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November 25, 2008
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AFSA Board of Directors Welcomes Two New Members
MoneySKILL Training Continues to Reach Teachers
Vehicle Finance Conference Features Strong Lineup
Seeking TARP Money, GMAC Aims to Be a Bank
Citi Foundation Awards $500,000 to Enterprise Community Partners Grant to Further Leadership and Innovation in Green, Affordable Housing
Fed Insures Open Loop Cards
More Customers Resume Using Old-Fashioned Cash
The 10 Most Pressing Issues in E-Payments
Early Read Finds Many Loan Mods Falling Short
Fannie Mae, Freddie Mac Suspend Some Foreclosures
New Facility Targets Consumer Lending
Group for Hispanics Puts Twist on Check Cashing
More Consumers Are Delinquent on Vehicle Loans
Viewpoint: Got an ID Theft Red Flag Plan? That's the First Step
CNW: FICO Scores Climb for All Buyers, Leasing Impacted as Well
AFSA Board of Directors Welcomes Two New Members
Frank Armstrong, President of World Omni Financial Corp., and Mike Matera, Vice President and Finance Director for John Deere Credit, were appointed to AFSA’s Board of Directors, effective Nov. 24.
Armstrong replaces his colleague, Brent Burns, who received a promotion to World Omni’s parent company, JM Family Enterprises, Inc. In his current position, Armstrong is responsible for the company’s strategic and operational management.
Matera replaces his colleague, Brent Rippentrop, whose responsibilities increased at John Deere Credit. Prior to joining John Deere in Sept. 2008, Matera served as Senior Vice President and Chief Financial Officer for Wells Fargo Financial. He held numerous other executive positions during his years with Wells Fargo from 1994 to 2008, and he currently serves as Chair of AFSA’s Financial Relations Committee.
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MoneySKILL Training Continues to Reach Teachers
More than 500 teachers received training on MoneySKILL® at conferences held this fall in Indiana, Iowa, Michigan, Mississippi, Rhode Island, and Virginia. The training offered an overview of the curriculum, how to incorporate it in the classroom and how to use features such as module selection and presentation, which were requested by teachers. Student enrollments from 47 states have increased 35 percent this semester as compared to the same time last year.
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Vehicle Finance Conference Features Strong Lineup
Political commentators and industry experts are among the speakers for AFSA’s 13th Annual Vehicle Finance Conference and Exposition, which will be held Jan. 21-23, 2009, at The Sheraton New Orleans.
The conference’s keynote speakers, political commentators James Carville and Mary Matalin, will share their insight on the Obama administration, just three days after his inauguration. A series of roundtables will focus on: profitability management analytics and operational effectiveness, important legal and legislative issues impacting auto finance, new loss mitigation strategies, managing human capital, and avoiding and dealing with fraud.
On the first day of the conference, Marguerite Watanabe, Principal of Connections Insights, will lead a pre-conference workshop, “What Companies Are Doing to Become Lean and Green.” The session, which requires advance registration, will address how auto financing sources and their dealers can implement green initiatives that will reduce short-term costs, improve business processes and reporting, meet regulatory requirements, increase long-term profitability and create market differentiation.
For the sixth year in a row, AFSA’s Vehicle Finance Conference immediately precedes NADA’s Annual Convention. The preliminary schedule and registration are available at www.vehiclefinanceconference.com. For exhibit and sponsorship opportunities, please contact Matt Gannon at mgannon@afsamail.org.
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Seeking TARP Money, GMAC Aims to Be a Bank
CFO (11/08) Taub, Stephen
GMAC Financial Services has announced it has applied to become a bank holding company so that it may tap into the $250 billion Capital Purchase Program. “As a bank holding company, GMAC would obtain increased flexibility and stability to fulfill its core mission of providing automotive and mortgage financing to consumers and businesses, “ GM said in a press release.
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Citi Foundation Awards $500,000 to Enterprise Community Partners Grant to Further Leadership and Innovation in Green, Affordable Housing
PR Newswire (11/19/08)
The Citi Foundation has announced that it has awarded Enterprise Community Partners a $500,000 grant to support its Green Communities initiative, which seeks to bring the benefits of environmentally friendly building to low-income individuals. "Citi is committed to supporting such environmentally sustainable programs as the Green Communities initiative, which offers innovative and effective approaches to making communities better," says CitiFinancial North America President and CEO Mary McDowell. "Specifically, our partnership with Enterprise Community Partners provides opportunities for low- to moderate-income families throughout the U.S. to benefit from housing that is not only affordable, but environmentally sound as well." The grant will enable the ongoing expansion of the Green Communities project by allowing Enterprise to increase technical support in improving building energy efficiency and use the emerging carbon market as a new resource for green affordable homes.
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Fed Insures Open Loop Cards
Green Sheet (11/24/08)
The Federal Deposit Insurance Corp.'s (FDIC) board of directors has approved an opinion from its General Counsel mandating that funds held in FDIC-insured banks that secure open loop, stored value cards be secured up to $250,000. "It makes it very clear there is a way now for banks to set up prepaid cards so consumers can get FDIC insurance," says Gail Hillebrand with Consumers Union. Only network-branded payroll and gift card products are covered under FDIC insurance, while merchant-branded cards issued and financed by retailers are exempt, according to Jaffe, Raitt, Heuer & Weiss attorney Holli Targan. Funds backing closed loop cards are explicitly exempt, which means that cardholders would lose the money on the card if the merchant goes bankrupt. Meanwhile, bank-issued open loop cards are covered in the event of the bank's failure. Targan says federal regulators have generally followed a policy of non-involvement in regard to stored value products, but the failure of Linens 'N' Things and other retailers and a petition filed by the Consumers Union with the Federal Trade Commission (FTC) prompted their reconsideration.
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More Customers Resume Using Old-Fashioned Cash
Associated Press (11/23/08) D'Innocenzio, Anne
Americans are increasingly using cash over credit in order to get a better grip on their finances in a tough economic climate, and merchants such as Target and Wal-Mart are observing a significant switch from credit cards to cash and debit cards. Eduardo Castro-Wright with Wal-Mart's U.S. division told shareholders in October that credit card payments as a percentage of total payments have dropped 7.4 percent in the current fiscal year, in contrast to double-digit growth rates in credit cards over the past three years. Among the factors contributing to this trend is a reduction of available credit as major card issuers slash spending limits and elevate fees. Analysts expect Americans to prefer buying only what they can afford as a result of what may become a prolonged recession, even after more credit becomes available. Innovest Strategic Value Advisors analyst Laura Nishikawa cites data from Visa, MasterCard, and American Express indicating that the number of credit cards that consumers own fell 5 percent in the second quarter from the first quarter, mainly on account of consumers receiving fewer credit card offers.
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The 10 Most Pressing Issues in E-Payments
Digital Transactions (11/01/08) Vol. 5, No. 11, P. 24; Stewart, John
In 2007, an estimated 84.2 billion consumer-based electronic transactions took place. However, alternative e-payment systems like PayPal, Bill Me Later, Revolution Money, eBillme, and Google Checkout might take away market share from large bank networks. Banks are mulling an alternative product being developed by NACHA--The Electronic Payments Association called Secure Vault Payments. The system is completely controlled by banks and lets consumers pay bills and merchants through the Internet via their online banking programs. Steve Mott, a principal at BetterBuyDesign, says independent sales organizations (ISOs) must develop strong links with merchants to leverage new technologies like contactless payments. For example, ISOs are helping restaurants promote pay-at-table technology that might boost table turns and reduce transaction costs. Meanwhile, just two firms--HomeATM and Acculynk--are pushing technology that lets consumers pay online merchants using their PIN debit cards. The two firms recently linked to a switch operated by the Universal Air Travel Plan that processes card transactions for about 200 airlines worldwide. And although online bill pay is free for consumers, banks will likely pay more than $900 million this year in outsourcing costs to handle online traffic. Banks hope to earn income from expedited payments, with fees ranging from $3.95 for utilities payments to $15 for a credit card payment. Card issuers are also worried about rising debit card fraud, potential costs to migrate to chip-and-PIN technology, scanner costs, the feasibility of Deposited Check Truncation, and higher interchange rates associated with rewards credit cards.
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Early Read Finds Many Loan Mods Falling Short
American Banker (11/24/08) P. 1; Berry, Kate
Forty-four percent of borrowers who obtained traditional loan modifications in the fourth quarter of 2007 defaulted within eight months, according to Rod Dubitsky of Credit Suisse Group, who reviewed trustee reports from 19 servicers. Most servicers are reducing interest rates and rolling missed payments into the balance, which results in higher payments for borrowers. "The voluntary modifications are putting people underwater more than they already are and those terms are contributing to the failure rate," says Alan White, a professor at Valparaiso University School of Law. After reviewing the September and October remittance reports on $4 billion of bonds backed by subprime and Alt-A mortgages, White found that about 72 percent of modified loans had a "negative prepayment" that increased the principal balance.
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Fannie Mae, Freddie Mac Suspend Some Foreclosures
Reuters (11/21/08) Yoon, Al; Burns, Dan
Fannie Mae and Freddie Mac will halt foreclosures of occupied dwellings from Nov. 26 to Jan. 9 so that servicers have more time to develop workout plans for struggling borrowers. The plan could buy extra time for approximately 16,000 borrowers to try to save their homes, according to the mortgage giants, but some experts worry that it only will delay inevitable foreclosures. Meanwhile, the companies will commence a streamlined modification program on Dec. 15, under which hundreds of thousands of borrowers shelling out over 38 percent of earnings on mortgage payments could see their payments lowered by lenders.
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New Facility Targets Consumer Lending
Wall Street Journal (11/25/08) Solomon, Deborah
Treasury Secretary Henry Paulson has announced plans to launch two new programs, one geared toward shoring up consumer credit and the other aimed at boosting the market for mortgage-backed securities. The Term-Asset Backed Securities Loan Facility will provide as much as $200 billion in non-recourse loans to holders of asset-backed securities backed by student loans, auto loans, credit card loans, and certain small business loans. Mortgage-backed securities may be added in the future. Meanwhile, the Fed also plans to buy up to $100 billion in GSE debt and $500 billion in mortgage-backed securities backed by GSEs.
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Group for Hispanics Puts Twist on Check Cashing
American Banker (11/24/08) P. 5; Barba, Robert
The National Council of La Raza is entering the check-cashing business as part of a campaign to provide more individuals with low and moderate incomes with financial services. The Hispanic advocacy organization's initial store was launched recently in Denver and is known as Mas a Ti (more for you). It wants to have 50 additional stores open throughout the United States by 2013. The store provides all of the services of a traditional check cashier but at cheaper prices, as well as financial education to the unbanked and underbanked. Mas a Ti eventually wants to offer individual development accounts--savings accounts that provide matching funds for people with low incomes. Check-cashing costs at Mas a Ti are now between 1 percent and 1.5 percent, depending on the amount of the check. La Raza vice president Lautaro Diaz notes that a traditional check casher charges around 20 percent more. To operate the Denver store, La Raza has teamed with the city group Del Norte Neighborhood Development Corp., and intends to partner with other community groups to launch stores nationally.
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More Consumers Are Delinquent on Vehicle Loans
USA Today (11/24/08) Carty, Sharon Silke
Approximately $22.9 billion of automotive loans were over 30 days late during the third quarter of 2008, an 8.1 percent increase over 2007. The 60-day delinquency rate rose by 12.7 percent, with $7 billion in loans at risk of being unpaid. This rate is more serious because the loans are more likely to result in repossessions. Experts predict that the delinquency rate will continue to rise in the fourth quarter, making banks less likely to loosen tough lending standards. The rise in the delinquency rate is being blamed on high gas prices earlier in the year and a growing unemployment rate, among other factors.
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Viewpoint: Got an ID Theft Red Flag Plan? That's the First Step
American Banker (11/21/08) P. 11; Rugh, Blair; Avitable, Amy
According to this opinion piece by Metavante Regulatory Services senior vice president Blair Rugh and Metavante associate director Amy Avitable, every financial firm should have an Identity Theft Red Flag Program in place, and those that already have one should continuously monitor and upgrade it as circumstances and examiners' concerns evolve. The first step is to examine what systems and policies a company already has in place, because some may already help to deal with red flags. If existing procedures are used, the company should address any weaknesses that have been identified, particularly those that have already been noted by examiners or auditors, such as violations in customer ID programs. Some core systems allow a company to flag a customer’s identification record if an alarm has been raised, which can help document red flags, and if the system generates reports it can be included as part of the review. Some anti-laundering and report-writing systems can also help with red flags, and may be altered to set new reporting parameters to catch some of the more complicated flags. Once the program has been established, firms should make sure it is flexible, because requirements will change as theft techniques and technology changes.
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CNW: FICO Scores Climb for All Buyers, Leasing Impacted as Well
SubPrime Auto Finance News (11/20/2008) Reed, Jennifer
A new CNW Research report found that creditors are requiring better FICO scores for new car buyers. The average approved FICO score for lease and finance buyers rose over 4 percent over the past year. The largest increase has been among consumers who purchased or leased budget and economy cars. The necessary credit score has increased by almost 8 percent since 2007, from the low 600s to the upper-middle 600s. While some of the increase is due to a decline in the number of low-score consumers trying to buy or lease a new vehicle, the study showed that a higher score is now required for approval. One reason that lenders are requiring higher FICO scores is the slowing economy, which is forcing them to protect their portfolio by taking less risk. Lower-score consumers are also more likely to damage a lease vehicle, so limiting the number of approvals also maximizes the resale value of cars and trucks that have already been leased. Consumers seem to understand the growing value of having a good credit score, as an estimated 80 percent of Americans are actively trying to improve their score.
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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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