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September 18, 2008
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AFSA Joins Trades in Expressing Concerns with SAFE Act Model Legislation
AFSA Leaders Visit Senator Durbin to Discuss Rate Cap Bill
Financial Literacy Event Sponsored In Part by AFSAEF
Chrysler Financial Offers Financial Relief to Hurricane Ike Affected Customers
As Customers Rebuild From Hurricane Ike, Ford Motor Credit Offers Financial Relief
Daimler Financial Services Forms Innovative Technology, Education Partnership With John F. Kennedy Center for the Performing Arts
Gift-Card Protections Are Sought
Wal-Mart Files for Canadian Banking License
AG: Lenders Fail to Help With Home Loan Crisis
Frank Says U.S. May Consider Setting Up Agency to Buy Bad Debt
Senators Urge Freeze on Foreclosures
Dispute Clouds Revival of Student-Loan Market
Activists Alarmed Over Pa. Bill to Allow For-Profit Credit Counseling
Viewpoint: Innovation Can Make More Credit Scores Available
Most Consumers Do Not Know the APR on Their Auto Loans
NAF Study Paints 2008 Scenario
Experian Automotive Shares 2Q, Half-Year AutoCount Data
AFSA Joins Trades in Expressing Concerns with SAFE Act Model Legislation
On Sept. 16, AFSA and four other trade groups sent a joint letter to the American Association of Residential Mortgage Regulators (AARMR) and the Conference of State Bank Supervisors (CSBS) regarding proposed model legislation to implement the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act).
The purpose of the letter was to convey that the industry cannot fully support the current language of the model legislation due to some remaining concerns. For example, the current version of the bill jeopardizes lenders’ foreclosure prevention efforts by not excluding servicers and loss mitigation specialists from the SAFE Act.
AFSA looks forward to continued work with CSBS and AARMR with the hope that the model language can be modified to reflect the industry's concerns. Simultaneously, AFSA will work with the Department of Housing and Urban Development (HUD) and state governments on industry’s concerns with the model bill.
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AFSA Leaders Visit Senator Durbin to Discuss Rate Cap Bill
AFSA Chairman Andrew Morrison, along with other AFSA leaders, met with Senate Majority Whip Dick Durbin (D-IL) on Sept. 18 to discuss the economic implications of Durbin’s legislation to impose a 36% APR on all consumer credit. During the meeting, AFSA conveyed its view that, if the legislation becomes law, short-term installment loans under $2,000 will effectively dry up, causing a significant impact on the availability of credit to low- and even some moderate-income consumers.
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Financial Literacy Event Sponsored In Part by AFSAEF
The AFSA Education Foundation (AFSAEF) was a sponsor of the Women in Housing and Finance (WHF) Foundation’s 10th Anniversary Expo in Celebration of Financial Literacy, held Sept. 16th. Representatives Ruben Hinojosa and Judy Biggert, the Co-Chairs of the Congressional Financial and Economic Literacy Caucus, were honored for their dedication in promoting financial literacy as a national priority. The event recognized the important contribution to financial literacy that corporate America makes possible through innovative programs such as the AFSAEF MoneySKILL® course for high school students. The WHF foundation helps women and their families in the D.C. area by providing charitable services and educational activities primarily in the field of housing and finance.
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Chrysler Financial Offers Financial Relief to Hurricane Ike Affected Customers
PRNewswire (09/16/08)
Chrysler Financial is offering qualified Louisiana and Texas customers the option to defer monthly payments in the aftermath of Hurricane Ike so that they may first resolve immediate personal matters. The offer is extended to customers who are leasing or have financed a vehicle through the company.
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As Customers Rebuild From Hurricane Ike, Ford Motor Credit Offers Financial Relief
PRNewswire (09/15/08)
Ford Motor Credit Co. is allowing customers impacted by Hurricane Ike to decide whether to postpone some vehicle payments. The company's Disaster Relief Program enables eligible customers to delay up to two monthly payments, recommencing their normal payment routine when their conditions get better. Qualified customers will receive a letter on how to sign up for the program.
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Daimler Financial Services Forms Innovative Technology, Education Partnership With John F. Kennedy Center for the Performing Arts
PRNewswire (09/15/08)
Daimler Financial Services Americas LLC and the John F. Kennedy Center for the Performing Arts on Sept. 15 announced an innovative program called “On Location: Spotlight on Your Community,” that aims to use digital technology and the arts to exert a positive influence on middle school students and schools in underserved communities across the United States. The organizations will facilitate the program using a Thomas Built Bus as a mobile classroom and media production studio, which will stop in key pre-designated locations throughout the country. The goal of the program is for students to develop skills in critical thinking and cultural awareness and connect their immediate education to real world events. A school’s finished creative product will go on a Web site, viewable to all students in the United States.
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Gift-Card Protections Are Sought
Wall Street Journal (09/17/08) P. B5C; Palank, Jacqueline
Several consumer groups recently sent a petition to the Federal Trade Commission (FTC) urging the FTC to establish a new policy to guarantee that companies always have sufficient cash reserves to honor gift-card purchases. The Consumers Union, the Consumer Federation of America, the National Consumer Law Center, and the U.S. Public Interest Research Group want the commission to ask retailers and bankruptcy judges to ensure that gift cards are honored as long as a merchant is in business. A FTC representative said the petition would be considered "carefully." The groups asked the FTC to set up a policy mandating that all companies, regardless of how solvent they are, deposit all gift card sale proceeds into special accounts that would be tapped so that they can honor the cards even after filing for bankruptcy.
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Wal-Mart Files for Canadian Banking License
CanWest News Service (09/16/08) Shaw, Hollie
Wal-Mart has submitted an application to Canada's Office of the Superintendent of Financial Institutions for a license to offer banking services, including credit cards, in the country. "A license would allow us get into banking products and the obvious one would be a credit card, but if you look at other retailers the breadth of (potential) products is huge," says Wal-Mart Canada's Kevin Groh. Experts say that by offering a credit card, Wal-Mart Canada will be able to obtain valuable information about its customers, such as how they spend their money and where they shop. In addition, Wal-Mart Canada could offer lower-cost payday loans, says analyst Keith Howlett. The company already offers a number of nonbank financial products, including wire transfers and emergency bill payments via Western Union.
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AG: Lenders Fail to Help With Home Loan Crisis
Boston Herald (09/18/08) Fitzgerald, Jay
In testimony before the House Financial Services Committee, Massachusetts Attorney General Martha Coakley said lenders could do more to help borrowers avoid foreclosure, insisting that a "carrots and sticks" approach is necessary. Of the 144 loan modification applications reviewed by her office, virtually none resulted in a lower mortgage balance; Coakley notes that in some instances, the modifications added substantial fees. Coakley voiced support for a plan that might be proposed by House Financial Services Committee Chairman Barney Frank (D-Mass.) after the upcoming election that would create a government entity responsible for taking over mortgage assets and providing assistance to homeowners.
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Frank Says U.S. May Consider Setting Up Agency to Buy Bad Debt
Bloomberg (09/16/08) Rowley, James
According to House Financial Services Committee Chairman Barney Frank (D-Mass.), the nation's ongoing financial woes are likely to force Congress and the White House to seriously consider whether the federal government should purchase distressed debt and mortgages. The lawmaker says the next step may be to create an agency like the Resolution Trust Corp., which took over the assets of failed savings and loan associations nearly 20 years ago, to get financial markets "out of the box." Frank insists that such an intervention would occur "only if it's coupled with tough regulation in the future" and only if there is "a realization that the market not only got into this fix but can't get itself out." Around the globe, financial institutions have recorded more than $500 billion in losses and writedowns resulting from the collapse of the subprime-mortgage market.
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Senators Urge Freeze on Foreclosures
Washington Post (09/12/08) P. D3
Sen. Charles Schumer (D.-N.Y.) and other Democratic members of the Senate Banking Committee recently penned a letter to Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency requesting that they halt foreclosures for 90 days. According to the letter, "This action would provide immediate relief to many homeowners [and let the companies] turn these nonperforming loans into performing assets to minimize losses."
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Dispute Clouds Revival of Student-Loan Market
Wall Street Journal (09/17/08) Tomsho, Robert
Sallie Mae recently filed a protest against the Department of Education with the Government Accountability Office (GAO). The Education Department announced in May that it will buy student loans from private lenders in order to introduce liquidity into a market hurt by the credit crisis. Sallie Mae is protesting the decision to award its loan-processing business to Affiliated Computer Services, a company that has provided services to the Education Department since 1993, without first asking for competitive bids. Although federal agencies are allowed to award contracts without competition in some circumstances, Sallie Mae argues that the Education Department acted improperly. Sallie Mae requested that the government either solicit bids for processing work or allow private lenders to service the loans themselves. Whoever is awarded the processing contract would earn an estimated $228 million in processing fees if the government purchased all of the Federal Family Education Loan Program's loans during the 2008-09 school year. An Education Department official argued that putting the business out for bid would disrupt the loan-buyback program and further destabilize the credit market. The GAO plans to make a recommendation to the Education department by Dec. 1 of this year. Although such a recommendation is not binding, federal agencies generally follow the GAO's guidance.
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Activists Alarmed Over Pa. Bill to Allow For-Profit Credit Counseling
Philadelphia Daily News (09/15/08) Davies, Dave
Pennsylvania lawmakers are considering a bill that would allow for-profit companies to offer credit counseling services. Although the measure also would restrict fees and implement licensing requirements for both nonprofit and for-profit entities, consumer advocates and nonprofit credit counselors fret that state residents will be sucked into private plans that only deepen their financial straits. Consumer Credit Counseling Service of the Delaware Valley President Patricia Hasson opposes the legislation, insisting that for-profit companies often recommend debt management plans first because these generate profits. However, she notes that some consumers would be better off adjusting their budgets, while others would benefit most from filing bankruptcy or obtaining reverse mortgages. "Consumers need to be getting advice from disinterested parties who can give them the best options," Hasson declares. She is pushing for an amendment that would mandate that counseling and education be offered before debt management plans. Rep. Dwight Evans (D-Philadelphia), the bill's main sponsor, believes consumer choice is hampered when nonprofits attempt to block for-profits from providing credit counseling.
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Viewpoint: Innovation Can Make More Credit Scores Available
American Banker (09/12/08) P. 10; Burns, Barrett
A recent study conducted by the Center for Financial Services Innovation estimated that 40 million U.S. households are "unbanked" or "underbanked," many of which do not receive a credit score under traditional models. The Housing and Economic Recovery Act of 2008 includes an amendment which mandates a pilot program for automatic credit scoring for consumers with credit records that are too new or contain infrequent activity. More accurate credit scoring would expand the pool of qualified applicants and help reverse the recent decline in the homeownership rate, wrote Barrett Burns, president and CEO of VantageScore Solutions, in this opinion piece. Some lenders have manually scored borrowers who cannot be scored by traditional models, but they typically offer these consumers higher-priced loans in order to recover the cost of manual scoring. Additional scoring options can be created by incorporating additional predictive capabilities to analyze traditional credit files.
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Most Consumers Do Not Know the APR on Their Auto Loans
SubPrime Auto Finance News (09/16/2008)
A new survey by Capital One Financial Corp. reveals that 61 percent of consumers polled do not know their auto loan's interest rate, and 62 percent had no idea they could save money by refinancing their auto loans. Capital One Auto Finance President Sanjiv Yajnik says consumers could shave hundreds or thousands of dollars off their loans by reducing the interest rate, though exact savings are based on current interest rates, the amount owed, and credit history. If a consumer with a 5-year, $25,000 loan and an APR of 9.95 percent refinanced after one year to an APR of 6.95 percent, they would save $1,423 over the rest of the loan term. If the APR was lowered to 7.95 percent, the four-year savings would total $954, and they would save $480 with an APR of 8.95 percent.
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NAF Study Paints 2008 Scenario
F&I Magazine (09/15/08)
The National Auto Finance Association's Nonprime Auto Financing Survey revealed that FICO scores rose by 7 points for new vehicles and 5 points for used vehicles in 2007, compared to the previous year. According to NAF executive director Jack Tracey, the data shows that lenders tightened lending guidelines at the end of last year. However, finance sources extended purchase terms by 7 percent for new vehicles and 13 percent for used. Terms may have been stretched even further, if not for the credit crunch in the second half of 2007. The survey of 26 finance sources, representing over 3.1 million accounts, also showed that loan-to-value ratios fell by five basis points for new vehicles. Contract volume was down 4 percent for new vehicles, but rose 14 percent for used vehicles.
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Experian Automotive Shares 2Q, Half-Year AutoCount Data
SubPrime Auto Finance News (09/11/2008) Reed, Jennifer
In the second quarter of 2008, overall auto loan originations were 17.47 percent lower than in 2007, according to new AutoCount figures from Experian Automotive. Prime loans came in at 56.28 percent, versus 55 percent in 2007. Non-prime loans were at 18.84 percent, compared with 17.47 percent. Subprime reached 15.80 percent, as opposed to 18.48 percent, while below subprime reached 9.09 percent, compared to 9.05 percent. When analyzing new originations by portfolio distribution, Experian Automotive discovered that captives originated 25.2 percent, versus 29.9 percent in the second quarter of last year. Banks approved 31.9 percent, compared with 32 percent a year earlier. Credit unions funded 21.7 percent, as opposed to 21.4 percent, while finance firms loaned 21.2 percent, as opposed to 16.6 percent. The data also suggests that the growth rate on portfolios is decreasing, reaching 2.1 percent for the period. Experian Automotive also reported a 9.15 percent drop in the amount of prime loans. When analyzing auto loans, 30-day past due accounts were at 2.48 percent, as opposed to 2.28 percent last year. Reviewing rates for 60-day past due accounts, the company discovered that all auto loans came in at 0.75 percent, versus 0.67 percent a year earlier.
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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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