, then published and distributed to AFSA members.
During this month’s committee meeting, a variety of topics concerning the protection of sensitive personal data by AFSA member companies were also discussed. While the value and necessity of personally identifiable information in business cannot be overstated, all companies face a real threat of harm – both financially and to the company reputation – due to the loss or theft of this information.
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FTC Issues 2008 Fair Debt Collection Practices Report to Congress
On March 21, the Federal Trade Commission (FTC) released the 30th Annual Report to Congress on the Fair Debt Collection Practices Act (FDCPA). This report summarizes the FTC’s administration and enforcement of the FDCPA during 2007. It presents an overview of the types of consumer complaints received by the Commission, descriptions of the Commission’s debt-collection law enforcement actions, and a summary of the Commission’s consumer and industry education initiatives. The FDCPA prohibits deceptive, unfair, and abusive practices by third-party debt collectors. Section 815 of the FDCPA requires the Commission to submit annual reports to Congress. The Commission vote to issue the report was 5-0.
AFSA staff attended the FTC’s workshop on debt collection in October 2007 and worked with member companies to submit a comment letter on debt collection on November 12, 2007. Additionally, AFSA members participated in panels at the workshop.
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AFSA Committee Releases White Paper on Vehicle Driver/Owner Liability Shifting
The AFSA State Government Affairs Committee (SGA) issued a white paper on legislation introduced around the country that presumes that the owner of a vehicle is responsible for traffic violations that are detected electronically. These violations include running a red light or speeding, toll way infractions, or unpaid parking tickets. This type of legislation should contain an exception for non-real persons since business entities cannot operate motor vehicles. Instead, many states are requiring vehicle rental and leasing companies to rebut affirmatively a presumption of responsibility for the traffic violation. This poses an unreasonable and inefficient compliance burden for vehicle finance companies that lease or rent vehicles. To read the white paper please click below.
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New Member Welcome
New Member Welcome
AFSA welcomes back associate member Computer Sciences Corporation (CSC), and also welcomes new associate members Breakthrough Management Group and Coleman & Horowitt, LLP.
A leading global consulting, systems integration and outsourcing company, CSC offers a wide range of products and services to help its customers grow and improve their lending programs.
CSC's mission is to provide customers in industry and government with solutions crafted to meet their strategic goals and enable them to profit from the advanced use of technology. Web site
Breakthrough Management Group (BMG) is the world’s leading provider of training and consulting for performance excellence. Specializing in Lean, Six Sigma and Innovation, BMG works with leading companies around the globe to help “in-source” new capability and develop new core competencies. Web site
Coleman & Horowitt, LLP is a civil litigation and transactions firm headquartered in Fresno, Calif. with a varied client base ranging from small family operations to large, publicly traded corporations. The firm provides its clients with a full range of services in areas such as banking, real estate, construction litigation and transactions, insurance coverage, condominium law, and landlord/tenant relations, as well as alternative dispute resolution including mediation, arbitration and mini-trials.
Web site
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AFSA Submits Amicus Brief in MA Mortgage Lending Case
On February 25, the Massachusetts Attorney General obtained a preliminary injunction in a case against Fremont General and Fremont Investment and Loan, preliminarily enjoining Fremont from initiating or advancing foreclosures on loans that are "presumptively unfair." The court held that a loan is "presumptively unfair" if it possesses the following characteristics: the loan is an adjustable rate mortgages with an introductory period of three years or less; the loan has an introductory or "teaser" interest rate that is at least three percent lower than the fully-indexed rate; the borrower has a debt-to-income ratio that would have exceeded 50 percent (not based on stated-income application representations, but upon other evidence of income), calculated using the fully-indexed rate; and Fremont extended 100 percent financing or the loan has a substantial prepayment penalty or penalty that lasts beyond the introductory period.
AFSA, along with other financial services trade associations, submitted an amicus brief in the case on Mach 26. The brief argues that the lower court’s order unjustifiably exposes the residential mortgage industry to significant risks of unquantifiable liability. If a loan complies with federal and Massachusetts law, and if the loan is generally considered fair at the time it is made, lenders must have confidence that the loan complies with Massachusetts law. The lower court’s order destroys this confidence. AFSA and the other amici believe that this court-created uncertainty might well have devastating effects on Massachusetts consumers.
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CBA, With Ad Council, Launches National Awareness Campaign on How to Improve Consumer Credit Scores
CBA News Release (03/25/08)
The Advertising Council has joined the Consumer Bankers Association's Consumer Bankers Foundation and the Leadership Conference on Civil Rights Education Fund to begin a public service advertising (PSA) campaign to teach consumers why building and maintaining good credit is crucial. PSAs appearing on the TV, radio, and Internet encourage consumers to visit www.creditfairy.org for helpful hints on how to raise their credit score. The campaign, created pro bono by Mullen North Carolina, is designed to show consumers how easy it is to improve their credit score.
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H&R Block Signs Definitive Agreement to Sell Option One Mortgage Servicing Business to Affiliate of WL Ross & Co. LLC
WebWire (03/19/08)
H&R Block has announced it will sell its Option One Mortgage Corp. (OOMC) unit to the private equity firm WL Ross & Co. LLC (Ross). The completion of the sale is dependent on a number of factors including a financing contingency designed to limit Ross' obligations. As part of the deal, Ross will acquire all of OOMC's assets and liabilities including OOMC's India-based call center subsidiary. The deal must be finalized by May 30, 2008. If it is not, both parties will be freed from the deal and Ross will have to pay a reverse breakup fee to OOMC. The purchase price for the subsidiary is dependent on the closing date balance sheet of the servicing business. As of Jan. 31, 2008, the purchasing price would have been approximately $1.04 billion for $1.07 billion in servicing advances.
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Jump$tart Coalition and Citi Create On-line Map Tracking States' Status on Financial Education Requirements
Citibank News Release (03/18/08)
The Jump$tart Coalition for Personal Financial Literacy and Citi's Office of Financial Education have teamed up to track financial education requirements in each state using an online map located at http://www.jumpstart.org/state_legislation/index.cfm. Their goal is to encourage financial education, which is currently mandatory in only 18 states. Users can roll their cursor over a state to view its requirements and click on any state for more detailed information, such as passed legislation. "By being able to make changes to the web site immediately upon passage of a bill or change in a school education code, this site will be enormously helpful in tracking the number of states that have instituted a personal finance requirement," said Dara Duguay, director of Citi's Office of Financial Education.
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CRIF Expands Its North American Presence With the Acquisition of Magnum
Magnum Press (02/28/2008)
CRIF has acquired Magnum Communications for an undisclosed sum. Under the merger agreement, Magnum will be able to provide Web-based workflow management, expanded international data acquisition, loan origination, new and improved desktop simulation tools, and score card development. CRIF CEO Carlo Gherardi lauded the deal, saying the acquisition "provides CRIF with greater scale, extends our presence in the U.S. and North American credit markets, and expands the distribution channel for our software solutions and risk analytic services." Magnum founder and CEO Carl Eikhoff agreed, saying, "We believe this is a very attractive relationship for our clients" and "are very impressed by CRIF's success, global presence, personnel, and their software and information services. We feel the synergies between the two companies are very strong, and the combined team will allow us to bring new benefits to our current clients and the market as a whole."
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EU Opens Antitrust Proceedings Against Visa Europe
Reuters (03/26/08) Taylor, Paul
The European Union on Wednesday initiated antitrust proceedings against Visa Europe regarding the multilateral interchange fees (MIF) it charges for cross-border consumer payment card transactions. Retailers must pay MIFs every time a customer uses a card to make a purchase. The money is kept by the customer's bank and charged to the merchant's bank. According to a European Union executive, the fee could be in violation of EU rules that "forbid restrictive business practices such as price fixing." Visa Europe wants to make deal with the EU to keep its interchange fee, despite the fact that the EC ruled against MasterCard's interchange fee in December.
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Prepaid Patent Lawsuits Hit Retailers; Are Banks Next?
American Banker (03/25/08) P. 7; Bills, Steve
Card Activation Technologies has filed five federal lawsuits against retailers claiming patent infringement, and the company may go after banks next, according to attorney Mark D. Roth. Banks are already reeling from patent lawsuits regarding check image clearing and call center automation technologies, and prepaid cards may present the next wave. The lawsuits are at an early stage so far, though, and companies are eagerly awaiting the outcome of the first trial against Walgreen Co., scheduled for a hearing April 4. Card Activation is also suing Barnes & Noble, Aeropostale, Office Max, Sears, and TJX Cos. Patent holders win 70 percent of cases, Roth says. Experts say defendants may benefit from patent reform legislation currently being debated in Congress.
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Visa IPO Prompts Talk of Issuer Network Start-Up
American Banker (03/24/08) P. 6; Aspan, Maria; Terris, Harry
Analysts say that a major card issuer might establish an independent network in the wake of Visa's initial public offering, which would remove the costs of subsidizing the brand names of Visa and MasterCard while maintaining the processing fees it currently pays to their networks. Still, analysts say it would be a formidable challenge to reach the scope of acceptance and consumer adoption needed for a network to be successful. Former Visa executive Eric Grover says that although smaller banks wish to take advantage of the consumer recognition of popular brand names, a major issuer wants "national prominence for its own brand." He notes that constructing a network would bring up the "classic chicken-and-egg problem" of securing both consumer and merchant acceptance. Aite Group's Gwenn Bezard says it is unlikely that a bank would set up an independent network, noting that incumbent networks already offer terrific opportunities. Grover and Georgetown University professor Adam Levitin say another possible scenario is a major issuer's takeover of Discover Financial Services, which boasts a large card base, an expanding merchant pool, and a PIN debit network.
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Dodd Seeks New GSE Mandate
American Banker (03/26/08) P. 1; Kaper, Stacy
Draft legislation proposed by Senate Banking Committee Chairman Christopher Dodd (D-Conn.) calls for the FHA to refinance $400 billion in distressed mortgages that have been written down by lenders. The program is similar to one proposed by House Financial Services Committee Chairman Barney Frank (D-Mass.), which calls for refinancing $300 billion in problem loans, but unlike Frank's bill, the Dodd effort would be handled by the Treasury, HUD, and the Federal Deposit Insurance Corp.--not the FHA itself. Additionally, Dodd's bill would alter Fannie Mae and Freddie Mac's affordable housing mission by obliging the two government-sponsored enterprises (GSEs) to purchase distressed mortgages in order to curtail foreclosures and by requiring collaboration among the Treasury, HUD, and the Office of Federal Housing Enterprise Oversight (OFHEO) with regard to the GSEs' foreclosure prevention goals--which would balance the need to keep homeowners in their homes with the need to preserve the safety and soundness of the GSEs. The mortgages purchased by Fannie Mae and Freddie Mac would be restructured to impose a fixed mortgage rate for 30 years, take into account the borrower's repayment ability, and eliminate prepayment penalties and subordinate liens. Additionally, OFHEO would have authority over the GSEs' capital and reserve requirements, and HUD could postpone their affordable housing goals for low- and moderate-income households for the next five years.
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Clinton Details Mortgage Plan
Wall Street Journal (03/25/08) P. A4; Chozick, Amy; Timiraos, Nick
As part of her presidential campaign, Sen. Hillary Clinton (D-N.Y.) has been pushing for the federal government to take a more aggressive stance to reduce foreclosures and ease the mortgage crisis. On March 24, she rolled out a four-part plan that supports a federal mortgage auction system under legislation proposed by Rep. Barney Frank (D-Mass.) and Sen. Christopher Dodd (D-Conn.), but she goes further by calling for the FHA to supplement the auction plan by purchasing problem mortgages as necessary. Clinton's proposal also calls for enhanced protection for mortgage servicers from investor lawsuits as a way to bolster loan restructuring efforts; a $30 billion initiative to eliminate blight by permitting cities and states to snap up foreclosed homes; and a nonpartisan housing panel, with members including former Federal Reserve Chairman Alan Greenspan and former Treasury Secretary Robert Rubin. However, there are concerns about the portion of the plan calling for the FHA to purchase, restructure, and resell mortgages when balances exceed the home's value, with critics insisting that the risk to taxpayers is too great.
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Fed May Buy Mortgages Next, Treasury Investors Bet
Bloomberg (03/24/08) Kruger, Daniel
Large Treasury investors say the Federal Reserve has not done enough to prevent worsening problems in the financial markets, even though it already has lowered the federal funds rate by 3 percentage points over the past six months, broadened the types of securities acceptable as collateral, and now allows dealers to use its discount window. Pacific Investment Management Co. manager Bill Gross believes the central bank could resort to using a Resolution Trust Corp.-type structure to purchase mortgage-backed securities. While it could put taxpayers at risk, Treasury investors insist that reissuing debt backed by the federal government would attract investors. In late February, Gross wrote, "If Washington gets off its high 'moral hazard' horse and moves to support housing prices, investors will return in a rush." Meanwhile, a Financial Times report indicated that the Federal Reserve, the Bank of England, and the European Central Bank are discussing the purchase of mortgage-backed securities--a move that has been denied by the central bank.
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Colleges Turn Away From Private Lenders
Wall Street Journal (03/25/08) P. D1; Tomsho, Robert
Due to federal subsidy cuts, many private lenders are doing away with some of the benefits they have provided to students under the Federal Family Education Loan (FFEL) program, prompting about 60 colleges to switch to the federal direct-lending program this year. Colleges are interested in offering direct lending, for which the federal government sets the interest rates and benefits, for other reasons as well. Some large college lenders have announced they will stop producing new loans; investors are turning their backs on securities supported by student loans; and Democratic presidential candidates Hillary Clinton and Barack Obama are hinting that they will get rid of the FFEL program. Colleges do not have to rush to make the change, however; FFEL loans accounted for about 82 percent of all federal student loans in 2007 and are still available from about 2,000 lenders, according to financial aid professionals. Still, the Department of Education says it is ready for an increase in direct loans. Officials say they can manage twice the $13 billion in direct loans they handled in 2007.
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Microlending for Microbankers
Wall Street Journal (03/20/08) P. D2; Mincer, Jilian
A variety of Internet sites and advice from private banks are helping individuals make microfinance loans on their own. Ebay subsidiary MicroPlace is one Web site linking investors to the poor, allowing individuals to make an investment as small as $100 and receiving an annual return between 1 percent and 3 percent on loans for four years or less. Lenders can also earn interest on loans made through Accion's Global Bridge Fund. Another Web site that has increased the popularity of microloans is KIVA, which lets an individual lend $25 or more to the recipient of their choice. A lender will not earn any interest using KIVA, though spokeswoman Fiona Ramsey said that might change in the future. According to KIVA, 97 percent of the people who receive the loans will pay them back. "We have a perception that the poor are a [poor] credit risk, but actually they're a very good credit risk," said Ramsey.
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Credit Crunch Might Stall Student Loans
Argus Leader (03/20/2008) Carlson, Scott
The subprime mortgage crisis is putting pressure on the already strained federal student loan market. Most students will probably not have any trouble getting a loan for the 2008-2009 school year, but members of the House Committee on Education and Labor recently cautioned that if more lenders pull out of the business there could be some financing problems come fall. Businesses that only offer student loans are having the worst troubles, because many are unable to raise money from investors in the currently volatile market. Furthermore, Congress recently capped the subsidized federal Stafford Loans at 6 percent for the 2008-2009 school year. The cap is expected to drop to 3.4 percent by the 2011-2012 school year, making student lending significantly less profitable for lenders and perhaps prompting some to leave the market.
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Subprime Auto Lending Firm Emerges From Ashes
Ward's Dealer Business (03/25/2008) Finlay, Steve
Centrix Financial went bankrupt in 2005 after the National Credit Union Administration issued a "risk alert" for its business, which funded subprime loans via third-party credit unions that are not allowed to engage in high-risk financing on their own. Unable to get funding from credit unions once the government disapproved of their business model, the company closed its doors and has now re-emerged as Universal Special Auto Finance. The new company gets funding from midsize community banks, and uses a proactive, educational approach with borrowers. The company is profitable and works with hundreds of dealers in 33 states. Its two loan programs include Dealer Direct Finance, which gives certain dealers their own finance program with control over their own auto-finance market, and a lending solutions program which gives lenders a variety of auto-loan origination and portfolio management services. “It has taken a lot of time and careful planning, but brick by brick, we have built a foundation that we know we can continue to build upon,” says Universal CEO John Scordo. “We are very proud of what we have created.”
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Better Auto Lending Via Old Technology, the Fax
American Banker (03/25/08) P. 6A; Berg, Joel
The fairly old technology of the fax machine is still the quickest and most efficient way to process auto loan applications, especially for smaller companies which use documents that require signatures. About half of Franklin Security's fax traffic comes from auto lending through dealerships, and the company recently replaced its proprietary system with one bought from a vendor. The system, which cost about $14,000 plus $1,070 per year in support, is about 35 percent faster than the old one; the bank is able to make decisions within 10 minutes. Speed is vital, because a dealer can easily move on to another bank if they have to wait too long for a decision. With the new system, a customer at a dealership fills out an application and the dealer faxes it to Franklin. The system converts the fax into an email, and the information is manually entered into a loan origination database. The loan is approved or rejected by an underwriter and the decision is emailed to Franklin, where the fax server converts it into a fax sent to the dealership. The new system allows for more secure transmissions and also creates an electronic document trail that reduces errors and misplaced documents.
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Avoid the Subprime Mess
Ward's Dealer Business (03/01/2008) P. 38; Dorfler, Bryan
Problems in the mortgage market are spreading to auto finance; auto lenders are seeing the same signs that led to the mortgage crisis--inflated values, loans with generous terms and no downpayment for subprime borrowers, longer loan terms, and financing cars for much more than they are worth. Lenders are responding by tightening lending standards, just as mortgage lenders did, but car buyers have much less incentive to keep their cars than their houses, meaning delinquencies and repossessions are on the rise and used-vehicle values are facing pressure. Lenders are now cutting off poor performing dealerships, raising minimum FICO levels, and reducing credit risk, which makes selling cars harder. Some steps dealers can take to protect themselves include meeting with lenders to strengthen relationships, looking for other lending sources, finding low-price cars in which an equity position can be taken with minimum down payment, and focusing on leasing.
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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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