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May 15, 2008
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AFSA Investors Conference Features On-Site Analysis by S&P
AFSA Opposes Credit Card Fair Fee Act of 2008
AFSA Expresses Support for the Federal Housing Finance Regulatory Reform Act of 2008
New Member Welcome
AFSAEF's Irvine Presents MoneySKILL in New Hampshire
Michael Dell Becomes Car Dealer
Discover Gets US Antitrust OK for Diners Club Buy
Merrill Lynch Gets Government OK to Expand Private Wealth Operations in Taiwan
Interchange Issue Is Back, Drawing Bipartisan Interest
Welch Pushes Bill to Trim Back Credit Card Fees on Businesses
Credit Cards 'Won't Be' Dominant Payment Mode in Few Years
Viewpoint: Disclosure Better Than Limiting Credit
Plots & Ploys: End Run Around Cuomo?
Steel Indicates Little Room for Maneuver on U.S. Housing Bill
Senate Panel to Vote on Housing-Rescue Plan
U.S. Treasury Department and OECD Host International Conference on Financial Education in Nation's Capital
Low Wealth Big Opportunities
Rep. Johnson Introduces Employers Financial Literacy Act
Congress of Racial Equality Says De Facto Ban of Payday Lending in OH Will Be Dangerous to Consumers
Student Loans May Be Easier to Find Online
Cards Fill Auto Market: Toyota Latest to Add Credit Card Offering
Auto Trends
Report: CU Share of Auto Loans Dropped Slightly in 2007
Lose the Lease: Cars Are Credit Crunch's New Victims
AFSA Investors Conference Features On-Site Analysis by S&P
For AFSA’s Finance Industry Conference for Fixed Income Investors, Standard & Poor's ratings agency has set up a special page on its Web site to provide research and analysis on the presenting companies. A sponsor of the AFSA Investors Conferences, S&P’s page provides articles addressing key issues affecting credit quality, in-depth analyses on S&P rated companies, and ratings criteria.
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AFSA Opposes Credit Card Fair Fee Act of 2008
This morning, the House Judiciary Committee Antitrust Task Force held a hearing on H.R. 5546, the Credit Card Fair Fee Act of 2008. AFSA strongly opposes this bill, which includes a provision to establish a government-appointed panel to set interchange fees if card networks and merchants are unable to reach a voluntary agreement. The provision would, in effect, impose a government price cap on fees that should be dictated by the marketplace.
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AFSA Expresses Support for the Federal Housing Finance Regulatory Reform Act of 2008
In a May 15th letter to the Senate Committee on Banking, Housing and Urban Affairs, AFSA commended Chairman Chris Dodd and Ranking Member Richard Shelby for bringing this important legislation up for consideration.
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New Member Welcome
AFSA welcomes new active member GE Fleet Services. The company provides vehicle auction and remarketing services with expertise in benchmarking, industry anlylsis, vechicle acquisition planning, program audits, fleet integration and more.
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AFSAEF's Irvine Presents MoneySKILL in New Hampshire
Susie Irvine presented MoneySKILL® teacher training to 100 New Hampshire teachers attending the 8th annual NH JumpStart MoneySmarts Teacher Conference on May 8th. Teachers attending have the opportunity to increase their personal financial literacy skills to enhance current curriculum, or incorporate and implement curriculum, such as MoneySKILL.
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Michael Dell Becomes Car Dealer
Ward's Auto World (05/08) Banks, Cliff
Dell's private investment firm, MSD Capital L.P., recently launched MSD Automotive Partners LLC and named Jeffrey Rachor chief executive officer. Rachor was chief executive of Pep Boys until he resigned in April, and also previously served as president of Sonic Automotive Group. "He has hands-on experience at a large dealer group and has manufacturer experience. He also understands dealership valuations having handled numerous acquisitions for Sonic," said Sheldon Sandler, founder and partner of Bel Air Partners, an investment-banking firm that helps dealers purchase and sell dealerships. However, MSD has yet to buy a dealership group. Rachor says MSD is "just getting started" and will consider all opportunities.
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Discover Gets US Antitrust OK for Diners Club Buy
Reuters (UK) (05/13/08) Vorman, Julie
Antitrust approval has been granted to Discover Financial Services' acquisition of Citigroup's Diners Club International card business. The $165 million merger was approved by the Federal Trade Commission, without any attempt to block the transaction. The acquisition is expected to expand Discover's presence in the international market.
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Merrill Lynch Gets Government OK to Expand Private Wealth Operations in Taiwan
CNNMoney (05/09/08)
Merrill Lynch & Co. has announced that it has received the necessary regulatory approval to begin expanding its onshore private wealth business in Taiwan. Merrill Lynch will now be permitted to offer global products and services to Taiwanese clients as well as access to the Taiwanese stock and bond markets.
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Interchange Issue Is Back, Drawing Bipartisan Interest
American Banker (05/14/08) P. 1; Kaper, Stacy
Both Republican and Democratic lawmakers are getting behind House Judiciary Committee Chairman John Conyers' (D-Mich.) bill to regulate interchange fees prior to today's hearing on the legislation by the House Judiciary antitrust taskforce. The bill, which would establish a three-lawyer board created by the Federal Trade Commission and the Justice Department to regulate the fees, has been heavily supported by retailers and merchant groups, and it is only until recently that lawmakers have deferred the issue to the courts. "We are moving into a cashless society," says Merchants Payments Coalition Chairman Mallory Duncan. "There is something wrong when the credit card companies get to decide what the rate is going to be, and that's what's going on here." However, the banking industry and credit unions, which are traditional adversaries, have partnered to impede or halt the bill's progress. "As the members of Congress start to look at the issue more critically, I think they are going to realize that it is nothing more than a dressed-up price-control bill," predicts Dillon Shea with the National Association of Federal Credit Unions. Should Conyers' bill continue to gain traction, financial services groups say they are ready to step up their opposition. Meanwhile, Senate Banking Committee Chairman Chris Dodd (D-Conn.) has said that he will ask the Government Accountability Office to request an analysis on the establishment of interchange fees in legislation he plans to unveil soon.
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Welch Pushes Bill to Trim Back Credit Card Fees on Businesses
Vermont Press Bureau (05/13/08) Hirschfeld, Peter
Vermont state Rep. Peter Welch is introducing legislation that requires credit card companies to disclose the transaction fees they charge merchants. In addition, the legislation will direct the Federal Trade Commission to launch an investigation into possible collusion by credit card companies in setting those fees. Welch says he is introducing the legislation because the opaque nature of Visa and MasterCard's fee structure allows them to raise fees at will and without explanation. Welch also says the legislation is needed to help the state's small business owners, who he says have been significantly impacted by credit card transaction fees. "Credit cards are very tough on our small businesses," Welch says. "Any charges our small business owners have, they have to pass on to customers. And one of their biggest costs is credit card fees." State Rep. Warren Kitzmiller says Welch's bill should go even further. "I want them to start regulating the damn fees," Kitzmiller says.
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Credit Cards 'Won't Be' Dominant Payment Mode in Few Years
IT Business Canada (05/12/08) Arellano, Nestor E.
Credit cards may not be the dominant form of payment in the next several years, concludes a new Celent report. The report, "Disruption of the Payment Word," says retail merchant dissatisfaction and new technologies threaten the current era of credit card dominance. "A storm is brewing, and we know it's coming; however, we simply don't know exactly where it will touch down and what devastation it will leave in its path," the report says. Analysts say card issuers are under increasing pressure from retailers to reduce or eliminate interchange fees, noting that both small merchants and large retail chains are pressuring for lower interchange rates. The report predicts that interchange fees will decline as retailers sue to lower rates. Meanwhile, new payment technologies such as PayPal are emerging as alternatives to credit cards, the report says.
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Viewpoint: Disclosure Better Than Limiting Credit
American Banker (05/09/08) P. 11; Taft, Jeffrey
In this opinion piece, Mayer Brown LLP partner Jeffrey Taft argues that rather than ban certain "unfair or deceptive acts or practices" related to credit cards, Congress and federal banking regulators should implement more effective disclosures under the Truth-in-Lending Act and support teaching consumers more about disclosures so that they can be held more accountable. Taft says that opting for restrictions and prohibitions over disclosure will only lead to more problems down the road for a variety of reasons. First, banning or restricting practices does not help consumers make informed decisions. Instead, disclosures could be modified so that they provide consumers with important facts to help them make smarter choices. Set regulations will also likely lead to unintentional consequences, such as the eradication of balance transfer opportunities and "same as cash" financing plans. Finally, in determining which practices should be eliminated, it is probable that a variety of legal practices that have been around for a long time will receive the "unfair" label simply because regulators do not think consumers comprehend the information included in the disclosures.
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Plots & Ploys: End Run Around Cuomo?
Wall Street Journal (05/14/08) P. C12; Timiraos, Nick; Hudson, Kris; Hagerty, James R.
Sen. Elizabeth Dole (R-N.C.) is expected to propose an amendment to a bill that would beef up regulatory oversight of Fannie Mae and Freddie Mac, calling for the government-sponsored enterprises' new regulator to create new appraisal standards for the mortgages they buy or guarantee. The amendment would overrule a code of conduct created by New York Attorney General Andrew Cuomo that would prevent mortgage brokers and loan officers from selecting appraisers and prohibit lenders from using valuations provided by in-house or affiliated appraisers. Observers say Fannie Mae and Freddie Mac agreed to the code of conduct to avoid litigation and that it likely would become a national standard given that the GSEs purchase or guarantee most mortgages.
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Steel Indicates Little Room for Maneuver on U.S. Housing Bill
Bloomberg (05/14/08) Brinsley, John; Vekshin, Alison
U.S. Treasury Undersecretary Robert Steel has stated that there is little room for compromise on a bill sponsored by House Financial Services Committee Chairman Barney Frank (D-Mass.) aimed at preventing foreclosures. The White House and Treasury Secretary Henry Paulson remain in disagreement with Congress over the government's response to the nationwide foreclosure surge. In remarks less conciliatory than those made by the Bush administration earlier, Steel stated, "We think the Frank bill is overly prescriptive in several areas, [and] it doesn't have the dial set right." The Frank bill aims to create a program at the FHA to insure up to $300 billion in refinanced mortgages after loan holders cut principal to make payments affordable. President Bush remains opposed to using government funds as a bailout, saying it would reward lenders and speculators at the expense of taxpayers.
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Senate Panel to Vote on Housing-Rescue Plan
Wall Street Journal (05/13/08) P. A2
The Senate Banking Committee has scheduled a May 15 vote on a housing-rescue plan proposed by Committee Chairman Christopher Dodd (D-Conn.). The measure would permit $300 billion in mortgages to be refinanced through the FHA and would establish a new regulator for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. While similar to a bill recently approved by the House, Democrats and Republicans have yet to negotiate a bipartisan deal.
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U.S. Treasury Department and OECD Host International Conference on Financial Education in Nation's Capital
Market Wire (05/13/08)
Financial literacy for the unbanked was among the topics discussed at the International Conference on Financial Education, hosted by the Department of the Treasury and the Organization for Economic Co-operation and Development (OECD). Operation HOPE founder and CEO John Hope Bryant stressed the importance of reaching out to the poor and underserved. "Converting the economically uneducated to the economically literate and empowered is the mission of 'silver rights' and the ultimate answer to poverty eradication,” he said. “The work of making capitalism and free enterprise work for the poor starts with teaching the poor the language of money." Project HOPE’s Banking on our Future financial literacy initiative has educated more than 290,000 underprivileged youth, including courses on dignity and entrepreneurship, he said. The organization has raised more than $400 million and has more than 6,000 professional volunteers in its HOPE Corps. The conference, hosted on behalf of the Financial Literacy and Education Commission, was attended by high-level government officials and experts from 40 countries as part of an ongoing mission to promote financial education.
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Low Wealth Big Opportunities
Credit Union Journal (05/12/08) Vol. 12, No. 19, P. 24; Moed, Joyce
Low-wealth households represent a big opportunity for credit unions, according to Lois Kitsch, national program manager for the National Credit Union Foundation's REAL Solutions. Speaking at the Credit Union Journal's Grow Show, Kitsch described low-wealth households as underbanked families, young families, immigrants, and low-wage families. Low-wealth households can help credit unions grow their operations, but most of these families use payday lenders and other means. "We think 20 percent of credit union members go to payday lenders, and 30 million Americans today use check-cashers," said Kitsch. Credit unions will need to provide better training for tellers to help get low-wealth households to turn to the industry for such services, according to Kitsch. The industry should encourage members to save, which is what low-wealth households will not be able to do if they pay high fees to payday lenders. Immigrants are largely unbanked and should be targeted, along with young families.
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Rep. Johnson Introduces Employers Financial Literacy Act
US Fed News (05/10/08) Ranjan, Ambresh
Legislation that has been proposed by Rep. Eddie Bernice Johnson (D-Texas) would promote financial education among employees of small businesses. The Employers Financial Literacy Act would grant these companies an income tax credit to compensate for the cost of funding financial literacy programs for their employees. Furthermore, the businesses would receive preferential status when applying for federal contracts, loans, and other assistance. The bill has been referred to the House Ways and Means Committee and the House Small Business Committee.
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Congress of Racial Equality Says De Facto Ban of Payday Lending in OH Will Be Dangerous to Consumers
NewsReleaseWire.com (05/08/08)
Niger Innis, national spokesperson for the Congress of Racial Equality, told the Ohio Senate Financial & Financial Institutions Committee that proposed legislation that aims to ban payday lending in Ohio would ultimately hurt consumers. The bill would cap annual percentage rates on payday loans at 28 percent, which Innis believes will close down the industry and eliminate jobs. Payday lenders can charge $15 for every $100 loaned over a two-week period, which translates to an annual percentage rate of 390 percent. According to a recent staff report of the Federal Reserve Bank of New York, since the effective ban of payday loans in North Carolina in 2004 and Georgia in 2005, bounced check fees, complaints against other debt collectors, and personal bankruptcies have soared. Innis supported an earlier bill that would have set aside funds to be used for adult financial literacy education programs, mandated check-cashing loan businesses to abide by the Fair Debt Collection Practices Act, and would have allowed borrowers who could not pay their loan by its due date to opt for an extended payment plan.
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Student Loans May Be Easier to Find Online
TheStreet.com (05/01/08) LaCapra, Lauren Tara
While many large traditional student-loan lenders are exiting the market or shutting down entirely, and Sallie Mae says the market is heading for a "train wreck" this year, there are still a number of educational financing options available on the Internet. For example, students can make use of "peer to peer" (P2P) lending sites, which often allow borrowers to outline the kind of loan they are seeking and have lenders bid on their loans. Using an established P2P site such as Prosper.com carries risks similar to other private, unsecured debt, but it can also be simpler to deal with than traditional loans and carry lower interest rates or give loan access to people with poor credit profiles. According to Celent senior analyst Edward Woods, the P2P lending market is too new to be sure how it will fare in the long term, but statistics indicate that default rates are below industry levels, and some people say the risk is also mitigated by "self-policing" among users who create personal connections with sites. Fynanz.com, a pure-play student lending company, is among the firms looking to take advantage of the current market turmoil; it is an intermediary that allows borrowers to pay an upfront fee based on their credit scores while lenders pay an annual servicing fee of 1 percent. Prosper.com has a similar structure to that of Fynanz, except it offers all types of loans, as is the case with LendingClub.com, although LendingClub recently announced it will not be accepting any new lenders until it registers promissory notes with regulators. Finally, VirginMoneyUS.com serves as a servicer of debt among family and friends, offering documentation, repayment schedules, reminders, and online banking transfers.
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Cards Fill Auto Market: Toyota Latest to Add Credit Card Offering
Detroit News (05/15/08) Shepardson, David
Toyota Motor Corp. will this October launch a Toyota-branded credit card in the United States. Toyota's Lexus unit launched its Lexus Pursuits card in 2005, and more than a dozen other automobile brands offer credit cards in the United States. The Lexus card has approximately 50,000 cardholders, and according to Toyota Financial spokesperson Kelly Rivera, because Toyota has 10 times the number of customers as Lexus, "we're expecting significant volume of customers." Rivera notes that Lexus owners who use a Lexus credit card are twice as likely to come back to the Lexus dealership for service. General Motors has the oldest auto-branded credit card, while Ford Motor is the only U.S. automaker without a credit card. Georgetown University law professor Adam Levitin says that in addition to instilling loyalty in customers, auto companies "make money off every transaction" and save on transaction fees paid when customers use another credit card.
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Auto Trends
Credit Union Journal (05/12/08) Vol. 12, No. 19, P. 20
Credit Union Direct Lending's (CUDL's) 2008 Business Intelligence Report finds that the standard new vehicle loan maturity in 2007 was 72 months. The report also found that 69.3 percent of new vehicle loans had maturities in excess of five years, and that used vehicle loan maturities underwritten on the CUDL platform dropped from 70 months in 2006 to 65 months the following year. The report concludes that the pattern "is a reflection of market trends as J.D. Power and Associates reported that 82.0 percent of all auto loans originated in 2007 had maturities between 60 and 77.9 months."
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Report: CU Share of Auto Loans Dropped Slightly in 2007
Credit Union Journal (05/12/08) Vol. 12, No. 19, P. 20
In 2007, credit unions' share of auto loans stood at 16.9 percent, only a small decline from 18 percent in 2006, according to the 2008 Auto Lending Business Intelligence Report from Credit Union Direct Lending. Banks' market share also fell slightly from 34.2 percent to 32.6 percent. The report says that credit unions were able to keep a significant market presence because they did not stop providing low rates and flexible loan terms to grow loan volume, even as other financial institutions turned to non-prime and sub-prime lending.
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Lose the Lease: Cars Are Credit Crunch's New Victims
New York Post (05/08/08) P. 36; Crudele, John
The number of people looking to get out of expensive auto leases is rising, with LeaseTrader.com reporting a 30 percent increase in the number of deals it made over last year and more than double the rate of 2006. The price of gas and other cost increases in the current economic slowdown is driving the surge, according to Sergio Stiberman, CEO of LeaseTrader. Argus Research echoes the sentiment, reporting that 0.24 percent of lease payments are past due by 60 to 90 days, and 1.5 percent of leaseholders have missed a payment, both increases over last year. Services such as LeaseTrader allow consumers to get rid of the expense of a car without ruining their credit; the company completed 20,000 deals in 2006 and 35,000 in 2007.
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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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