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May 8, 2008
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Only Two Weeks Remain to Enroll in Leadership Development Program
Select your most promising future leaders to attend the 2008 Leadership Development Program at the University of North Carolina at Chapel Hill, July 16-22, before registration closes on Friday, May 23. This program has been shortened from two weeks to six days so executives are not away from the office too long and also to reduce employers’ costs. Professors from the nation’s best schools lead sessions on negotiations, ethics, and organizational effectiveness. Participants will experience an outdoor team-building exercise, which is always a highlight of the program. Brochures can be downloaded from the Education Foundation’s Web site.
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Questions Answered First-Hand on National Mortgage Licensing System
Federal Reserve Proposes New Rules on Credit Cards
Rating Agency Sessions Among Highlights of U.S. Investors Conference
New Member Welcome
Daimler Financial Expansion Set to Boost Texas Economy
Merrill Lynch's Coffers Full, Says Boss
Wells Fargo Banks on Virtual Worlds to Gather Real-World Interest
Feds Schedule Education Meeting
Loosening of Credit Card Rules Opens Doors for Instant Issuance of Visa & MasterCards on Campus
Lenders Pressed to Hurry Help
Frank Aims to 'Unstick' Jumbo Home Mortgages
Government Intensifies Mortgage Investigation
Rescue Plan Leads Housing Package
Banks Toughen Terms on Loans
Bill Puts Heat on Payday Lenders
Student-Loan Legislation Moves Forward
Viewpoint: Revamping System Can Be Boon for Unbanked
Ding Dong, Debt Collector Calling
81 Percent of Americans Surveyed Won't Buy a Vehicle With Their Rebate Check
Lenders Deactivate Automated Decision-Making
Questions Answered First-Hand on National Mortgage Licensing System
On May 2, AFSA staff and members participated in a joint regulator/industry meeting hosted by the Conference of State Bank Supervisors (CSBS) to discuss a host of matters related to the newly-operational National Mortgage Licensing System (NMLS).
Just prior to the CSBS meeting, AFSA held an industry-only discussion to review the industry's top concerns with NMLS operations, including: renewal during rollout; risk of entire company holdup instead of minor deficiency; inconsistencies with how regulators are placing deficiencies; citing for previous disclosures not met; multiple usernames and passwords; and application of the NMLS database beyond mortgage lending.
AFSA looks forward to the opportunity to continue to work to work with CSBS/AARMR on priority issues.
For more information, contact Danielle Fagre Arlowe, AFSA Senior Vice President for State Government Affairs, at dfragre@afsamail.org.
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Federal Reserve Proposes New Rules on Credit Cards
The Federal Reserve Board (FRB), the Office of Thrift Supervision and the National Credit Union Administration released proposed rules on credit card practices on May 2. The proposed rules would eliminate many of the common practices used by card issuers to price for risk. Among the practices banned are two-cycle billing and universal default, while payment allocation, grace periods and penalty fees are strictly defined.
AFSA believes these rules will result in an inability to offer a wide range of credit products that meet the different borrowing needs of customers, and would further soften the economy at a time when the government is trying to take other steps to stimulate it.
The FRB intends to combine these proposed rules with their June 2007 amendments to the open-end credit provisions of Regulation Z (Truth in Lending). The agencies expect to release the final rules by the end of the year.
In the coming weeks, AFSA plans to meet with the three regulatory agencies that authored the proposal to express its views and offer recommendations.
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Rating Agency Sessions Among Highlights of U.S. Investors Conference
Representatives from the four major rating agencies will lead interactive workshops on timely issues facing the finance industry during the AFSA U.S. Investors Conference in Boston May 12-14.
On Tuesday morning, DBRS’ Steven Picarillo, Senior Vice President of U.S. Finance, will discuss Credit and the U.S. Economy. Mark Wasden, Vice President, Senior Credit Officer – Finance at Moody’s Investors Services, will also lead a workshop focusing on liquidity.
On Wednesday morning, Standard & Poor’s Ernst Napier, Managing Director, Financial Institutions’ Ratings, and John Bartko, Director of Financial Institutions’ Ratings, will lead a workshop on the viability of the finance company model. Vincent Arscott, Senior Director at FitchRatings, will then lead a discussion on U.S. consumer credit.
Attendees are encouraged to come prepared to participate in these sessions, which are available to everyone registered for the Boston conference.
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New Member Welcome
AFSA welcomes new active member Sixth Gear Solutions Corp. and associate member Decision Dynamics Inc.
Sixth Gear is a newly-organized vehicle finance company in New York City. Sixth Gear provides more choices and control over the finance process for dealers, with a one-on-one focus on the business needs of each dealer and the circumstances of each individual driver. Web site
Decision Dynamics is a software and systems firm located in Lexington, S.C., that provides superior products, professional and consulting services in the areas of banking, healthcare, and government services. Founded in 1998, Decision Dynamics is owned and operated by a group of software engineers whose knowledge and experience spans the spectrum of the information technology industry. Web site
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Daimler Financial Expansion Set to Boost Texas Economy
SubPrime Auto Finance News (05/06/2008)
Data from Insight Research of Dallas predicts that Daimler Financial Services Americas' new 160,000-square-foot AllianceTexas facility will pump $115 million into the North Texas economy in its first 12 months. The facility will have room for 800 employees.
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Merrill Lynch's Coffers Full, Says Boss
This is Money (05/06/08)
Merrill Lynch CEO John Thain recently said that the firm has sufficient capital. However, he cautioned that U.S. banks exposed to consumer markets may not yet be out of the financial woods. Merrill Lynch currently has equity capital of $44 billion, just under its all-time high.
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Wells Fargo Banks on Virtual Worlds to Gather Real-World Interest
DM News (05/05/08) Ward, David
Stagecoach Island, a virtual world developed by Wells Fargo, is a tool that teaches valuable financial skills to game-savvy teens and young adults. Unlike its virtual prototype, Second Life, Stagecoach offers virtual rewards to users who make wise financial decisions and specifically targets those between the ages of 14 and 24. “Young adults find themselves facing a lot of firsts, and we felt Stagecoach Island could give them hands-on practice in financial responsibility in an entertaining and safe format," says Gina Fung, vice president of experiential marketing for the financial services company. The Stagecoach platform is devoid of any Wells Fargo branding save on the ATM machines, but Fung says her company has nonetheless received a lot attention from the game. Stagecoach enthusiasts say the platform brings real value to young consumers who enjoy the game without feeling marketed to, and any company interested in setting up a virtual world should clearly define its objectives in order to determine the return on investment.
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Feds Schedule Education Meeting
National Underwriter (Life and Health Financial Services Edition) (05/05/08)
A meeting of the Financial Literacy and Education Commission is scheduled for May 15 in Washington, D.C. The meeting is open to the public, though remarks will only be accepted from commission members, staff members, and invited presenters. The commission was formed by Congress following the passage of the Fair and Accurate Credit Transactions Act of 2003.
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Loosening of Credit Card Rules Opens Doors for Instant Issuance of Visa & MasterCards on Campus
Contactless News (05/02/08)
Issuing Visa- or MasterCard-branded products from a campus card office or bank branch is now allowed thanks to an easing of rules previously requiring that such cards be produced at secure off-campus facilities, while the elimination of a requirement that the cards be embossed is also under consideration. Instant on-campus issuance would usually start with the campus' bank partner receiving blank card stock pre-imprinted with the Visa or MasterCard brand, which would then be processed through the card printer with the bank branch on campus. HID Global's Steve Blake says a new card printer from HID subsidiary Fargo Electronics can be set up in a university campus card center. The device can produce cards that can function as both a student ID and a branded debit card and can be used immediately. The printer is capable of running off debit, credit, gift, and prepaid cards, and Fargo is working to obtain Visa and MasterCard certification. Also engaged in instant issuance of Visa- and MasterCard-branded cards is Datacard Group, which offers card personalization options ranging from flat to embossed to indented card surfaces using a system that is certified by both Visa and MasterCard, according to Datacard's Mark Andersen.
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Lenders Pressed to Hurry Help
Washington Post (05/07/08) P. D3; Merle, Renae
A closed-door session on May 6 involving Treasury Secretary Henry Paulson, executives from Fannie Mae and Freddie Mac, and members of the Hope Now Alliance focused on the need for mortgage lenders to offer more assistance to struggling borrowers in a more timely manner. While Hope Now says 1.3 million loans were negotiated from July 2007 through March 2008, Treasury officials note that a majority involved repayment plans that boost borrower fees and penalties and do not constitute much-needed permanent loan modifications. A hot topic discussed at the meeting was how to handle modifications when two loans are involved and owned by different companies, and Treasury officials said an agreement between first and second lenders was being worked out so that modifications would not be delayed. However, nonprofit groups point out that homeowners wind up farther behind in their mortgage payments as they wait the three-plus months it takes to obtain permission to modify loans. Federal Reserve Chairman Ben Bernanke recently noted that traditional measures to avoid foreclosure might not be successful in the current market.
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Frank Aims to 'Unstick' Jumbo Home Mortgages
Boston Globe (05/06/08)
Expressing dissatisfaction with the mortgage industry's response to congressional efforts to prop up the jumbo home loan market, Rep. Barney Frank (D-Mass.) said he will convene a meeting in late May with mortgage bankers, Fannie Mae, Freddie Mac, and Wall Street interests. As chairman of the House Financial Services Committee, he said he will try to determine why jumbo loans remain elusive and continue to bear steep borrowing costs despite temporary new rules put in place on April 1 that allow Fannie Mae and Freddie Mac to purchase or guarantee mortgages for more than $417,000. "We fought very hard to raise the loan limits for Fannie and Freddie, and there have been a lot of problems in implementation," Frank remarked. "There is a chain of people blaming each other, and we're going to call everybody in there into the hearing and find out why."
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Government Intensifies Mortgage Investigation
New York Times (05/05/08) P. C1; Browning, Lynnley
Federal agencies are turning up the heat in their probe into the mortgage business, and the focus may be shifting to whether some lenders ignored exaggerated income data that borrowers put on their applications. A task force--comprising representatives from the Federal Bureau of Investigation and the Internal Revenue Service, as well as prosecutors in several major cities--has been assembled to review home loans made with little or no proof of consumers' earnings or assets. While the panel is taking a hard look at the part that mortgage lenders and brokers played in facilitating low- or no-income products, it has broadened its scope to include how these loans were packaged into securities. The deeper scrutiny comes in the wake of recent disclosures of failed mortgage investments that have generated billions of dollars in additional write-downs for financial companies. "This is a look at the mortgage industry across the board, and it has gotten a lot more momentum in recent weeks because of the banks' earnings shortfalls," confirmed a government official who asked to remain anonymous.
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Rescue Plan Leads Housing Package
Washington Post (05/02/08) P. D1; Montgomery, Lori; Birnbaum, Jeffrey H.
Democrats have included a provision to overhaul the FHA in a broad housing package with hopes of convincing Republicans to sign on to a housing bill that also seeks to keep troubled borrowers from losing their homes to foreclosure. The House Financial Services Committee voted 46 to 21 to approve the housing package, which would allow the FHA to insure mortgages for the most distressed borrowers and insure $300 billion more in mortgages, establish tougher regulation of Fannie Mae and Freddie Mac, and create a $7,500 tax credit for first-time home buyers to help prop up residential prices. "This should be a signal to the system that significant help is on the way," said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee and chief architect of the housing bill. The full House is likely to vote on the housing package next week, but Senate Banking Committee Chairman Christopher Dodd (D-Conn.), says he may need more time to negotiate with Republicans.
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Banks Toughen Terms on Loans
Wall Street Journal (05/06/08) P. A3; Reddy, Sudeep
A widening of the credit crisis is indicated by the Federal Reserve's poll of banks' senior loan officers, which reveals that domestic banks have been tightening their standards at record levels in nearly all loan categories. The Fed said that the majority of domestic and foreign banks "pointed to a less favorable or more uncertain economic outlook and to a worsening of industry-specific problems as reasons for tightening their lending standards and terms" on business loans, citing less tolerance for risk and lower liquidity in the secondary market. About one-third of the 56 domestic banks participating in the April survey said they raised their credit-card loan standards over the past three months, versus 10 percent in January; the percentage of banks that tightened standards for other consumer loans rose from 30 percent in January to 44 percent in April. In addition, more than half of the banks participating in the federal student-loan program said they would cut back on their lending this fall. Around seven out of 10 banks reported tightening standards for new home-equity lines of credit over the last three months, while about 50 percent of the banks stated that they tightened terms on existing home-equity lines of credit over the last six months due to the decline of home prices under their appraised values. Standards on prime mortgages were tightened by more than 60 percent of banks, versus slightly more than 50 percent in January and 15 percent 12 months ago, and at least 75 percent reported tightening standards for nontraditional and subprime mortgages in the past three months. Roughly eight out of 10 banks tightened their lending standards for commercial-real-estate loans. The Fed reported that more than 33 percent of domestic banks and nearly 50 percent of foreign banks "noted that concerns about banks' current or expected capital position had contributed to more-stringent lending policies."
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Bill Puts Heat on Payday Lenders
The State (SC) (05/04/08) DuPlessis, Jim
The South Carolina General Assembly is considering a bill that would restrict payday lenders. Several other states, including Pennsylvania and North Carolina, have restricted payday lenders. The South Carolina Senate has already passed a version of a bill that would have limited the maximum loan to 25 percent of a borrower's gross income during the period of the loan. The S.C. House Banking and Consumer Affairs Subcommittee of the Labor, Commerce, and Industry Committee raised the loan cap to $600. Payday lenders say that an overwhelming percentage of borrowers repay their loans on time. Some of the lenders also argue that the government should not pass a law that would limit consumers' choices.
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Student-Loan Legislation Moves Forward
Christian Science Monitor (05/02/08) Khadaroo, Stacy Teicher
Congress has passed student-loan legislation, the Ensuring Continued Access to Student Loans Act of 2008, to provide lenders with confidence and liquidity and to reduce students' increasing reliance upon private loans for college education. The legislation increases federal loan limits and allows the government to set prices for the loans. The Department of Education and President Bush support the legislation, which seeks to shore up the student loan market. Also included in the legislation is a "lender of last resort" program that allows the Department of Education to offer loans to 35 designated guaranty agencies should the agencies be unable to get capital from lenders. The department also can designate a school eligible for these loans if a significant number of students are unable to find lenders, and these loans would be governed by the regulations under the Federal Family Education Loan Program. About 14 percent of the lenders in the federal student loan market have dropped out of the program.
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Viewpoint: Revamping System Can Be Boon for Unbanked
American Banker (05/02/08) P. 7; Tescher, Jennifer; Jaffee, Jeff
The Treasury Department's financial regulatory overhaul plans are chiefly designed around markets and investment banks rather than innovation in consumer financial services, particularly for the underbanked, write Jennifer Tescher and Jeff Jaffee of the Center for Financial Services Innovation. There is a perceived tension between the desire for institutional safety and soundness and the desire, which is risk-averse, to promote opportunities for underserved communities, which is less understood and thus seen as riskier, but this is a false choice, they write. Regulators should "embrace these dual missions and demonstrate how to make them consistent rather than mutually exclusive," they write, while "banks should remain obligated to demonstrate their efforts to provide access to all consumers, and other financial firms should join their ranks in this regard." The Community Reinvestment Act (CRA) should be extended far beyond banks to take in any consumer financial services provider; "Wouldn't it be a better use of talent if some of the same creative minds that came up with CDOs, SIVs, and other exotic products were to focus on creating products for the underbanked?" Tescher and Jaffee argue. The CRA should focus not just on credit access but on all the products and services needed to be in the consumer financial mainstream, and beyond that, "bringing new consumers into the mainstream should be at least as important as making loans to those already there," they write. Underbanked consumers work not just in the formal banking world but in "the less formal one of retailers, check cashers, bill payment providers, money transfer companies, prepaid card marketers, and others," and the regulatory system should no longer treat these as distinct and separate, the authors write. While the Treasury's blueprint for a new regulatory framework is oriented toward more centralized federal services, and while applying this to state-licensed money-services businesses would create more consistency, it could negatively impact overall competition, write Tescher and Jaffee. "We need a financial system that is strong, competitive, and sound," they conclude. "We also need one that is inclusive and focused on the needs of the consumers it is meant to serve. We shouldn't have to choose."
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Ding Dong, Debt Collector Calling
Ward's Auto World (05/08) Finlay, Steve
In the wake of a 24 percent increase in delinquencies between the second and fourth quarters of 2007, finance companies are turning to an old-fashioned method to collect delinquent payments: home visits. With more and more people defaulting on their loans, Bobbie Britting, a senior analyst with Tower Group, says home visits are often the only way to get a response from some truant borrowers. "Some customers only need a friendly nudge," says Britting. "Others need sterner treatment because they are on the road to default." Britting advises loan collectors to follow a script and try to "educate" borrowers about the long-term repercussions of derelict payments, including ruined credit.
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81 Percent of Americans Surveyed Won't Buy a Vehicle With Their Rebate Check
PRNewswire (05/06/08)
Over 80 percent of car buyers do not anticipate using their government tax rebate to purchase a vehicle, according to a LeaseTrader.com survey. The one-week online survey, taken by thousands of car shoppers, showed that the rebate checks are not large enough to entice car shoppers to make a purchase. The struggling economy has slowed vehicle sales recently, thanks to higher gas prices, an increasing number of foreclosures, and inflation. Consumers visiting LeaseTrader.com are interested in taking over the rest of someone else's lease, which allows them to avoid a large down payment. The consumers also have less of a financial commitment--for example, a 12 or 18 month lease compared to a 60-month loan for a car purchase.
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Lenders Deactivate Automated Decision-Making
Ward's Auto World (05/08) Finlay, Steve
Certain auto-loan lenders are taking computer systems offline that sanction auto loans automatically, employing predicative algorithms to study creditworthiness. They are doing so due to significant losses by lenders that had depended on the systems, which had approved a lot of loans for schemers and others who did not actually qualify. While lenders continue to depend on automated decision-making to oppose loan requests, numerous loan approval decisions are now being done by hand. The algorithms do not always take into account the elements of evolving situations, notes Honda World operating partner Jeff Hodge. For example, certain borrowers witnessed their credit scores decline due to the country's mortgage crisis. Those individuals can encounter problems in obtaining car financing, even though they have good credit histories in paying off those loans. Hodge explains that the automated systems did not realize these differences, thereby necessitating "a human touch."
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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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