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August 14, 2008
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AFSA Files Amicus Brief in U.S. Supreme Court Case Involving Arbitration
AFSA Supplies Cost Estimate for Proposed HMDA-Style Reporting Requirement
Wells Fargo Buys Century Bancshares of Texas
AmeriCredit to Focus on Subprime
Chrysler Financial Announces Leadership Changes
GMAC Expands at Cranberry Business Park
CitiFinancial to Sponsor Four NASCAR Races With No. 38 Yates Racing Ford
Stores Sign Off on Plastic Change
In Focus: Card Reform Plan Draws Industry Heat
Viewpoint: The Card Industry Still Has a Chance to Reform Itself
Greenspan Sees Bottom in Housing, Criticizes Bailout
Mortgage Brokerage Reform Measures Are Found Wanting
Overdraft Plan Draws Sharp Replies From Banks, Groups
FDIC Pilot Program Explores Alternatives to Payday Loans
Students Face Hit as Private Lending Dries Up
Banks, Cognitive Dissonance and Underserved Consumers
States Imposing Interest-Rate Caps to Rein in Payday Lenders
Experts: Car Leases a Minefield for Consumers
Fed: Average Amount Financed Continues Decline
DealerTrack Revises Full-Year Guidance, Reports Fewer Network Transactions
AFSA Files Amicus Brief in U.S. Supreme Court Case Involving Arbitration
On August 8, AFSA, along with other financial services trade associations, filed an amicus brief in a U.S. Supreme Court case that could potentially limit the financial services industry’s use of arbitration to resolve controversies with customers and contractors.
The case, Vaden v. Discover Bank, et al., is looking at two questions: whether a district court has jurisdiction over an action to compel arbitration and whether the Federal Deposit Insurance Act completely preempts state usury laws. The justices will hear oral arguments in the case in the fall.
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AFSA Supplies Cost Estimate for Proposed HMDA-Style Reporting Requirement
Compliance costs for collecting and reporting race and gender data on non-mortgage forms of credit would be over $2.7 billion, or about ten times greater than the Home Mortgage Disclosure Act (HMDA), according to an estimate submitted by AFSA this week to Rep. Melvin Watt (D-NC). The Financial Services Research Program (FSRP) at George Washington University prepared the estimate for AFSA.
Watt, chairman of the House Financial Services Subcommittee on Oversight and Investigations, asked for this information during a July 17th hearing to examine key findings of a recent Government Accountability Office (GAO) report on the Federal Reserve Board’s Regulation B, which implements the Equal Credit Opportunity Act (ECOA). Regulation B prohibits the collection of race, gender or other demographic data for non-mortgage loans, except for self-testing purposes. Bill Himpler, AFSA’s Executive Vice President of Federal Affairs, testified at the hearing about the association’s concerns regarding the costs and feasibility of requiring non-mortgage creditors to report HMDA-like data.
Member companies interested in obtaining a copy of AFSA’s correspondence to Watt should contact Himpler at bhimpler@afsamail.org or 202-466-8616.
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Wells Fargo Buys Century Bancshares of Texas
East Bay Business Times (08/13/08) Scanlon, Mavis
Wells Fargo & Co. has entered into an agreement to buy Texas bank holding company Century Bancshares and its Century Bank. The terms of the stock-for-stock merger were not disclosed. The acquisition expands Wells Fargo's operations to Arkansas and will increase the institution’s presence in the Dallas-Fort Worth area. The deal will likely close this year, pending regulatory approval.
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AmeriCredit to Focus on Subprime
F&I Magazine (08/11/08)
AmeriCredit will concentrate on subprime originations for the rest of 2008 and in future years. The lender will suspend prime originations and scale back nearprime loans, instead shifting its attention to the core market on which it was established. "Our decision to limit prime and nearprime credit offerings was based on our inability to generate adequate profitability from these products given the higher funding costs and capital requirements of the current environment," said Dan Berce, AmeriCredit's president and CEO. "With our constrained volume objectives, we are focusing on originating those loans that provide the highest possible returns." The company will also stop financing loans in Canada and has officially ceased its leasing and direct-lending platforms. The changes come as the lender aims to lower loan volume across the board.
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Chrysler Financial Announces Leadership Changes
The Auto Channel (08/08/08)
Chrysler Financial has named Thomas F. Gilman its vice chairman and CEO and named Darryl R. Jackson its COO. President and CEO Paul Knauss and COO William F. Jones Jr. have announced they will be retiring. The position of vice chairman and CEO combines the positions of executive vice chairman and president and CEO into one position. Jackson was previously the vice president of U.S. sales at Chrysler LLC.
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GMAC Expands at Cranberry Business Park
CoStar Group (08/08/08) Asante, William
GMAC has struck a new deal that brings its occupancy at the Cranberry Business Park in Pittsburgh to 28,500 square feet, an increase from the 23,000 square feet it used to occupy. While the financial services company expands, General Motors, which also inhabits the 46,000-square-foot office building, is downsizing from 5,500 square feet to 2,100 square feet.
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CitiFinancial to Sponsor Four NASCAR Races With No. 38 Yates Racing Ford
PaddockTalk (08/08/2008)
CitiFinancial is sponsoring the Yates Racing No. 38 Ford Fusion in four NASCAR Sprint Cup Series races. The No. 38 Ford Fusion driven by David Gilliland will bear the CitiFinancial and Citi logo. Michigan International Speedway is the site of the first of the Cup Series races, which is scheduled for Aug. 17. CitiFinancial North America President and CEO Mary McDowell praised the partnership, saying, "We are thrilled to team up with Yates Racing, and with a driver like David. This partnership expands our presence in racing, building on our successful Nationwide Series program, and enables us to reach even more customers and engage even more employees in the excitement of NASCAR."
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Stores Sign Off on Plastic Change
Albany Times Union (NY) (08/12/08) Wechsler, Alan
A few years ago, Visa and MasterCard started urging retailers to do away with signature requirements for small credit card purchases in hopes that more customers would use their credit cards. Fast-food chains helped start the trend, and now other national retailers are following suit, including grocer Hannaford Bros., bookseller Barnes & Noble, and Price Chopper supermarkets. However, some large chains, such as Wal-Mart and Target, have bucked the trend and still mandate a signature for the smallest of purchases. Critics of dropping the signature requirement worry that stores will earn tinier profits if more customers use their credit cards, because stores must pay a 2 percent interchange fee to credit card firms for each transaction. Congress is considering legislation that would set a maximum interchange fee for Visa and MasterCard.
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In Focus: Card Reform Plan Draws Industry Heat
American Banker (08/11/08) P. 1; Hopkins, Cheyenne
The Federal Reserve’s proposal to change credit card practices is under assault by bankers who say the changes will drive up costs and limit consumers’ access to credit. Interest rates will rise, approval rates will fall, and credit limits will be lower, said Chase Bank senior vice president Andrew Semmelman in a comment letter. The proposal could also harm the asset-backed securities market, wrote Tom Deutsch, deputy executive director of the American Securitization Forum. Demand and pricing for the securities will fall as card issuers’ revenue streams decline, he said, which could create liquidity problems that further limit consumers’ access to credit. The provision to limit interest rate hikes on outstanding balances is particularly onerous, with bankers saying it will result in higher rates for all. “Issuers need to reprice because they cannot predict the long-term costs of funds at the outset of a credit relationship that may extend for years or decades, and where the amount of outstanding balance at any point in time is largely outside of the issuer's control," wrote John Finneran of Capital One. The provision could result in $12 billion in lost interest for card issuers, according to law firm Morrison & Foerster.
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Viewpoint: The Card Industry Still Has a Chance to Reform Itself
American Banker (08/08/08) P. 11; Levitin, Adam J.
Georgetown University Law Center professor Adam J. Levitin says the card industry is under attack, with consumers contending it takes part in unjust and suspect billing practices. Meanwhile, he says, retailers claim they are paying higher interchange fees and taking on more fraud risk without getting any additional benefits. As such, Levitin states, litigation, legislation, and regulatory measures have emerged that could create large threats to the industry's infrastructure. Levitin thinks the card sector should admit the extent of cardholder and retailer complaints and improve itself via self-regulation. He feels the card industry needs a unified way to oversee such regulation. Levitin recommends it give some power to an independent entity that could establish baseline regulations and protocols that would allow the sector to get around the competitive challenges that restrict reform. Levitin says a possibility is to establish a self-regulatory group similar to the Financial Industry Regulation Association. "The advantage of creating such an organization for the card industry would be that it would be a private organization whose leadership would be appointed by the industry and thus would be more sensitive to industry concerns than a politically appointed regulator or a judge who is not even subject to political controls," Levitin states.
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Greenspan Sees Bottom in Housing, Criticizes Bailout
Wall Street Journal (08/14/08) P. A1; Wessel, David
Former Federal Reserve Chairman Alan Greenspan disagrees with the federal government's bailout of Fannie Mae and Freddie Mac, adding that he expects U.S. home prices to begin stabilizing during the first six months of 2009. The economist insists that an end to declining residential prices is important not only to American homeowners, but is "a necessary condition for an end to the current global financial crisis." Greenspan's housing forecast is based on two sources of data, the first of which is the supply of vacant, single-family homes for sale; the second is a comparison of the current price of houses--he personally prefers the quarterly S&P Case Shiller National Home Price Index--with the U.S. government's estimate of what it costs to rent a single-family residence. Greenspan calls the Bush administration to task for its handling of the trouble at Fannie Mae and Freddie Mac, stating, "They should have wiped out the shareholders, nationalized the institutions with legislation that they are to be reconstituted--with necessary taxpayer support to make them financially viable--as five or 10 individual privately held units."
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Mortgage Brokerage Reform Measures Are Found Wanting
American Banker (08/13/08) P. 3; Flitter, Emily
Some banking industry observers are expressing concern about the potential effectiveness of a new registry for licensing and policing mortgage brokers because enforcement would be handled by individual states. "You'll have 50 or so different entities enforcing them with different budgets and different experience," New York banking lawyer Doug Landy says of the new federal and state mortgage laws. Also, many industry experts say mortgage brokers still have an incentive to steer borrowers into more expensive loans because the newly enacted housing bill fails to ban yield-spread premiums. Geoff Smith, vice president of the Chicago advocacy group Woodstock Institute, says mortgage brokers' lack of fiduciary responsibility to borrowers is a key reason for the housing crisis.
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Overdraft Plan Draws Sharp Replies From Banks, Groups
American Banker (08/12/08) P. 4; Hopkins, Cheyenne
Banks are strongly opposed to the Federal Reserve’s proposal to impose limits on overdraft charges, according to banks’ comments on the proposal. The proposal would require banks to give a customer a chance to opt out of an overdraft program, which Daniel Morton of Huntington National Bank called “overly burdensome” and said would “entangle the board in product design and pricing issues which are beyond what is appropriate for regulatory action.” Bank of America estimates that at least 60 of its computer systems would have to be changed to accommodate the proposal, costing as much as $50 million. Bankers pointed to studies showing that customers prefer to have a payment covered and pay an overdraft fee than to have the transaction denied. But consumer advocates say the fees are too high, and constitute banks’ biggest source of income after residential mortgages. Others say it is a customer’s responsibility to manage their account and know their own balance.
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FDIC Pilot Program Explores Alternatives to Payday Loans
Washington Post (08/12/08) P. D2; Weissmann, Jordan
The Federal Deposit Insurance Corp. (FDIC) has launched a pilot program for short-term small loans that is intended to be an alternative to payday loans. More than 3,000 loans of under $2,500 have already been made, with interest rates capped at 36 percent--much lower than the rates for payday loans, which often exceed 390 percent. The average term for the loans was 10 months with an interest rate of 15.05 percent, and bankers say the results show that short-term borrowers have some stability and can be profitable customers. A barrier to widespread adoption is that banks believe it is too expensive, because the cost to underwrite a $500 loan is the same as that of a $50,000 loan. The FDIC is considering changing underwriting rules to make the loans more profitable for banks.
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Students Face Hit as Private Lending Dries Up
Wall Street Journal (08/11/08) P. A1; Tomsho, Robert
With more than two dozen lenders exiting the private student loan business, some students may not be able to afford college this year. Wachovia recently became the latest bank to back away from student loans, following on the heels of Bank of America, Citigroup, and the nonprofit Massachusetts Educational Financing Authority, among others. The students likely to be hardest hit are those enrolled in for-profit professional schools that offer training for careers such as nursing and computer programming, as these students tend to have lower credit scores and are considered higher risk. Those banks that are staying in the student loan market are tightening their standards, making it harder for younger students who have not yet built up a good credit score to obtain a loan. But Standard & Poor’s released a report last month indicating that the problem could spread beyond poor-credit-risk borrowers to the middle and upper classes as well. Some analysts say the situation could pressure the government to intervene as it has in the housing market, because many lawmakers say post-secondary education is vital for a competitive work force. However, some consumer advocates say that students are better off with cheaper education than resorting to private loans anyway, because these loans have higher interest rates and fewer protections than government loans.
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Banks, Cognitive Dissonance and Underserved Consumers
PRWeb (08/10/08)
Although banks have made an effort over the last several years to expand the services they offer unbanked and underbanked consumers in the United States, their fee policies may be undermining their efforts to make these consumers their customers, according to a recent report from Mercator Advisory Group's Retail Banking Practice. For instance, banks are trying to maximize their revenue by charging a $34 fee for transactions that cause a customer to overdraw their account. The report noted that the bulk of the revenue banks collect on these fees is paid for by low- and moderate income consumers. According to the report, such fees--along with slow check clearing times and unfriendly bank staff--push underbanked consumers to direct-deposit their paychecks on prepaid payroll cards. In addition to driving away many underbanked and unbanked consumers, the fees are also driving away banks' most profitable customers, the report found. The report did find some hopeful trends for the banking industry, including the growing consumer preference for mobile and online banking. The report noted that the challenge for banks that want to take advantage of these trends will be to benchmark and implement best practices in the United Stated and overseas.
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States Imposing Interest-Rate Caps to Rein in Payday Lenders
Wall Street Journal (08/09/08) P. A3; Dougherty, Conor
More state governments are putting limits on payday lenders, moved by the growing subprime crisis to protect consumers from so-called predatory lending practices. Jeff Jacobson, president pro tempore of the Ohio Senate, said that prior to the subprime crisis few lawmakers were in favor of limits on credit, but the crisis “sensitized us and made us have to deal with it.” Jacobson voted in favor of capping short-term loan interest rates at 28 percent, and the law is set to take effect Sept. 1. New Hampshire and the District of Columbia have passed similar laws. Uriah King of the Center for Responsible Lending says that past legislative efforts have sought to expand high-cost lending, but the situation has now reversed. "Now they're not even being introduced, and if they are, they're not getting hearings,” he said. For their part, payday lenders say consumers need their services and that the interest rates are misleading because most borrowers pay off their loans in two weeks.
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Experts: Car Leases a Minefield for Consumers
Newsday (08/13/08) Incantalupo, Tom
According to experts, automobile leases remain potentially problematic for consumers in New York State, even after a state law was passed nearly 13 years ago geared toward ending disputes about excessive wear charges on returned cars; the law limits such charges to the cost of repairing the damage. To address consumer concerns, the New York attorney general’s office arbitrates disagreements between lenders and lessees. The attorney general's office also applies the law to balloon loans.
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Fed: Average Amount Financed Continues Decline
SubPrime Auto Finance News (08/12/2008) Reed, Jennifer
The average amount financed on a new-automobile loan through an auto lender is steadily falling. The figure was $27,397 in April, $24,579 in May, and $24,505 in June, which is the lowest it has been since 2005. The median interest rate also dropped slightly to 5.49 percent in June versus 5.82 percent in May; yet it is still higher than the 4.54 percent level seen in April. The average loan maturity also fell a little, decreasing from 64 months in May to 63.5 months in June, but remaining above the 63.1 months seen in April. The loan-to-value ratio for June was 93 as opposed to 92 in May and 94 in April.
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DealerTrack Revises Full-Year Guidance, Reports Fewer Network Transactions
SubPrime Auto Finance News (08/12/2008)
As auto sales decline, not only are automakers feeling squeezed, but so too are lenders and the platforms they count on to boost profits, as evidenced by DealerTrack's recent performance. DealerTrack modified its full-year guidance after GAAP net income fell significantly, though revenue increased over the second quarter of 2007. The company reported 21 million network transactions in its recent earnings report, which is 10 percent less than the same period last year. As of June 30, 21,735 dealers were in the company's network, a 4 percent drop from last year. However, since last year the amount of active financing sources has soared 47 percent to 659.
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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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