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October 2, 2008
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AFSA Works to Keep Members in Financial Relief Package
Return Proposed RESPA Rule to HUD, Request AFSA and Trades
AFSA Submits Brief in Negative Equity Case
AFSA Releases 2007-2008 Annual Report
New Member Welcome
Toyota's U.S. Unit Gets Syndicated Loan--Report
The 25 Women to Watch
Pennsylvania Retirement Plan Sues to Halt Merrill Lynch Sale
Is Fear of Human Contact Driving Electronic Transactions?
Many Lenders Lower Credit-Card Limits
E-Payment Threat to Bank Revenue
House Leaders Bullish on Vote
2.3 Million Foreclosures Prevented in Past 14 Months by Mortgage Industry
Fannie Policy Shift Criticized as a Threat to Bank Liquidity
Dealing With Debt That Refuses to Die
Lenders Curtail College Student Loans
Viewpoint: Blending Global Capital With Local Ideas
All Revved Up With No Place to Borrow
Bush Approves Loans for Auto Makers
PIN: Average Down Payment Jumps Along With Age of Trade-Ins
Chase Auto Finance to Serve as Mazda Captive
Cause for Optimism Not Just 'Happy Talk'
AFSA Works to Keep Members in Financial Relief Package
Since President Bush announced plans for a financial relief package two weeks ago, AFSA has been working to ensure inclusion of finance companies in the proposal. AFSA staff has been in constant communication with Members of Congress to remind them of the importance of doing so. The association augmented its lobbying efforts with a media relations initiative to communicate its views on the package’s importance for restoring liquidity to the credit markets.
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Return Proposed RESPA Rule to HUD, Request AFSA and Trades
Last week, AFSA staff met with the Office of Management and Budget (OMB) regarding Real Estate Settlement Procedures Act (RESPA) reform. Specifically, AFSA and representatives from several other trade associations and a consumer advocacy group asked the OMB’s Office of Information and Regulatory Affairs (OIRA) to return the proposed RESPA reform rule to HUD with specific instructions to bring the proposal in conformance with the state principles of Executive Order 12866.
As currently written, HUD’s proposed RESPA rule is inconsistent with several principles of Executive Order 12866, which states that the “American people deserve … regulations that are effective, consistent, sensible, and understandable.” The Executive Order also requires that “the Administrator of OIRA shall provide meaningful guidance and oversight so that each agency’s actions are consistent with … the principles set forth in [EO 12866] and do not conflict with the policies or actions of another agency.”
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AFSA Submits Brief in Negative Equity Case
On Sept. 30, AFSA submitted a motion to participate as an amicus brief in the 10th Circuit in John Wesley Ford, Sr. and Cynthia Dawn Ford v. Ford Motor Credit Company, Inc.
Motor vehicle installment sale financers have a vital interest in this case. The 2005 amendments to section 1325(a) of the Bankruptcy Code added a paragraph that deals with certain claims secured by motor vehicles. The effect of this paragraph has been widely debated by creditors, debtors, counsel and commentators, with a split of authority in the bankruptcy courts. This case affords the court an opportunity to address this debate as to whether a creditor's claim is covered by the hanging paragraph where a portion of the financing is used to pay off negative equity from a trade-in vehicle.
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AFSA Releases 2007-2008 Annual Report
AFSA’s 2007-2008 Annual Report is now available. The document highlights the association’s key initiatives and provides an overview of its departments’ activities.
Copies will be available at AFSA’s Annual Meeting & Leadership Conference near Dallas, Oct. 25-28, 2008.
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New Member Welcome
AFSA welcomes Universal Special Auto Finance as both a new active and associate member, and associate member J.D. Power & Associates.
Universal Special Auto Finance, headquartered outside of Denver, is a capital management company that builds special auto finance (SAF) portfolios for financial institutions and investors through its nationwide auto dealer network, state-of-the art technology, and “no exception” rules. Web site
Established in 1968, J.D. Power and Associates is a global marketing information firm that conducts independent and unbiased surveys of customer satisfaction, product quality and buyer behavior. Web site
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Toyota's U.S. Unit Gets Syndicated Loan--Report
Reuters (10/01/08)
According to a report by Nikkei Business News, Toyota Motor Credit Corp. has been given a 30 billion yen syndicated loan from a number of Japanese banks including Mitsubishi UFJ Financial Group. The loan will be used for the company's auto financing business.
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The 25 Women to Watch
US Banker (10/08)
CitiFinancial's Mary McDowell was included in US Banker's 25 Women to Watch. McDowell, President and CEO of CitiFinancial North America, oversees a thriving business. CitiFinancial has seen its revenues grow from $5.15 billion in the year ended March 2007 to $5.71 billion this past March. Key to the company's success is its financial flexibility; CitiFinancial has not securitized its loans and has retained them within its branch network. McDowell notes that another the way the company has stayed flexible is through the use of an overhauled incentive structure, which will likely contribute $100 million in additional revenue this year and next. In fact, McDowell's incentive program is so successful, the company plans to expand it globally.
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Pennsylvania Retirement Plan Sues to Halt Merrill Lynch Sale
Plan Adviser.com (09/30/08) Moore, Rebecca
The board managing York County, Pennsylvania’s employee retirement plan has authorized a class-action lawsuit alleging that Merrill Lynch shareholders would be hurt by the sale of the firm to Bank of America at the proposed $29-per-share price. The county says the sale undervalues Merrill Lynch’s assets, and the county wants the sale stopped.
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Is Fear of Human Contact Driving Electronic Transactions?
TMCnet.com (09/30/08) Kostek, Jessica
Consumers increasingly want to use technology that makes transactions at brick-at-mortar retailers as convenient as purchases made online, concludes a recent study by the PELORUS Group. The study found that 23 percent of consumers said they would use their mobile device to make a purchase at a brick-and-mortar retailer. Meanwhile, 66 percent of current mobile banking users said they would consider making purchases at the point-of-sale with a device embedded with a chip. Analysts say the demand for more convenient forms of payment will result in an increase in payment volume for new payment methods, such as radio frequency identification, Short Message Service, and biometrics. The PELORUS Group says that payment volume for these and other up-and-coming payment methods could reach $400 billion by 2010.
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Many Lenders Lower Credit-Card Limits
Wall Street Journal (09/30/08) P. B12; Andriotis, AnnaMaria
Many credit card companies are lowering the spending limit on customer accounts, in a move that will prove painful for many borrowers. The shift will handicap some consumers' ability to spend, and even those borrowers who charge only when absolutely necessary will have less credit at their disposal in the event of an emergency. Moreover, the smaller credit limits will catch some card holders off guard and result in penalties for exceeding a recently lowered limit. Card issuers are required to notify customers about such changes, however, so borrowers should make sure to read mail from these companies or ask for online alerts from the firm when they approach their spending limit. Borrowers who do have their limits lowered should not cancel the account, because doing so will have a negative impact on their credit scores; rather, they should scout for more attractive card offers.
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E-Payment Threat to Bank Revenue
Finextra (09/29/08)
Many consumers say they trust online payment providers more than they trust banks, reports a new Cisco survey. Thirty-five percent of more than 1,500 American adults polled by Cisco cited "frequent" or "very frequent" use of payment options such as Bill Me Later, Google Checkout, PayPal, and Amazon Checkout for online transactions, while 64 percent of respondents said they trust these services. "In this new reality, electronic payments have the potential to disrupt the payments industry in the way that MP3 disrupted the music industry," Cisco says. Twenty-three percent of those surveyed said they were interested in using a mobile device to make contactless payments in physical stores, and 58 percent of frequent contactless card users and 66 percent of current mobile banking users were strongly interested in swiping a handset at checkout. Cisco says the next step in the evolution of commerce will entail physical retail investigating e-commerce business models. "The profound shift in consumer shopping preferences, coupled with the pervasiveness of the network, presents a tremendous opportunity for financial institutions to evolve from simply being a provider of the payment element of a purchase, to being a uniting factor among consumers, merchants, advertisers, product manufacturers, and payment providers," says Cisco's Jim Greene.
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House Leaders Bullish on Vote
Roll Call (10/02/08) Dennis, Steven T.; Newmyer, Tory
Many House Republicans could change their opposition votes to the $700 billion bailout package, because the Senate version includes an increase in federal insurance coverage for bank deposits and extensions of tax incentive programs. While the Blue Dog Democrats oppose the tax extensions because they believe they should be offset by spending cuts elsewhere in the budget, none of the coalition members have stated they would withdraw their support for the bailout package. House Majority Leader Steny Hoyer (D-Md.) said the bailout bill would reach the House floor for a vote by Oct. 3 if the leadership has enough votes to pass it. However, Hoyer expressed disappointment that the tax incentives were added to the bill without offsets to satisfy pay-as-you-go rules. Most House lawmakers agree that the economy cannot wait much longer for relief, but several Blue Dog coalition members are undecided about the bill given the tax break extensions. Meanwhile, House leaders are seeking additional votes in favor of the bailout package, but Congressional Black Caucus members remain opposed to the bailout. Many of those members voted against the previous package and some are now supporting a bailout bill sponsored by Rep. David Scott (D-Ga.), which would add a $14 billion carve-out to help homeowners struggling with their mortgage payments. If the House adds Scott's package to the bill, the bailout would then have to be brought before the Senate for another vote, which insiders say the House leadership hopes to avoid. The Senate bill did include a provision to help homeowners who did not itemize their deductions, allowing them an additional $1,000 tax credit.
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2.3 Million Foreclosures Prevented in Past 14 Months by Mortgage Industry
MarketWatch (10/02/08)
According to HOPE NOW, the ongoing efforts of the organization and the mortgage industry have resulted in the prevention of approximately 2.3 million foreclosures over the past 14 months. In August alone, mortgage servicers finalized more than 189,000 mortgage workouts, which included both changes to existing mortgages and repayment plans. Some 53 percent of homeowners with subprime loans who were granted workouts by mortgage servicers obtained modifications. According to HOPE NOW executive director Faith Schwartz, "Without HOPE NOW, the current mortgage and financial crises would be more serious and harder to turn around. We will continue to work hard to help homeowners and stabilize communities."
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Fannie Policy Shift Criticized as a Threat to Bank Liquidity
American Banker (09/30/08) P. 10; Berry, Kate
A policy change at Fannie Mae will require banks at risk of financial collapse to transfer mortgage payments on a daily--rather than monthly--basis, generating opposition from bankers. Fannie Mae spokesman Brian Faith says the daily transfers ensure that bank failures do not result in lost funds, but bankers fret the move will reduce liquidity. "They will have to replace these deposits, and the replacements will be expensive," says Financial Services Roundtable chief lobbyist Scott Talbott. Fannie Mae, which will implement the change on a bank-by-bank basis, has not indicated how many banks could be affected.
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Dealing With Debt That Refuses to Die
Wall Street Journal (09/30/08) Kim, Jane
A court decision in a class-action lawsuit now requires credit-reporting bureaus Experian, Equifax, and TransUnion to clear old debts out of the files of consumers who have filed bankruptcy, boosting their credit scores at a time when consumer credit is tightening. The debts being cleared are those that have been forgiven in a bankruptcy filing but which have remained on the consumers’ credit reports as active, affecting as many as 10 million people. The debts remain on file erroneously if a lender has not updated their records or if collection agencies ignore bankruptcy filings, creating a double black mark on a person’s record for both the bankruptcy filing and active unpaid debts. The lawsuit charged the credit reporting agencies with violating the Fair Credit Reporting Act by not maintaining accurate reporting of debts forgiven in bankruptcies. The court ruling will now force the bureaus to change the way they report information in bankruptcy filings, though the bureaus say their current systems, which rely on creditors to update their information, are fair and accurate.
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Lenders Curtail College Student Loans
CreditCards.com (09/29/08) McDonald, Jay
Getting access to private student loans got more difficult in the past year, according to a new report from Kaulkin Ginsberg, which found that more than 24 lenders scaled back or quit student lending last summer. Sallie Mae estimates that 8 percent of students use private loans to bridge the gap between what the government lends and what they can pay, with the average private loan being about $7,694. Among the banks cutting back on student lending are major players such as Citi and Bank of America as well as smaller banks like College Loan Corp. and EduCap. The slowdown in lending comes even as college loans are historically considered safe, because the overall credit crisis has dried up the market for pooled securitized debt across the board. Students are also having trouble finding jobs, because the unemployment rate among people age 16-19 rose to 20 percent last summer due to a wave of nonstudent workers taking part-time jobs, and they also face continued tuition hikes, with the average cost jumping 20 percent in the past three years. The credit problems may prompt many more students to pay tuition by credit card, but student access to credit cards is tightening as well.
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Viewpoint: Blending Global Capital With Local Ideas
American Banker (09/26/08) P. 11; Tescher, Jennifer
Jennifer Tescher, director of the Center for Financial Services Innovation, writes in the American Banker that the financial crisis illustrates consumers' need for highly functioning financial markets both around the world and in their local communities, particularly if the consumers are underbanked. "We are witnessing what happens when local lenders lose their connection with global markets," she observes. "Liquidity vanishes, and credit is severely constrained. The ranks of underserved consumers are growing by the day as credit requirements tighten further to the point where only those with sterling records need apply." Tescher stresses that lenders need to go about evaluating risk in a smarter manner, and re-establishing connections between borrowers and lenders is of paramount importance. "The [Community Reinvestment Act] has been a powerful tool for bringing credit to neighborhoods and consumers who otherwise would not receive attention from banks, but it has done less to link underbanked consumers with basic banking products and services," Tescher points out. She says banks have a responsibility to erect business models that transform serving the underbanked from a government edict to a desirable business operation, and they should be striving to reach consumers at an earlier point in the life cycle. Doing this requires striking a balance between local services and global liquidity and scale, notes Tescher.
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All Revved Up With No Place to Borrow
Wall Street Journal (10/02/08) Spector, Mike
Car loans and financing are now drying up in the wake of the credit crunch as dealers and auto-finance companies are finding it increasingly more difficult to lend to car buyers. Not only has subprime lending come to a virtual standstill, but many prime buyers are having difficulty obtaining financing. As of Sept. 20, only 64 percent of auto-loan applications were getting approved, down from 83 percent during the same period in 2007, said CNW Marketing Research Inc.; subprime application approvals have fallen to 23 percent from 67 percent in 2007. Furthermore, when loans are approved they often come with terms requiring as much as a 10 percent to 20 percent down payment. JPMorgan Chase's Chase Auto Finance unit is among the companies asking for a higher down payment and additional paperwork, and Americredit Corp. says it expects to originate just $3 billion in loans for the year through June 2009. Captive finance companies are a consumer's best bet right now, experts say.
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Bush Approves Loans for Auto Makers
Wall Street Journal (10/01/08) Dolan, Matthew
The Bush administration approved a low-interest loan package to assist floundering automobile manufacturers on Sept. 30, but those companies will have to wait until later this year or early 2009 to find out how to tap into and use the $25 billion to facilitate the transition to making cars with better fuel economy. Some estimates project the total cost for automakers will be around $100 billion once they retrofit their factories to manufacture vehicles that reach 35 miles per gallon by 2020. General Motors Corp., Chrysler LLC, and Ford Motor Co. have lobbied for instant access to funds to build smaller cars and create programs for vehicles that rely on alternative fuel sources. The loans are a "lifeline" and "can't come soon enough" for Detroit's Big Three automakers, said analyst Kip Penniman of the firm KDP Investment Advisors. The ratified legislation gives the Energy Department two months to write regulations that will determine which companies qualify for the loans and when. But a spokeswoman from the Energy Department stated on Sept. 30 that Congress neglected to remove some barriers in that process, making it difficult to complete the timeline and potentially dragging the process out for up to 18 months.
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PIN: Average Down Payment Jumps Along With Age of Trade-Ins
SubPrime Auto Finance News (09/30/2008) Reed, Jennifer
Power Information Network (PIN) says credit tightening is happening across the auto industry, with down payments as a percentage of the transaction price soaring nearly 19 percent in the third quarter of 2008, which is the most it has been in the last seven quarters. PIN also reported that the amount financed, along with the loan-to-cost ratio, has decreased to the lowest levels in the last seven quarters. There has also been an increase in the average age of trade-ins since the slowdown of the industry in May. However, PIN also found that some measures are still stable. "Since the start of 2007, the average term of a loan taken out at the dealership has been 64 months in every quarter except one, when it was 63 months," officials stated. "Additionally, the percent of upside-down trades on finance transactions has remained steady despite plummeting values of large pickups and utilities."
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Chase Auto Finance to Serve as Mazda Captive
SubPrime Auto Finance News (09/30/2008) Reed, Jennifer
Chase Auto Finance is providing Mazda's North American operations with subvented loans and leases. Chase will be Mazda's sole supplier of all subvented retail and lease programs by Jan. 1, 2009, according to a spokeswoman for the lender.
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Cause for Optimism Not Just 'Happy Talk'
Ward's Dealer Business (09/29/2008) Finlay, Steve
While numerous auto industry experts think 2008 light-vehicle sales will be 2 million less in 2008 than in 2007, Toyota Financial Services CEO George Borst says the upside to the current market is that pent-up demand will grow. "More manufacturers are coming to market with vehicles more in tune with what customers want," he adds. Borst notes that the country's diverse population is growing and that 4 million individuals each year are becoming old enough to drive. He thinks larger loan funding will come back, credit losses will decline, the used-car segment will recover, and demand for full-size pickup trucks and SUVs will increase somewhat. Borst forecasts that the auto-loan industry will recover in a year to 15 months, with the coming six months being the hardest.
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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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