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May 1, 2008
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AFSA Testifies Before Senate Subcommittee
Senate Introduces Restrictive C.A.R.D. Act
8th Annual Investors Conference for Fixed Income Investors Has Record Attendance
Mortgage Lending Among the Topics Discussed at NCSL Annual Spring Forum
Countrywide Offers Green Home Buyers a Financial Break
AmeriCredit Strikes Deal for $2 Billion Forward Purchase Commitment
Feet Walk Forward to Beat MS
Leave the 'Plastic' Alone
A Credit-Card Crackdown
Credit-Card Security Falters
Loan Plan for Homeowners
Panel to Look at Foreclosure Practices
Financial Literacy Goes to Capitol Hill
Analysis: Don't Confuse Consumers With Little or No Credit With Subprime Borrowers
eBay Tests Its Online Prowess in Microfinance
White House Backs Student-Loan Plan
Experian Helps Institutions With Red Flag Rules
Leasing Popularity Grows, Says Swapalease.com
AFSA Testifies Before Senate Subcommittee
AFSA was the only industry association to testify during the April 29 hearing held by the Senate Commerce, Science and Transportation Subcommittee on Interstate Commerce, Trade and Tourism on “Improving Customer Protections in Subprime Lending.”
During the testimony, AFSA Executive Vice President of Federal Government Affairs Bill Himpler warned that some of the provisions in the FTC Reauthorization Act of 2008 “will have the unintended consequence of reducing investor confidence, which ultimately will make credit less affordable.” He also emphasized the importance of liquidity in today’s tightened credit market and the need to enhance consumer understanding of mortgage products through education programs. The Federal Trade Commission, he noted, has been “an indispensable partner” in consumer education efforts.
Himpler encouraged the committee to augment the private sector’s efforts to convey the message that the earlier borrowers contact their lenders, the better their chances of finding a workable solution.
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Senate Introduces Restrictive C.A.R.D. Act
Senate Banking Chairman Chris Dodd (D-CT) introduced the Credit Card Accountability, Responsibility and Disclosure (C.A.R.D.) Act of 2008 on April 30. The bill is co-sponsored by five Democrats, most notably Sen. Barack Obama, and is expected to be a topic of much discussion in the presidential campaign moving forward. AFSA issued a comment on the bill shortly after its introduction.
The C.A.R.D. Act would impose significant restrictions on card issuers’ ability to grant credit to consumers at a time when Congress is doing everything possible to stimulate the economy. This bill effectively imposes price controls that take away issuers’ ability to determine the cost of credit based on the borrower’s risk of default. If the current pricing structure is dismantled, issuers will be forced to raise interest rates on everyone and deny access to credit to the American consumers that need it the most.
With the U.S. economy reeling from rising unemployment, a housing market downturn, record-high oil prices and 26-year highs in food and energy prices, now is not the time to force credit card issuers to tighten their underwriting standards, thereby denying consumers the access and flexibility revolving credit provides. Many American consumers need their credit cards to get them through times when income is tight and non-budgeted expenditures – like a car repair or medical emergency – may arise.
While opposing the free market restricting provisions to billing practices that will harm consumers, AFSA does support clarifying disclosures to consumers about the various products they are offered. Risk-based pricing allows card issuers to offer a greater variety of card products, bringing choice and convenience to a wider range of borrowers.
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8th Annual Investors Conference for Fixed Income Investors Has Record Attendance
AFSA hosted its 8th Annual Investors Conference for Fixed Income Investors in Paris April 22 - 24. This year saw a change in venue from Amsterdam, where the last four conferences were held. The conference had record attendance, including more than 100 fixed income analysts/investors.
Based upon this year’s attendance, the format that has been developing over the last couple of years continued to serve well even with a move to a new venue and country. AFSA’s basic precept – to bring all segments of the market together in an environment of knowledge and information sharing – again provided value, especially in these tumultuous times.
AFSA’s 18th Annual U.S. Investors Conference will be held in Boston May 12 - 14.
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Mortgage Lending Among the Topics Discussed at NCSL Annual Spring Forum
AFSA staff attended the National Conference of State Legislatures (NCSL) Spring Forum April 24-26 in Washington, D.C. The agenda for the NCSL’s Communications, Financial Services and Interstate Commerce Committee included discussions on mortgage lending and the U.S. Department of the Treasury’s report on the future of regulation for the financial services industry. Speakers for the mortgage lending session included Paul Richman from the Mortgage Bankers Association, Amy Crews Cutts from Freddie Mac, and Ellen Harnick with the Center for Responsible Lending. The session’s focus was mortgage assistance, and the panelists discussed how federal legislation on mortgage lending will affect the states, and analyzed the current foreclosure situation on the state level and the efficiency of the various mortgage lending solutions that are being considered and adopted.
During the committee’s working lunch to discuss policy statements and resolutions, John Ryan with the Conference of State Bank Supervisors also gave an update on the Nationwide Mortgage Licensing System and highlighted the system as an example on programs that can be established at the state level without the need to implement federal policies.
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Countrywide Offers Green Home Buyers a Financial Break
Seattle Post-Intelligencer (04/25/08) Johnson, Danielle
Countrywide Home Loans has officially launched its new Green Incentive Program. Under the program, home buyers will receive a 0.125 percent rate reduction on a Countrywide loan if they use it to purchase a new home that meets recognized green and energy efficient standards. Qualified home buyers in 13 states including Alaska, Colorado, Iowa, Idaho, Minnesota, Montana, Nebraska, North Dakota, South Dakota, Utah, Washington, and Wyoming will be eligible for green incentives.
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AmeriCredit Strikes Deal for $2 Billion Forward Purchase Commitment
Subprime News (04/24/08)
AmeriCredit has announced a one-year, $2 billion forward purchase commitment agreement with Deutsche Bank’s Cayman Islands Branch, a deal AmeriCredit President and CEO Dan Berce called a “positive step,” noting that the bank uses funds raised from such securitization transactions for long-term financing of receivables. The transactions will involve AmeriCredit’s Automobile Receivables Trust securitization platform, and Deutsche will buy triple-A-rated asset-backed securities in registered public offerings.
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Feet Walk Forward to Beat MS
YourHub.com (04/24/08) Spellman, Jeanine
The Colorado Chapter of the National MS Society will commemorate 20 years of multiple sclerosis (MS) fundraising walks in May. The 20th Anniversary of the Denver MS Lifelines Walk MS will take place May 3, 2008, at Denver's City Park. Sponsored by Wells Fargo, the fundraiser will feature prizes, food, and entertainment. Those who enroll for the walk will also have the opportunity to experience what it is like to have MS by walking through the "Experience Tent," which simulates MS disabilities through the use of experimental items such as latex gloves, scratched glasses, and water flippers.
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Leave the 'Plastic' Alone
Boston Globe (04/30/08) Jacoby, Jeff
Congress is considering legislation that would require credit card associations to formally negotiate interchange fees with retailers. The bill, sponsored by Reps. John Conyers (D-Mich.) and Chris Cannon (R-Utah), would allow a three-judge panel to determine interchange fees if no agreement was reached. The fees, currently around 2 percent of each transaction, are used to pay for the technology and costs associated with moving funds between merchants, banks, customers, and credit card companies. With 73 percent of American households using either credit or debit cards, issuers collect $35 billion in interchange fees a year. Retailers have complained that the government should force Visa and MasterCard to lower their fees; however, this opinion piece argues that the system works fine the way it is. Retailers are not forced to accept Visa or MasterCard, and both American Express and Discover do not charge interchange fees. Visa and MasterCard have also responded to market pressure in the past, lowering the fees they charge quick-service vendors in an effort to get fast-food restaurants to accept credit cards. Credit cards also increase sales because consumers buy more when they pay with credit instead of cash or a check, the commentary says.
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A Credit-Card Crackdown
Wall Street Journal (04/29/08) P. A3; Paletta, Damian
The Federal Reserve plans to introduce a proposal to tighten credit card regulation and label multiple practices as "unfair or deceptive." The proposal would make it difficult for lenders to raise interest rates on existing credit card balances, even if a customer's credit score falls, and would also place constraints on how lenders apply payments borrowers make on their credit cards. Opponents argue that it will only make it harder for card issuers to determine a person's risk. Democrats in the House and Senate are also considering legislation that calls for further restraints on credit card practices, including giving borrowers more notice before increasing interest rates. The Fed's proposal does not need congressional approval.
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Credit-Card Security Falters
Wall Street Journal (04/29/08) P. A9; Pereira, Joseph
The credit card industry is attempting to force retailers to safeguard cardholders' data, but recent breaches suffered by Hannaford Bros. and Okemo Mountain Resort imply that compliance with Payment Card Industry Data Security Standards may not be adequate. "Retailers are going to have to go above and beyond PCI," Hannaford CIO Bill Homa says. Hannaford has said it would implement full encryption of card data throughout the entire transaction process as well as set up a 24/7 security monitoring and detection service, while other businesses are also planning to bolster security beyond the PCI mandate. Visa said in January that 77 percent of its biggest U.S. merchants achieved compliance with PCI last year, compared to 12 percent in the previous year, while Nilson Report documented an increase in credit card-related fraud from $1.46 billion to $5.49 billion between 1997 and 2007. PCI general manager Bob Russo says PCI is convinced of the adequacy of its standards to prevent fraud, yet adds that PCI is still waiting for the results of probes into the breaches at Hannaford and Okemo, and promises that "if there is something that's lacking in the standards, then we'll address it immediately." In February, PCI required merchants to tamper-proof PIN pads and make their credit card data worthless if opened, and after June 30 retailers will be required to deploy firewalls to prevent hackers from acquiring internal company files via software programs that are exposed to the Internet. In September, PCI intends to implement tougher standards covering wireless transmissions, card-preauthorization procedures, and software applications that handle credit card data.
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Loan Plan for Homeowners
Wall Street Journal (05/01/08) P. D4; Crittenden, Michael R.
The Federal Deposit Insurance Corp. (FDIC) has introduced a plan to help borrowers having a tough time making their mortgage payments by offering government loans for up to 20 percent of their loan amounts. The plan would depend on the willingness of institutions to restructure problem loans and pay the financing costs associated with the federal loans. FDIC Chairman Sheila Bair says that servicing companies would benefit from the plan, but they would have to cover financing costs and sublimate their claims to the government. Bair says she is hopeful the plan will receive bipartisan support.
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Panel to Look at Foreclosure Practices
New York Times (04/29/08) P. C3; Morgenson, Gretchen
The Senate Judiciary Committee's Subcommittee on Administrative Oversight and the Courts will hold a hearing on May 6 to look into claims that mortgage lenders are responsible for rising foreclosures because they impose questionable fees on struggling borrowers or take improper action to seize properties in bankruptcy court. Experts note that homeowners typically do not contest foreclosure proceedings and simply accept that the fees the lender says they owe are correct, but representatives of the United States Trustee have expressed concern that lenders and their attorneys are taking advantage of cash-strapped borrowers. Iowa University law professor Katherine Porter is scheduled to testify at the hearing with regard to her study of lenders' practices during the bankruptcy process, which determined that nearly 50 percent of the 1,733 foreclosures she examined in 2006 involved questionable fees. Sen. Charles Schumer (D-N.Y.), who chairs the subcommittee, wants legislation to be introduced as a result of the hearing, possibly allowing bankruptcy trustees to investigate lenders and levy fines for questionable practices or mandating that warnings of upcoming late fees be made by loan servicers.
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Financial Literacy Goes to Capitol Hill
Smart Pros Accounting (04/29/2008)
The Partnership for Financial Literacy Policy hosted the annual Financial Literacy "Day on the Hill" on April 28. Seventy-five financial literacy organizations displayed money management tools at the event. The Jump$tart Coalition for Personal Financial Literacy, Junior Achievement, and the National Council on Economic Education are members of the Partnership for Financial Literacy Policy. Separately, both the House and the Senate passed resolutions declaring April Financial Literacy Month.
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Analysis: Don't Confuse Consumers With Little or No Credit With Subprime Borrowers
Banking Wire (04/25/08) P. 5; Birch, Ray
Some banks that lump consumers with no credit history into the same category as subprime borrowers are missing a potentially lucrative opportunity, according to a new report from LexisNexis. The underbanked can have strong credit quality and substantial purchasing power, according to Tom Brown, vice president of Financial Services Solutions for the LexisNexis Risk Information and Analytics Group. The report found that those with no credit history nonetheless had a large number of assets, with 5 percent owning homes and 26 percent owning cars, and the number of individuals holding professional licenses is the same as those with long credit histories. The underbanked also have no debt, so may represent lower risk. Brown suggests that banks use non-traditional measures to score the underbanked, such as LexisNexis’ RiskView product that offers credit analysis based on things such as property deeds, liens, personal or property taxes, tax records, and rent and utility payments.
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eBay Tests Its Online Prowess in Microfinance
American Banker (04/24/08) P. 1; Wolfe, Daniel
EBay is bringing its successful business model to the microlending market. Its unit, MicroPlace Inc., allows individual lenders to connect with entrepreneurs in 22 developing nations, much the way eBay connects online merchants and consumers. Since the site went live in October, it has originated 20,000 loans, though specific amounts have not been released. However, MicroPlace reports loans offer an average return on investment ranging from 1 percent to 3 percent. Although these returns are modest, MicroPlace points out that they offer investors the opportunity to put their money toward a worthy cause. As MicroPlace founder and general manager Tracey Turner points out, "The kinds of people that are interested in MicroPlace are those who want to connect their social values … with their investment wallet." The site also benefits from a close relationship with eBay's PayPal. Currently, 60 percent of MicroPlace transactions are conducted through PayPal.
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White House Backs Student-Loan Plan
Wall Street Journal (04/24/08) P. A3; Hechinger, John
The Bush administration has endorsed a congressional plan that would have the Education Department purchase billions of dollars in student loans from private lenders to keep money flowing to the government-backed student loan market. The proposal is designed to ensure there are enough funds available for students who need to take out loans ahead of the fall school term, and to encourage private lenders not to abandon the government-backed student loan business, which many lenders say has become unprofitable. Treasury Secretary Henry Paulson, Education Secretary Margaret Spellings, and Office and Management and Budget Director Jim Nussle recently sent a letter to Congress informing lawmakers that they would work closely with the Senate to guarantee swift action on House legislation that would give Spellings the authority to start purchasing student loans offered by private lenders. The letter also said the Bush administration had investigated having the Federal Financing Bank acquire the loans, but determined that it did not have the legal power to follow through. Lawrence Warder, acting chief operating officer for federal student aid at the Education Department, said his department would shoulder the full expense of the loans at "no cost" to taxpayers.
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Experian Helps Institutions With Red Flag Rules
Subprime News (04/24/08)
With full compliance with Red Flag rules required by November, Experian has announced that several of its products offer tailored solutions to help companies conform to the rules. Red Flag rules, which require that financial companies establish procedures for the prevention of identity theft, allow companies to come up with procedures that best fit their business, and Experian says its products offer customization features such as cross checking, suspicious activity identification, and complex data intelligence-driven fraud products. The company’s flagship Precise IDSM service combines several identity authentication and validation components and is customizable to meet various companies’ needs, says senior vice president Stan Oliai.
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Leasing Popularity Grows, Says Swapalease.com
PRNewswire (04/17/08)
The popularity of leasing new vehicles will continue to grow this year, though leasing will continue to be more common in the luxury vehicle segment than the broader market, according to Cincinnati-based online automotive lease marketplace Swapalease.com. The company noted that the rising popularity of new vehicle leasing will benefit consumers in a number of ways, including a better selection of lease offers and lower monthly payments. Swapalease.com said monthly payments would be driven lower in part by increased competition in the lease segment.
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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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