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November 20, 2008
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Happy Thanksgiving!
Due to the Thanksgiving holiday, next week's edition of Newsbriefs will be delivered on Tuesday, November 25.
AFSA Requests CRA Credit for Banks Helping Finance Companies Provide Workouts
AFSA Submits Comment Letter on NMVTIS
New Leaders Announced for AFSA Committees
New Member Welcome
Citi Donates $25,000 for Kids Fitness at YMCA
HSBC MasterCard Introduces New Reward Program for Canadian Homeowners
CIT Begins Exchange Offer for Notes, Equity Units
Rhein to Head Wells Fargo Financial
Banks Get Go-Ahead to Issue Both Visa, MasterCard
Sales of Gift Cards Are Predicted to Fall
HUD Secretary Says Borrowers Not Getting Aid
Durbin Bill Would Mandate Mortgage Write Downs
FDIC Details Loan Mod Plan, But Questions Remain
Fighting the Financial Crisis, One Challenge at a Time
Group Jumpstarts Financial Literacy
New Program Puts Cash Into Hands of Customers Prior to Their Payday
Downturn Drags More Consumers Into Bankruptcy
Major Auto Pain Possible for Bankers in Midwest
Cash Transactions for GM Models Climb
Edmunds.com: Credit to Buy Still Available With Caveats
AFSA Requests CRA Credit for Banks Helping Finance Companies Provide Workouts
On Nov. 14, AFSA sent a letter to federal banking regulators recommending that Community Reinvestment Act (CRA) credit be given to banks when the lines of credit they provide to consumer finance companies are used for workout programs.
Consumer finance companies want to accommodate borrowers who have been in good standing but now need extra help to meet their credit obligations because over time these borrowers will again become customers in good standing. “The CRA’s intent is to encourage lending in local communities, which is exactly what our members do,” said Bill Himpler, Executive Vice President of Federal Government Affairs.
AFSA’s recommendation followed U.S. Treasury Secretary Henry Paulson’s announcement that he plans to widen the $700 billion financial rescue program to assist consumer finance companies. AFSA staff hopes to set up meetings with regulators to discuss the association’s CRA recommendation.
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AFSA Submits Comment Letter on NMVTIS
On Nov. 20, AFSA’s National Title Solutions Forum Committee (NTSF) submitted a comment letter to the FBI on the Proposed Rules to the National Motor Vehicle Title Information System (NMVTIS), which allows the electronic verification and exchange of title and related vehicle information.
Among the committee’s recommendations was to permit web-based access to NMVTIS through multiple public or private entities rather than being offered solely by the Operator or the Department of Justice. In addition, the letter commented on the need for the name on the certificate of title to remain private under federal and state privacy laws.
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New Leaders Announced for AFSA Committees
Three AFSA committees of professional interest recently elected new leaders. The eBusiness & Technology Solutions Committee named Les Winograd, Director, Information Technology Group, GMAC Financial Services, as Co-Chair. The Marketing Committee appointed Rob Cook, Vice President of Marketing, HSBC Finance North America, as Co-Vice Chair. The Communications Committee named Steve Carlson, Assistant Vice President of Communications, Wells Fargo Financial as Co-Vice Chair.
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New Member Welcome
AFSA welcomes associate member Securian Financial Group and affiliate member Independent Finance Association of Illinois.
Headquartered in St. Paul, Minn., Securian helps provide financial security for individuals and businesses in the form of insurance, retirement plans and investments. Web site
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Citi Donates $25,000 for Kids Fitness at YMCA
GoUpstate (11/18/08) Anderson, Trevor
The YMCA of Greater Spartanburg, S.C., has been awarded a $25,000 grant from Citi Foundation. The scholarship assistance grant will be used to help low- to moderate-income households win scholarships to enroll in the Pine Street YMCA's Fit for Life program. "The foundation has been donating these grants for 18 years, and this is our fifth year giving to this program," says CitiFinancial area director Mario del Pino. "We think it's a great program for the kids, and it's great to support it even in tough economic times like these." Fit for Life is a comprehensive fitness program that teaches children life skills.
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HSBC MasterCard Introduces New Reward Program for Canadian Homeowners
Banking Business Review Online (11/17/08)
HSBC MasterCard has launched a new rewards program available until Dec. 31, 2009. The program will let cardholders apply as much as 2 percent of their credit card purchases toward their existing HSBC mortgage, after which they can apply their reward points to their mortgage account at a 1 percent rate. "One of the most consistent financial goals of many Canadians is to pay off their home and become mortgage-free faster," says HSBC Bank Canada executive vice president Tracy Redies. "The new HSBC MasterCard mortgage account contribution reward gives homeowners an opportunity to move in that direction by allowing them to convert their ongoing everyday spending into additional payments on their mortgage."
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CIT Begins Exchange Offer for Notes, Equity Units
Associated Press (11/17/08)
CIT Group Inc. said Nov. 17 that it has begun a program to exchange certain outstanding notes and its outstanding equity units in an effort to bolster capital to support its application to become a bank holding company. Aside from the exchange offers, CIT will look to raise capital through a public or private offering of stock, and has applied for up to $2.5 billion in capital from the U.S. Treasury Department’s Capital Purchase Program. Fitch Ratings said CIT’s move to become a bank holding company is a long-term positive.
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Rhein to Head Wells Fargo Financial
Des Moines Register (IA) (11/14/08) Mracek, Karen
As part of Wells Fargo & Co.'s acquisition of Wachovia, Kevin Rhein will become head of Wells Fargo Financial. Rhein will continue to serve as head of Wells Fargo's Card Services and Consumer Lending division. Rhein will replace Mark Oman at Wells Fargo Financial; Oman remains head of Wells Fargo's Home and Consumer Finance Group until his 2009 retirement. Oman will also supervise Wachovia's Pick-A-Pay Portfolio. Wells Fargo's acquisition of Wachovia is expected to be completed by the end of the year.
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Banks Get Go-Ahead to Issue Both Visa, MasterCard
Toronto Globe & Mail (Canada) (11/18/08) Perkins, Tara
Canadian banks, which previously had to choose between issuing Visa or MasterCard branded credit cards, should be able to issue both, says Sheridan Scott, head of the Competition Bureau. Scott submitted a letter to the country's major financial institutions stating her belief that banks should be allowed to distribute both cards. The policy change is in response to Visa and MasterCard becoming publicly traded companies. "In light of the restructurings and subsequent information obtained from various industry participants, the Bureau is no longer concerned that there is a potential for a member, or group of members, of one credit card network to negatively influence the competitive operations of another card network through dual governance," Scott said in the letter. Meanwhile, the nonprofit Interac Association, which runs Canada's main payments network for automated banking machine and debit transactions, has queried the Competition Bureau about a reorganization that could enable it to turn a profit. Interac would like the bureau to ease its restrictions so that it can be a more effective competitor against Visa and MasterCard, which are seeking to penetrate the Canadian debit card business.
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Sales of Gift Cards Are Predicted to Fall
Wall Street Journal (11/18/08) P. B8; Lu-Lien Tan, Cheryl
Sales of gift cards are expected to fall from $26.3 billion in 2007 to $24.9 billion this holiday season, a decline of 5.6 percent, according to the National Retail Federation (NRF). The decline, the first drop in the six years that NRF has tracked gift card sales, is the result of more consumers choosing to purchase items that are on sale instead of gift cards. In addition, some consumers say they do not want to buy gift cards this year because they are worried that the retailer selling the cards could go out of business. NRF also found that those who are planning to purchase gift cards will be spending less on average than consumers did last year. The average amount spent on holiday gift cards is expected to fall to $147.33, a decline of 5.7 percent compared with last year. The last time the average amount spent on gift cards fell was in 2004, when spending declined 5.4 percent amid a backlash against gift card expiration dates.
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HUD Secretary Says Borrowers Not Getting Aid
New York Times (11/20/08) P. B3
The Hope for Homeowners program has been revamped to enable lenders to make new loans for 96.5 percent of a property's current value, compared with 90 percent previously. The federal government hopes to increase participation in the mortgage assistance initiative by allowing lenders to take a smaller loss. Hope for Homeowners has received only 111 applications from struggling homeowners since it launched on Oct. 1; and a similar federal effort, the FHASecure program, had only helped about 4,000 delinquent borrowers as of August 2007--although the government had hoped the initiatives could help hundreds of thousands of borrowers avoid foreclosure. Changes could be forthcoming for the FHASecure program as well.
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Durbin Bill Would Mandate Mortgage Write Downs
National Mortgage News Online (11/18/08)
Sen. Dick Durbin's (D-Ill.) bankruptcy reform bill has been broadened to require servicers to use the FHA Hope for Homeowners program for borrowers who meet the qualification requirements. Previously, servicers were "encouraged" to use the Hope for Homeowners program, but Durbin wants to mandate participation. Furthermore, banks participating in the U.S. Treasury Department's capital injection program would be prevented from increasing their dividends, and dividends would be cut by the amount of compensation paid to the top five executives above $500,000. The new bill, like its predecessor, would permit bankruptcy judges to make changes to mortgages on primary residences.
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FDIC Details Loan Mod Plan, But Questions Remain
American Banker (11/17/08) P. 3; Adler, Joe; Kaper, Stacy
Federal lawmakers and consumer advocates have expressed support for the Federal Deposit Insurance Corp.'s loan modification plan, calling it superior to other initiatives already in place. The plan calls for the government to cover 50 percent of losses on modified mortgages--or 20 percent for "underwater" mortgages--limiting the guarantees to owner-occupied properties and eliminating them altogether if defaults occur within six months of modification. Approximately 4.4 million loans could be eligible for the program, but only 50 percent likely would be modified. According to New America Foundation's Financial Services and Education Project director Ellen Seidman, "They've put some safeguards in here that should mean this doesn't become an incentive for servicers to dump lousy loans."
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Fighting the Financial Crisis, One Challenge at a Time
New York Times (11/17/08) Paulson Jr., Henry M.
The financial crisis has been unpredictable and difficult to counteract, U.S. Treasury Secretary Henry Paulson writes in an opinion piece in the New York Times. The goal of the federal government has been to stabilize the financial system, and a $250 billion capital injection program was quickly implemented. However, the federal government decided that purchasing illiquid mortgages and mortgage-related securities would not be an effective and quick enough response. Although there is no playbook for handling a financial crisis, the federal government was able to stabilize and strengthen the financial system, and money remains in the $700 billion financial rescue package for the next administration to continue the work of addressing the capital and liquidity needs of credit providers. The problems in the housing market are behind the downturn in the economy and stress in the financial market, and the first thing the federal government can do is to provide greater access to lower-cost mortgage lending. The financial rescue package came too late to keep the financial crisis from spreading to the overall economy, and was not meant to be a panacea for the economy. Still, the financial system will be able to recover faster because of the resources and authority Congress has committed to the task at hand, Paulson argues.
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Group Jumpstarts Financial Literacy
Trading Markets (11/14/08)
The Jump$tart Coalition for Personal Financial Literacy is set to release the third edition of its personal finance standards for grades K-12. The National Standards in K-12 Personal Finance Education teaches students grades K-12 the skills needed to handle finances. The standards include benchmarks for 4th, 8th, and 12th grades and can be integrated in lesson plans and course outlines, and also used to evaluate educational materials and cultivate educational requirements.
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New Program Puts Cash Into Hands of Customers Prior to Their Payday
Lancaster Eagle-Gazette (11/18/08) Giessler, Joe
Fifth Third Bank in Lancaster, Ohio, is offering established customers advances on their paychecks for a 10 percent fee, with the entire amount deducted at the time of direct deposit. To keep customers from depending on the advances the way they can come to rely on payday loans, the bank requires that the first advance be repaid entirely and imposes a 30-day cooling off period so that customers cannot obtain more than the maximum $500 advance each month for seven months straight. Other local banks are providing overdraft protection for a $30 fee, but they require customers to have consistent deposit patterns to participate in the program. Pam Freisner of First Bremen Bank says banks differ from payday lenders in offering paycheck advances because they have ongoing relationships with their customers and can monitor their lending habits.
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Downturn Drags More Consumers Into Bankruptcy
New York Times (11/16/08) Bernard, Tara Siegel; Anderson, Jenny
Personal bankruptcy filings rose nearly 8 percent in October from September and are up nearly 34 percent from last October, while the total of 108,595 filings tops the 100,000 mark for the first time since a law took effect in 2005 that makes it more difficult and expensive to file for bankruptcy, according to Automated Access to Court Electronic Records, a bankruptcy data and management company. "With the consumer credit tightening and the economy in a nosedive, this pop could just be the beginning of a long-term rise in the bankruptcy filing rate to levels that are even higher than we had before the 2005 bankruptcy law," says Robert M. Lawless, a professor at the University of Illinois College of Law. What is more, a recent study shows that the typical family filing in 2007 was carrying about 21 percent more in secured debts and about 44 percent more in unsecured debts than filers in 2001. Some experts say the 2005 bankruptcy law has discouraged many people from filing. "The widespread perception that bankruptcy is not available to help families makes this economic crisis worse," says Harvard Law School professor Elizabeth Warren.
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Major Auto Pain Possible for Bankers in Midwest
American Banker (11/20/08) P. 2; Kuehner-Hebert, Katie
Auto industry observers say that banks doing business in Michigan and surrounding states could suffer a wave of loan defaults if Detroit’s Big Three automakers fail to secure a long-sought $25 billion federal bailout. Kevin T. Kabat, CEO of Fifth Third Bancorp, says he is concerned about the ripple effect that would be seen with the failure of American automakers, which would significantly affect consumers who work for the companies. Additionally, Brett Rabatin, senior bank analyst with First Horizon National Corp.’s FTN Midwest Research Securities Corp., says that banking firms with large Midwest operations would suffer losses in multiple portfolios if the American automakers were to collapse. If the automakers are to survive, Kabat says, the companies would need to restructure so that they can form a “competitive, healthy industry that can compete in the world markets.”
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Cash Transactions for GM Models Climb
SubPrime Auto Finance News (11/18/2008) Reed, Jennifer
Power Information Network (PIN) reports a sharp increase in cash payments for General Motors vehicles. PIN officials say cash transactions at GM now stand at 43.5 percent, more than 10 points higher than cash purchases at Ford and nearly 10 points above Chrysler. PIN also notes that "while retail finance transactions' mix has risen industry-wide, including at both Chrysler and Ford, it had remained steady at GM until falling in the most recent week." Based on these results, PIN concludes that GM is having a tougher time securing auto financing for its customers than are its rivals, which is "depressing the company's finance mix and raising its cash proportion to extraordinary levels."
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Edmunds.com: Credit to Buy Still Available With Caveats
SubPrime Auto Finance News (11/18/2008) Reed, Jennifer
Lender refusal is not preventing consumers from obtaining auto financing, according to Edmunds.com. "Media reports about consumers who are unable to get auto loan financing are often overstated and have the negative effect of dissuading consumers from even trying," says Jesse Toprak, Edmunds.com executive director of industry analysis. Nonetheless, consumers with average credit scores will have to make a down payment as high as 20 percent, and six-year loans may no longer be an option. The minimum credit score for an auto loan has risen to about 500, and consumers will need at least a 720 to obtain the best interest rates, up from 700 a few months ago. Consumers with average credit could see rates as high as 12.5 percent, but those with the best credit will find rates as low as 5.95 percent. Toyota Financial Services is among the companies able to provide financing for credit-worthy individuals, according to Mike Groff, group vice president of sales and marketing. However, "there are likely many customers sitting on the sidelines now, not wanting to make a big-ticket purchase," says Groff.
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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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