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May 29, 2008
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AFSA Files Amicus Briefs in OH Arbitration Cases
Toyota Financial Services Arm to Mark 20 Years in Germany
WTC Developer Gets Extension for Merrill Lynch
AmeriCredit Raises $750 Million in Subprime Auto-Loan Bond Sale
Senators Want Detailed Credit Card Fee Info
MasterCard Faces GBP160m Competition Fine From EU
Gift Cards Soar in Popularity Among American Adults in 2007--Study
Online Purchase Fraud Will Rise Through 2010, Then Taper Off, Javelin Says
With Foreclosures in D.C. Focus, Predatory Lending Idles
Obama Heads West to Push Housing Proposals in Swing States
Ranieri, Ex-GMAC Execs Plan $1 Billion Home-Loan Fund
Why a Housing Bailout Won't Help
Lawmakers Could Tighten Limits on Payday Loans
NorthStar Education May Re-Enter Federal Student Loan Program
Consumers Must Wait on New Credit-Scoring System
Auto Industry Feels the Pain of Tight Credit
Car Makers' Boom Years Now Look Like a Bubble
African-American Women Wield Much Economic Power
AFSA Files Amicus Briefs in OH Arbitration Cases
AFSA filed amicus briefs last week in American General Financial Services v. Coleman and Wells Fargo Auto Financial Ohio 1, Inc. v. Alexander, asking the Ohio Supreme Court to accept jurisdiction in these arbitration cases. The Court has not yet decided whether or not to accept jurisdiction. The brief in all cases argued that if review is not granted, the Eighth District Court’s decisions will have a serious adverse impact on the arbitration agreements used by AFSA members. Virtually all of those agreements employ the same “arising out of or relating to” language that is used in Wells Fargo’s arbitration agreement. AFSA also argued that review by the Court is urgently needed because these cases stray far from the judicial mainstream and cast a dark cloud over the millions of arbitration agreements utilized by AFSA members in Ohio and throughout the nation. AFSA members will no longer be confident that their arbitration agreements will be enforced by courts as written and interpreted pursuant to the standards mandated by federal arbitration law and decades of interpretive judicial decisions. If the Court accepts the case, AFSA has been asked to file a brief in support of the enforceability of the arbitration agreement.
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Toyota Financial Services Arm to Mark 20 Years in Germany
Top News (05/24/2008) Joshi, Mohit
Toyota Kreditbank, the Cologne, Germany-based arm of Toyota Financial Services, increased its German business by 4 percent in 2007. Kreditbank initiated 82,143 new credit accounts in the year ending March 31, 2008. Representatives for the company noted that 2008 would be its 20th year originating loans for German borrowers. In addition to Germany, Kreditbank also has branches in France, Italy, Poland, Norway, Sweden, Spain, and Russia.
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WTC Developer Gets Extension for Merrill Lynch
International Herald Tribune (05/23/08)
The owner of the World Trade Center site recently granted developer Larry Silverstein a six-month extension to build an office tower on the site. The Port Authority of New York and New Jersey granted the extension to allow Silverstein to accommodate Merrill Lynch. Insiders say Silverstein needed the extension to make adjustments to the building's foundation, possibly to accommodate the broader trading floors requested by Merrill Lynch.
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AmeriCredit Raises $750 Million in Subprime Auto-Loan Bond Sale
Bloomberg (05/20/08) Mulholland, Sarah
AmeriCredit Corp. is offering $750 million in bonds backed by subprime auto loans, a sign that more investors are interested in asset-backed debt, as the company originally planned to offer $500 million. The company had been searching for a deal since September. In the past month, securities backed by consumer borrowing, including student, credit card, and auto loans to prime borrowers, have increasingly drawn the interest of buyers. Selling asset-backed debt has helped Ford Motor Co., GMAC LLC, and Chrysler LLC raise a sum of $9.7 billion since April 15.
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Senators Want Detailed Credit Card Fee Info
Reuters (05/27/08) Poirier, John
Several U.S. senators sent letters to the heads of Visa and MasterCard Worldwide asking that they break down the costs affiliated with interchange fees and provide this information by June 3. "It is important that Congress fully understands the costs and fees imposed within the credit and debit card systems so we can ensure that these systems will continue to function effectively for all participants," the senators wrote. House Judiciary Committee Chairman Rep. John Conyers (D-Mich.) has proposed legislation to establish a panel to determine interchange rates and terms, which Visa, MasterCard, and issuing banks object to on the grounds that such a measure is tantamount to price controls that will raise fees for consumers. The senators said in the letters that they assume the interchange fees are charged to cover various costs, such as security and risk management. "However, it is unclear how much of the amount collected in interchange fees is devoted to covering such costs, and how much is used to other purposes such as marketing, rewards programs that benefit certain cardholders, and issuer profit," they wrote. The senators referred to a third-party analysis estimating that roughly 13 percent of collected interchange fees cover processing costs while the bulk of the money goes toward unspecified costs such as issuer profits and reward programs.
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MasterCard Faces GBP160m Competition Fine From EU
Edinburgh Evening News (05/27/08)
The European Union has formally charged MasterCard with interfering with competition between banks. The EU, MasterCard hampers competition between banks by predetermining a minimum price retailers must pay in order to accept MasterCard and Maestro-branded cards. If MasterCard is found guilty of the charge, it could face a fine of up to 160 million British pounds. In addition, the company could be prohibited from collecting interchange fees. MasterCard has said that it would appeal any judgment against it. Britain's Office of Fair Trading recently said it would continue investigating MasterCard fees after abandoning an earlier probe.
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Gift Cards Soar in Popularity Among American Adults in 2007--Study
ePayments News Network (05/23/08)
Results from a new study indicate that gift cards increased in popularity among American adults in 2007. According to the study, 90 percent of American adults surveyed bought or received a gift card during 2007, and 60 percent did both. Christmas and birthdays were the most common occasion cited for giving gift cards, with 68 percent of U.S. adults polled saying they had purchased at least one gift card as a birthday present and 61 percent saying they bought at least one card as a Christmas present. Gift cards were also given on Mother's Day, Father's Day, and as a memento of thanks. The survey found that 72 percent purchase gift cards because the receiver can pick out their gift, while 43 percent cited convenience as the main reason for purchasing cards.
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Online Purchase Fraud Will Rise Through 2010, Then Taper Off, Javelin Says
Internet Retailer (05/23/08)
The fraudulent use of credit and debit cards to make online purchases will increase until 2010 and then begin to decline, predicts a Javelin Strategy & Research study. Javelin's "2008 Identity Fraud Forecast" predicts that the number of victims of online purchase fraud will rise from 2.3 million consumers in 2007 to 2.7 million in 2010, and then decline to 2.4 million by 2013. Javelin analyst Rachel Kim says the decline will come about because more online retailers will enhance their security systems by adding applications such as device recognition, which recognizes when a consumer is logging on from an unknown computer and asks the consumer additional questions in order to verify his identity. In addition, security systems created by credit card companies--such as Verified by Visa and MasterCard Secure Code--will be able to better authenticate consumers involved in online transactions, Kim says. However, online retailers need to offer incentives in order to spur consumer adoption of these programs, she says.
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With Foreclosures in D.C. Focus, Predatory Lending Idles
American Banker (05/29/08) P. 1; Kaper, Stacy
House lawmakers who helped pushed through a predatory lending bill in November are frustrated that Senate Banking Committee Chairman Christopher Dodd (D-Conn.) has done little to further similar legislation that he introduced in December. Dodd says he mulled the idea of including anti-predatory-lending provisions in a foreclosure relief bill recently approved by his panel, but he notes that such a bill would have been difficult to pass and that subprime lending has dried up, anyway, as a result of the credit crunch. In the meantime, observers point out that the Federal Reserve will focus on mortgage reforms in its revision of the Home Ownership and Equity Protection Act by mandating that lenders assess borrowers' repayment ability, limiting prepayment penalties, and beefing up disclosures of yield-spread premiums and appraisals, among other changes; HUD and the Securities and Exchange Commission also are addressing the issue.
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Obama Heads West to Push Housing Proposals in Swing States
Wall Street Journal (05/28/08) P. A4; Chozick, Amy
On May 27 at the College of Southern Nevada, presidential candidate Barack Obama outlined his plan to provide $30 billion to homeowners. The plan includes a $10 billion foreclosure-prevention fund to keep homeowners in their homes and $10 billion in relief for state and local governments impacted the most by recent foreclosures. Under the plan, middle-class homeowners could expect a 10 percent mortgage tax credit. Obama also plans to amend bankruptcy law to allow homeowners to negotiate mortgage terms. Presidential candidate John McCain's plan could provide up to $10 billion in federal assistance and offers federal guarantees to homeowners with at-risk mortgages.
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Ranieri, Ex-GMAC Execs Plan $1 Billion Home-Loan Fund
Bloomberg (05/23/08) Mildenberg, David
Selene Residential Mortgage Opportunity Fund LP is trying to raise $1 billion to acquire residential mortgages. Led by mortgage bond pioneer Lewis Ranieri and several former GMAC executives, the fund has managed to raise $151 million from investors as of April 15. "Our plan is to raise $1 billion and buy delinquent mortgages that we will recast and refinance and try to keep the borrower in the house without a foreclosure," says Selene managing partner David Creamer. The endeavor is the most recent attempt by investors to return to the battered U.S. housing market; Blackrock Inc. is underwriting Private National Mortgage Acceptance Corp.'s attempt to purchase delinquent mortgages, and Blackstone Group LP and Lone Star Funds were able to raise more than $25 billion to put into real estate-related assets. Selene has attracted high-profile backers, including the South Carolina Retirement System, which has committed $200 million to the venture. Robert Borden, CIO of the $27 billion pension fund, believes Selene represents a sound investment, saying "Lew's expertise in these types of dislocations, combined with his partners' deep expertise in servicing mortgages, gave us confidence." Borden adds that South Carolina is prepared to invest $1 billion in various funds positioned to recover when the U.S. housing market recovers.
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Why a Housing Bailout Won't Help
Wall Street Journal (05/21/08) Jenkins Jr., Holman W.
A federal bailout designed to help stop subprime mortgage foreclosures would not have much effect on the overall economy writes Holman W. Jenkins Jr. Many bond investors maintain that federal aid to bail out subprime mortgage holders is necessary to save the struggling U.S. economy. However, Jenkins points out that according to RealtyTrac.com, the highest rates of foreclosures are contained in just three or four regions of the country. Of these regions, the highest rate of foreclosures exists in a stretch of land reaching from Sacramento to outside Las Vegas and Phoenix. Southern Florida and Colorado also have disproportionate foreclosure rates. In Jenkins' opinion, foreclosures on these houses are occurring because during the housing boom more expansion was expected in these areas then what actually occurred. As a result, Jenkins says, no one would want to buy these houses no matter what the state of the economy is because they are in the middle of nowhere. Furthermore, Jenkins asserts that the economy will recover on its own, without the help of a congressional bailout. For the most part, the $400 billion in subprime mortgage losses are distributed among funds that can handle them without collapsing. In light of these observations, Jenkins concludes that the government should not bail out the market, in hopes that investors and borrowers will learn their lesson and prevent "bubbles" that propagate risky economic decisions in the future.
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Lawmakers Could Tighten Limits on Payday Loans
CBS 2 Chicago (05/27/08)
Illinois state lawmakers hope to pass legislation to curb payday lenders' practices, and current bills would remove time limits on fees and interest rates for these lenders. Current laws only apply to 120-day loans, which have restrictions on fees and interest rates. Fees were capped at $15.50 for every $100 loaned, and borrowers were permitted only two payday loans at a time, with no more than $1,000 per loan. While some consumer advocates applaud the efforts of lawmakers, others contend legislative solutions could open up further loopholes. The Illinois Small Loan Association notes a current House bill would limit interest rates to 70 percent annually but not protect consumers from court costs. The association supports legislation that protects consumers from attorney, court, and triple damage costs, but allows payday lenders to charge up to 400 percent for loans.
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NorthStar Education May Re-Enter Federal Student Loan Program
Minneapolis-St. Paul Business Journal (05/23/08) Wyant, Carissa
NorthStar Education Finance has indicated that it is considering reentering the federal student loan program a month after withdrawing from it. NorthStar Education Finance CFO Jamie Wolfe says the firm may rejoin the federal student loan program in time for the upcoming school year. The decision comes after the U.S. Department of Education pledged to remove economic barriers for lenders taking part in the federal loan program.
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Consumers Must Wait on New Credit-Scoring System
New York Daily News (05/22/08) Aarons, Asa
In summer 2007, Fair Isaac announced it was altering its scoring model to remove a score-improvement loophole. Implementation of the system, however, is being pushed back due to disagreement about the revisions and a lawsuit between Fair Isaac and Equifax. FICO '08 is going to be the first scoring model to disregard authorized-user accounts in an attempt to guard lenders against people who take advantage of the piggybacking practice. The practice is known for allowing people with little or poor credit the opportunity to raise their score by permitting people with good credit to add a second person as an authorized user on an open account. However, some companies began offering people $150 if they added a person with bad credit to their account. The second user could then raise his score simply by being listed on paper, because he would not have access to the account. According to Craig Watts, a spokesman for Fair Isaac, FICO '08 will "protect lenders and the FICO score from illicit use by people trying to misrepresent their credit risk to lenders."
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Auto Industry Feels the Pain of Tight Credit
New York Times (05/27/08)
Amid the ongoing housing crisis, the auto industry is feeling the effect of tighter credit as auto lenders and banks pull back. As a result, hundreds of thousands of consumers have been unable to obtain financing for a vehicle. According to J.D. Power & Associates, approximately 15 million vehicles will likely be sold this year, down from 16.2 million in 2007. "It is a bleak picture, and it all hinges on the availability of financing," says Portales Partner financial analyst William Ryan. Auto lenders are increasingly having difficulty and finding it more expensive to obtain money for loans, and the profit outlook looks less favorable as lenders take on losses from defaults and scale back the number of loans they make. Still, there is reason for optimism. The auto sector is not expected to face the difficulties the housing sector is facing, primarily because auto lenders issued their loans with the expectation that vehicles would decrease in value, in contrast to housing lenders, which issued loans expecting housing prices to rise. That said, auto lenders are having trouble finding investors who will buy packages of new loans.
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Car Makers' Boom Years Now Look Like a Bubble
Wall Street Journal (05/20/08) P. A1; Boudette, Neal E.; Shirouzu, Norihiko; Murphy, John F.
In 2003, when U.S. auto sales were hovering near their 2000 peak of 17.4 million vehicles a year, Toyota said the United States was entering the golden age of the automobile and predicted that the industry would soon be selling 20 million vehicles a year. But just three years later, sales began falling. This year, sales are expected to total just over 15 million vehicles, a level not seen since the 1990s. The automotive industry's error in judging consumer demand for vehicles will likely have broad consequences for the U.S. economy for several reasons. For instance, auto makers that misjudge future demand can post large losses due to the fact that they have to project their model lineups and manufacturing requirements roughly three years in advance. In addition, auto makers--primarily foreign automakers such as Toyota and Honda--decided to open new North American plants on the basis of their predictions of higher U.S. consumer demand. The new capacity could put increased pressure on American automakers like GM, Ford, and Chrysler to expand their downsizing plans.
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African-American Women Wield Much Economic Power
Ward's Dealer Business (05/01/2008)
African-American women have immense buying power and compose a market segment that is growing at phenomenal speed, according to Miriam Muley, CEO of The 85% Niche and the former executive director of diversity growth markets at General Motors Corp. Currently at $450 billion a year but predicted to reach $600 billion in the near future, Muley says the buying power of black women is more than that of Latinos and Asian females put together. They also are behind 58 percent of all new-car and truck purchases, tend to buy more luxury vehicles than other women, and will likely have as much as $1.1 trillion to $3.4 trillion to pass down to their offspring by 2055.
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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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