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May 22, 2008
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House Panel Weighs In On Interchange Fees
AFSA CEO Pens Op-Ed for American Banker
Harrison Marks 25 Years at AFSA
AFSAEF Bylaw Changes Prompt New Board Elections
Mexican Bank Ixe in Talks to Buy GMAC Mortgage Companies
BofA, Wells Fargo Partner on Firm
Merrill Lynch to Cap the Number of 'Buy' Ratings
Is the Future in Plastic?
Lawmaker Views Color Palette on Interchange Bill
FTC to Scrutinize Contactless Payment Technology
Senate Bill Would Cut Size of Fannie, Freddie Loans
Government Extends Its Power in Student Lending
Evidence Backing Payday Lenders' Risk Argument
Learning the Tricks of Managing Money
Fair Isaac Takes FICO to Russia
Neighborhoods Seek Zoning Changes to Curb Payday Lenders
New Law Allows Students to Get an Extra Loan
Fed: Average APR Declines at Auto Finance Companies
GM Resists Temptation to Up Rental-Fleet Sales
Hyundai Motor Finance Corp. Uses Cautious Approach
House Panel Weighs In On Interchange Fees
On May 15, the House Judiciary Committee Antitrust Task Force held a hearing on H.R. 5546, the Credit Card Fair Fee Act of 2008. The bill 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. AFSA expressed its opposition to the legislation in a letter submitted to the bill’s two co-sponsors and the entire committee last week. The letter asked the committee members to “think carefully about the dangerous precedent [this bill] could establish by creating a federal government entity that will impose price controls.” In addition, the Electronic Payments Coalition, to which AFSA belongs, has held a number of desk side briefings with reporters in advance of the hearing to express the industry’s point of view.
Also on May 15, the Government Accountability Office (GAO) released a report that concluded that the U.S. government benefits from using and accepting credit, price controls do not work based upon experiences in other countries, and Visa and MasterCard do negotiate interchange fees.
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AFSA CEO Pens Op-Ed for American Banker
In a contributing editorial to the American Banker, American Financial Services Association President and CEO Chris Stinebert writes that as much as everyone would like to witness an end to the housing fiasco, it is a complex problem that cannot be fixed through any single measure. He says, however, that some measures will work better than others. Stinebert thinks one measure that could stimulate the housing sector is establishing a temporary homeownership tax credit. This kind of credit on a nationwide scale would promote buying, which would lessen the housing supply and upgrade values for numerous homeowners who would otherwise owe more money than what their house is worth.
Stinebert feels another feasible solution being mulled by Congress involves heightening the cap on mortgage revenue bonds. States would be able to utilize the bond proceeds to refinance subprime loans and offer mortgages to initial-time homebuyers. Similarly, Stinebert believes that community development block grants should be increased to include foreclosed property purchases, which would help stabilize communities. Lastly, Stinebert writes, Congress should earmark resources to take corrective action against foreclosure fraudsters, and offer money for initiatives that inform homeowners about schemes.
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Harrison Marks 25 Years at AFSA
May 2008 marks a special occasion for one of our AFSA employees. Sheilah Harrison, vice president of membership services, is celebrating her 25th anniversary with the association. In her current role, Harrison is responsible for planning and directing the activities of the Member Services Department that include recruitment and retention of the AFSA Active, Associate, Affiliate and Foreign Members. She also serves as the staff liaison to the association’s Human Resources Committee, Accounting Committee, Associate Member Advisory Board and Vehicle Finance Division.
Harrison began her career as a special education teacher in Alexandria, Virginia. After deciding to change professions, she became a program director for Executive Enterprises, Inc., a New York City-based private seminar company. On May 16, 1983, Harrison joined the association as director of programs and conferences. In July 1999, she was promoted to her current position. In July 1996, Harrison earned recognition from the American Society of Association Executives (ASAE) by being designated Certified Association Executive (CAE), the highest honor of professional achievement available from the society. She was also named the National Speakers Association’s 1997 Meeting Partner of the Year.
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AFSAEF Bylaw Changes Prompt New Board Elections
The AFSA Education Foundation Board of Directors recently elected Frederick Geissinger, Chairman and CEO, American General Financial Services as Vice-Chair and William Dunkelberg, Professor of Economics, Temple University as Secretary/Treasurer. In addition, three new directors were elected in May, including: Ray Biggs, President and COO, Security Finance Corporation of Spartanburg; Robert O’Han, Executive Vice President, Regional General Manager, HSBC Consumer and Mortgage Lending; and, Jim Schneider, Chief Operation Officer, CitiFinancial North America.
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Mexican Bank Ixe in Talks to Buy GMAC Mortgage Companies
CNNMoney (05/20/08)
Mexico-based banking group Ixe Grupo Financiero SA has announced it is participating in preliminary negotiations to purchase local mortgage lending operations from Residential Capital LLC, a subsidiary of GMAC Financial Services. If the deal goes through Ixe would acquire a 100 percent stake in nonbank mortgage lenders GMAC Hipotecaria SA and GMAC Financiera SA.
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BofA, Wells Fargo Partner on Firm
Charlotte Observer (NC) (05/16/08) Rexrode, Christina
Bank of America and Wells Fargo have teamed up to create a new entity designed to process electronic payments. According to company representatives, the joint venture, termed Pariter Solutions, will become the largest processor of ACH payments in the United States. Pariter is expected to launch operations beginning in late 2009 and will have offices in both Charlotte, N.C., and San Francisco.
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Merrill Lynch to Cap the Number of 'Buy' Ratings
Business Week (05/15/08) Paradis, Tim
Merrill Lynch & Co. is instituting a new ratings system that will require analysts to rate at least 20 percent of the stocks they analyze with an “underperform” rating and no more than 30 percent with a “neutral” rating. Stocks given a “buy” rating should have a total return of at least 10 percent in the following 12-month period, while those with a “neutral” rating would have stayed relatively stable or increased slightly over the previous year, and the “underperform” tag would apply either to stocks expected to show a negative return or those that will post an increase but are considered the least desirable of their peers. The changes are intended to help the firm’s ratings to correlate better with historical return statistics and to help investors distinguish the strongest stocks. Some critics, though, say the change will not necessarily improve the system and could hurt companies that are given a negative rating simply to meet an analyst’s quota. Merrill spokeswoman Susan McCabe Walley said the new rules will also require analysts to explain the reasoning behind a rating and the risks a stock may face.
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Is the Future in Plastic?
Wall Street Journal (05/20/08) P. C14; Eavis, Peter
Annualized credit card charge-off rates rose to 6.05 percent from 4.64 percent during the year-over-year period ended in March, according to Moody's Investors Service. Some analysts do not expect charge-offs to rise above 7 percent like they did during the recessions in 1991 and 2001, making stand-alone credit card lenders look like a good investment because not having to beef up loan-loss reserves would bolster their earnings. However, new data indicates that investors might want to avoid buying shares in credit card lenders right now. Of the credit card companies tracked by Oppenheimer & Co., the percentage of outstanding balances repaid by borrowers each month fell to 19 percent in April from 19.7 percent a year ago, suggesting that borrowers are having a difficult time making their monthly payments. Additionally, Moody's reports that borrowers almost never catch up once they miss three payments, and the number of borrowers in this situation is rising swiftly.
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Lawmaker Views Color Palette on Interchange Bill
American Banker (05/16/08) Vol. 173, No. 5, P. 3; Hopkins, Cheyenne
On May 15, legislators at a House Judiciary subcommittee meeting disagreed on whether Congress should approve a bill to oversee interchange fees. Certain lawmakers, mostly Judiciary Committee Chairman John Conyers (D-Mich.), the sponsor of the bill, gave strong support for the legislation, although other members voiced fierce opposition. Meanwhile, other panel members seemed open to voting for the legislation if certain conditions are fulfilled. Conyers attempted to refute the financial services sector's main argument, that the bill equals price-fixing. He instead charged that the credit card sector opposes competition. Rep. F. James Sensenbrenner (R-Wis.) voiced the greatest opposition to the legislation, contending it would negatively impact consumers and retailers. Rep. Darrell Issa (R-Calif.) stated that while he favors the legislation's underlying objective and noted that American interchange fees are much steeper than in other nations, he brought up concerns about how rapidly it would be enforced. Credit card firm representatives contended the legislation equals price control and would yield larger consumer expenses, and pointed out that merchants can already establish interchange fees themselves.
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FTC to Scrutinize Contactless Payment Technology
Network World (05/12/08)
The Federal Trade Commission (FTC) is planning to hold a town hall meeting on July 24 at the University of Washington in Seattle to discuss several issues surrounding the growing use of contactless payment technology. One of the topics on the agenda is the extent to which contactless devices are being deployed in the United States and around the world. Participants will also discuss the potential benefits and risks to consumers from the use of contactless devices, including threats to consumers' individual privacy rights. Possible solutions to such threats will be discussed as well. Finally, participants will discuss consumers' understanding of contactless capabilities and the need for additional consumer education, as well as the new practices and technologies that could change contactless payments in the years to come. The meeting comes at a time when contactless payments are growing in popularity among consumers. Javelin researchers say 57 million consumers will be using contactless credit cards by 2013, more than double the 24.8 million that will use such cards this year.
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Senate Bill Would Cut Size of Fannie, Freddie Loans
San Francisco Chronicle (05/22/08)
Legislation approved by the Senate Banking Committee would reduce the conforming loan limit to $550,000 from the $729,750 temporary ceiling slated to expire at the end of the year. If passed by the full Senate, the new permanent cap would still be higher than the previous limit of $417,000. Lawmakers are hammering away at a comprehensive housing bill, and they continue debate over permanent loan limits and whether Fannie Mae and Freddie Mac should be permitted to buy jumbo loans as investments rather than unload them as securities.
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Government Extends Its Power in Student Lending
Washington Post (05/21/08) P. D01; Cho, David
The Department of Education is getting ready to use a wide range of new powers that would make it the main provider of student loans. It is also looking to help lenders hit hard by the credit crisis by purchasing their student loans, which would give them capital to continue lending. At a May 20 meeting, Education Department officials said the agency is also considering covering some of the leading lenders' interest and administrative fees, as well as compensating them $75 for every loan they give out. The agency further intends to create a fund that would be used to offer lenders finances at a rate lower than what is obtainable in the market. However, some analysts and executives at private-sector companies are concerned that the department does not have the experience or capacity it takes to function as the top provider of student loans. It is used to only financing about one-fifth of student loans guaranteed by the federal government, but, this summer, it is expected that the department will issue half of all those student loans. On top of that, the department is also likely to take charge of the market that consolidates federally guaranteed loans for students who have already graduated. To prepare for this shift in power, Education Department officials are meeting with financial experts from multiple federal agencies, such as the Treasury, the Council of Economic Advisers, and the Office of Management and Budget.
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Evidence Backing Payday Lenders' Risk Argument
American Banker (05/19/08) Vol. 173, No. 96, P. 6; Launder, William
Both analysts and scholars who have examined the payday-lender industry claim credit and regulatory risks have severely impacted the bottom lines of lenders. A study published late last year by Vanderbilt University Law School and the University of Oxford determined that profits in the payday sector are not large compared to other finance businesses. The study reported that 9 percent of the checks that payday lenders mandate as collateral bounce, and that just around half those losses were eventually obtained through internal collections. Advance America Cash Advance Centers Inc. spokesman Jamie Fulmer notes that his company spends one-fifth of its revenue to pay for the 3 percent of loans that enter default after collections. Advance America stated it would probably shut down 246 Ohio stores due to a law passed recently in the state capping the yearly percentage rate on payday loans at 28 percent. Lenders usually charge a fee of $15 for a 14-day, $100 loan, but the law lowered the maximum fee for this kind of loan to $1.08. "If somebody passes a 36 percent of 28 percent APR [cap], that realistically puts you out of business," states Utendahl Capital Partners LP analyst Daniel O'Sullivan.
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Learning the Tricks of Managing Money
U.S. News & World Report (05/19/08) Vol. 144, No. 14, P. 44; Palmer, Kimberly
Americans are reluctant to talk about money and poorly educated about financial strategies, and this is why so many are accumulating major debt, saving very little, and making other poor financial decisions. A variety of public and private organizations have launched financial-education efforts to remedy the problem, while others note that the complexity of the financial system contributes to the problem. The low levels of financial literacy in America are highlighted by research from the Jump$tart Coalition for Personal Financial Literacy, which tests high school seniors every two years on money issues. The majority of students consistently fail the test, with an average score of 50 to 55 percent. Some of the many projects aimed at educating people on financial matters include the National Endowment for Financial Education’s curriculum for high school students that instructs on budgeting, debt, insurance, and career choices, which reaches more than 800,000 students per year, and the National Council on Economic Education’s program to advise teachers on how to include financial instruction in non-financial subjects. There is evidence that the programs work—America Saves found that 75 percent of participants in their savings education program started a savings plan after taking classes and meeting with counselors.
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Fair Isaac Takes FICO to Russia
Minneapolis-St. Paul Business Journal (05/16/08) Wyant, Carissa
Fair Isaac is planning to debut its Global FICO scoring system in Russia. The Minneapolis-based scorer is making the score available to Russian businesses through a tie-up with National Bureau of Credit Histories. The move comes shortly after Fair Isaac announced it would offer its Global FICO score to businesses in Brazil, Ireland, and South Korea. Financial terms were not revealed.
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Neighborhoods Seek Zoning Changes to Curb Payday Lenders
Tennessean (05/16/08) Ross, Janell
In Nashville, Tenn., 26 pawnshops, instant tax return storefronts, and payday and car title lenders have popped up along a four-mile stretch. Now, the Metro Nashville Council will consider two zoning ordinances that might ban all new alternative lenders from doing business along that stretch. Jacksonville, Fla., and Tucson and Mesa, Ariz., have passed ordinances within the past three years that restrict where alterative lenders set up and prohibit businesses from opening in clusters, though a Florida court threw out the Jacksonville ordinance because it also imposed interest rate restrictions. Meanwhile, Salt Lake City approved a moratorium on all new locations of alterative lenders. Jabo Covert, a vice president of the Check Into Cash chain, based in Cleveland, Tenn., opposes such limits on alternative lenders. He argues that the payday loan industry gives people who do not have bank accounts access to short-term and unsecured loans.
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New Law Allows Students to Get an Extra Loan
San Francisco Chronicle (05/15/08) Pender, Kathleen
A new federal law will make it possible for undergraduate student borrowers to take out more federally guaranteed loans in time for the 2008-09 school year. HR5715 will enable students to take out another $2,000 a year in Stafford loans, which are less costly than private or alternative loans. The bill provides financial lenders with more capital to extend more loans by allowing the Department of Education to acquire existing Stafford and Plus loans from already guaranteed lenders. In addition, the bill revises repayment terms on Plus loans so that parents can postpone payment until six months after their children have left school. The measure also loosens eligibility requirements so some parents behind on mortgage or medical bills can obtain Plus loans. These changes go into effect July 1. Moreover, students enrolled at least half time and permanent residents can now apply for Academic Competitiveness Grants and Smart grants, which prior to HR5715 were restricted to full-time students and U.S. citizens. Not expected to change is the amount of the subsidized loans students receive. For example, a freshman can take out up to $5,500 in Stafford loans, but no more than $3,500 can be subsidized. The old rules allowed a freshman to take out up to $3,500 in subsidized or unsubsidized loans. The limit for sophomores is $6,500, with no more than $4,500 subsidized, and $7,500 for juniors and seniors, with no more than $5,500 subsidized.
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Fed: Average APR Declines at Auto Finance Companies
Subprime News (05/15/08) Reed, Jennifer
The average interest rate on car loans from auto finance companies fell from 5.37 percent in February to 4.19 percent in March, according to the Federal Reserve’s latest consumer credit statistics. The Fed also reported that the median term length fell from 63.2 months to 62.3 months, the average loan-to-value ratio fell from 95 to 94, and the median amount financed rose slightly from $28,118 to $28,173. The average rate at commercial banks was unavailable, but the February rate was 7.27 percent. Consumer credit rose by 5.5 percent overall in the first quarter, with revolving credit up 6.75 percent and nonrevolving up 4.5 percent, according to the Fed.
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GM Resists Temptation to Up Rental-Fleet Sales
Ward's Dealer Business (05/15/2008) Finlay, Steve
While car makers often increase their rental-fleet deliveries in the face of slowing auto sales, General Motors says it will not resort to increasing rental sales in the current soft market. “There’s been absolutely no talk of that,” says Brian McVeigh, general manager-GM Fleet and Commercial Operations. “Never boost numbers just to boost numbers.” Balancing a rental-car program is important, as too many models sent to rental agencies ends up diluting a brand. Further, if a car is unpopular on the retail end, it will be just as unpopular as a rental model and will be a burden when it comes back to the auto dealer for remarketing. Tom Kontos, a vice president at Adesa Analytical Services, says there may be a rise in rental-fleet sales this year because of falling retail sales. Light-vehicle sales are expected to be several hundred thousands lower than last year’s 16.1 million units sold. Commercial-fleet sales have been sluggish as well, according to Scott Savage, fleet manager at Findlay Chevrolet in Las Vegas. “Two years ago, you could sit at your desk and sell a lot of vehicles, but not any more,” he says.
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Hyundai Motor Finance Corp. Uses Cautious Approach
Ward's Dealer Business (05/01/2008) Finlay, Steve
When it comes to mapping out a business strategy, Hyundai Motor Finance is understated in its approach. If it were launching a business initiative, says Glenn Gottfried, executive director of strategic planning and risk, the company would be more likely to form a joint venture with a vendor than acquire a company. "That's a minimal risk and investment for us," Gottfried says. "We prefer a phase-in approach where we can assess progress at each point." One reason the company has adopted this strategy is because Hyundai Motor Finance "doesn’t have the relationship with dealers that some 40- to 45-year-old captives have," he says. Meanwhile, Hyundai is considering adding insurance products and a Hyundai credit card to its offerings.
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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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