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August 21, 2008
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In Memoriam: Jack Lee
AFSA-Led Initiative Establishes New Protocol for Transfer of E-Legal Documents
AFSA Comments on Risk-Based Pricing Notice
AFSA Releases White Paper on Foreclosure Moratoriums
New Member Welcome
HSBC Plans to Have 100 Outlets in China by 2009
Wells Fargo Leader Says Industry Should Have Foreseen Crisis
Why GM, Ford and Chrysler Still Need Their Financing Units
OCC Presses Fed to Alter Proposal on Card Reform
Study: Subprime Credit Card Users Improve Ratings in Two Years
Some Investors Say U.S. Bailout of Housing Giants Is Inevitable
Refi-Program Previewers Raise Issues
OTS's Third Annual National Housing Forum Set for December 2008
An Introduction to the FDIC's Small-Dollar Loan Pilot Program
More Clarity Sought on Military Cap Eligibility
Banks Are Missing Opportunities With Low-Income Customers
Ballot Taking Shape on Ohio's New Payday-Lending Law
Synovate Study Finds U.S. Hispanics and African-Americans Still Have Much Lower Ownership of Several Financial Services and Products
Amount Financed Down, Avg. Maturity and LTV Stabilize, Fed Reports
Consumers Respond to Fewer Lease Options
Lender Directory Goes Live on the SubPrime Auto Finance News Site
In Memoriam: Jack Lee
Jack Lee, AFSA Board Emeritus and retired Chairman, President and CEO of Tower Loan, passed away on August 17. He was a member of the AFSA Board of Directors from 1993 to 2000. In 1998, he received the AFSA Outstanding Independent Award, which is presented to an individual who has contributed to the success of the financial services industry and Independents Section through active involvement and participation at the community and association levels. Jack was also an avid supporter of the AFSAPAC and the Children’s Miracle Network.
Memorials may be made to the Christ United Methodist Church Building Fund, 6000 Old Canton Road, Jackson, MS 39211.
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AFSA-Led Initiative Establishes New Protocol for Transfer of E-Legal Documents
The Accredited Standards Committee X9 (ASC X9) and the American National Standards Institute (ANSI) recently approved a new X9 American National Standard spearheaded by AFSA to simplify electronic documents and facilitate their securitization.
The standard, known as ANSI X9.110-TOLEC (Transfer of Location of Electronic Contracts), outlines how to legally and securely move electronic contracts – including a vehicle finance company’s commercial paper for securitization in the secondary market – from one location to another. Companies that follow the standard can do so with the assurance of not violating current laws requiring the discernable existence of only one original or “authoritative copy.”
Mark Zalewski, chairman of ASC X9’s Subcommittee on Credit and AFSA’s Director of E-Standards, said the standard’s completion “culminates the process of moving away from paper-based retail vehicle sale contracts.”
ASC X9, the organization accredited by ANSI to develop financial services standards, received final approval in July for the new standard, culminating a drafting process begun in April 2005 when X9 and AFSA member eOriginal submitted a new standard work project to initiate the effort.
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AFSA Comments on Risk-Based Pricing Notice
On August 18, AFSA submitted a comment letter to the Federal Reserve Board (FRB) and the Federal Trade Commission (FTC) on proposed regulations that generally would require a creditor to provide a consumer with a risk-based pricing notice when, based in whole or in part on the consumer's credit report, the creditor offers or provides credit to the consumer on terms less favorable than the terms it offers or provides to other consumers. The proposal would implement section 311 of the Fair and Accurate Credit Transactions Act of 2003, which amends the Fair Credit Reporting Act.
In its letter, AFSA wrote that although it supports the educational purposes and goals of the proposed regulation, it is concerned that the regulations would result in over-notification to consumers because the proposed threshold for determining a substantial percentage of consumers affected by risk-based pricing would be 60%. AFSA believes that because only a minority of consumers has a significant amount of negative information in their credit reports, and an even smaller number of consumers have erroneous data in their credit files, it would be excessive to require the risk-based pricing notice to be provided to 60% of consumers.
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AFSA Releases White Paper on Foreclosure Moratoriums
AFSA’s State Government Affairs department has released its monthly white paper focusing on foreclosure moratoriums. The paper covers pending state legislation on the issue, including bills in Illinois, Massachusetts, Michigan, North Carolina, New Jersey, and New York. It also mentions legislation that, although amended or vetoed, serve as good examples of the typical legislation introduced this year that would have delayed foreclosures. The white paper also reports on efforts undertaken by localities to forestall foreclosures, as well as initiatives at a federal level.
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New Member Welcome
AFSA welcomes new associate member Thompson Hine LLP. Established in 1911, Thompson Hine is a business law firm with offices in Atlanta, Brussels, Cincinnati, Cleveland, Columbus, Ohio, Dayton, Ohio, New York and Washington, D.C.
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HSBC Plans to Have 100 Outlets in China by 2009
Bloomberg (08/19/08) Wong, Chia-Peck; Luo, Jun
By next year, HSBC aims to have 100 outlets in China. The bank presently has 70 branches there, but that number will rise to 80 by the end of 2008. HSBC is expecting China's economy to flourish, even though it predicts loan impairment charges will increase in Asia in response to a U.S. slowdown.
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Wells Fargo Leader Says Industry Should Have Foreseen Crisis
Oregonian (08/17/08) Rogoway, Mike
According to Richard Kovacevich, chairman and former CEO of Wells Fargo & Co., banks should have seen the mortgage lending crisis coming. Part of the crisis stemmed from the bubble caused by excessive loans to people who otherwise would not have been financially able to obtain them, he notes. Kovacevich also says that banks should have been cautious about the prime side as well as the subprime. He estimates that home prices will reach their lowest point in mid-2009, though it could just as easily happen several months before or after that time.
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Why GM, Ford and Chrysler Still Need Their Financing Units
Wall Street Journal (08/15/08) Moore, Heidi N.
Auto makers are hanging onto their financing units in order to help them sell cars, some observers say. Analysts predicted that General Motors would witness a 24 percent drop in sales in June; however, its sales only declined 8 percent because it offered customers no-interest financing for 72 months. Jim Farley, vice president of marketing and communications for Ford, said that financing is an important part of the sales process. "When you combine the restriction of credit by the banks and the [financial lending arms of the auto makers], because they are trying to improve their financial statements, and you combine that with the customer being under more pressure because of their home values and their liquidity as a whole, it all kind of meets in the showroom, where there's a lot more creativity that has to take place in the finance and insurance office," he said.
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OCC Presses Fed to Alter Proposal on Card Reform
American Banker (08/21/08) P. 1; Hopkins, Cheyenne
Comptroller of the Currency John Dugan is asking for significant changes to the Federal Reserve’s proposal to define unfair and deceptive credit card practices. The current proposal, he fears, will “result in a substantial constriction of credit because lenders won’t be able to recover the costs of increased default that goes along with consumers that have less-than-good credit histories.” Though the perspective of the Office of the Comptroller of the Currency, which detailed its views in a letter to the Fed Monday, may have some impact on the proposed plan, observers say it is unlikely it will sway the Fed’s final decision. The letter noted some key industry concerns such as the stringent restriction on interest rate repricing, which would freeze interest rates on outstanding balances for unsecured revolving credit lines, with some exceptions like repricing on delinquent accounts. Dugan, however, did support the Fed’s bid to check double-cycle billing and certain credit card fees. Dugan warned that by defining unfair and deceptive practices the Fed would open the industry to heavier legal liability. In the letter he advised that the Fed make apparent that the proposed regulations apply prospectively and promote the plan under the Truth-in-Lending Act, which would allow the Fed to prevent, rather than define, unfair and deceptive lending practices and thus avoid sparking litigation.
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Study: Subprime Credit Card Users Improve Ratings in Two Years
Nashville Business Journal (08/20/08)
The Citizens for Equal Access to Credit has released a study affirming that low limit credit cards have successfully helped cardholders rebuild their credit. Specifically, the 24-month study of 360,000 consumers found that at least 35 percent of consumers using low limit credit cards improved their credit scores. Furthermore, more than 60 percent of consumers with an increase of 40 or more points in their credit score were given a higher card limit.
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Some Investors Say U.S. Bailout of Housing Giants Is Inevitable
New York Times (08/20/08) P. C1; Duhigg, Charles; Bajaj, Vikas
Fannie Mae and Freddie Mac will need to ask the federal government for financial assistance if they are unable to obtain additional capital from investors and banks, according to some observers. "At some point, investors are going to say these companies are too big a risk to buy their debt, and that precipitates a self-fulfilling prophecy that ends up with the government having to step in," says William Gross, chief investment officer of money management firm Pimco. The stock prices of the mortgage finance giants continue to fall, and raising money will only become more expensive. Sean Egan, managing director of independent credit ratings firm Egan-Jones Ratings, believes the Treasury will have to pump about $20 billion into each company and that a decision could come within the next couple of weeks.
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Refi-Program Previewers Raise Issues
American Banker (08/19/08) Berry, Kate
Lenders and servicers are struggling with how they might take part in the new housing law's refinancing aid program. The $300 billion endeavor calls for borrowers who owe more than their houses are worth to get 30-year, fixed-rate loans backed by the FHA. Since these loans have to be for no higher than 87 percent of the house's present market worth, the current mortgage holder must consent to a discounted payoff. Mortgage executives are also upset that an investor or servicer that wished to be compensated via the program might have to depend on FHA-sanctioned lenders to solicit the borrowers. Meanwhile, other executives point out that servicers, whose income level is lowered when mortgages are prepaid, may prefer to alter the loans to retain them in their portfolios. While the new FHA loans would be federally insured, that does not automatically mean the originator is not liable if the loans do badly. Ocwen Financial Corp. President Ronald Faris thinks while the refinance aid program will have a certain amount of impact, it may not be as much as the government predicts. He notes that certain servicers may opt to alter a loan and possibly forgive part of the principal instead of losing the account and its connected fees. The new program is set to start Oct. 1.
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OTS's Third Annual National Housing Forum Set for December 2008
Office of Thrift Supervision News Release (08/15/08)
The Office of Thrift Supervision's Third Annual National Housing Forum (NHF) is scheduled for Dec. 8, 2008. Among the topics to be discussed are lessons learned from the current housing crisis and possible remedies. The NHF will also feature experts from the housing and mortgage finance sector who will take part in panel discussions on a variety of topics in federal financial regulation, residential mortgage lending, mortgage banking, and the securities market.
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An Introduction to the FDIC's Small-Dollar Loan Pilot Program
FDIC Quarterly (Quarter 3, 2008) Vol. 2, No. 3, P. 1; Burhouse, Susan; Miller, Rae-Ann; Sampson, Aileen G.
The Federal Deposit Insurance Corp. (FDIC) hopes to show banks that offering affordable small-dollar loans can be a feasible and profitable alternative to payday loans and other high-cost financial products. The Small-Dollar Loan Pilot Program gives the FDIC an opportunity to study the initiatives of 31 banks over the next two years. First quarter 2008 results for the program reveal that participating banks originated more than 3,100 small-dollar loans, with a principal balance of about $3.7 million during the period. Most initiatives are new and have a relatively low loan volume, so few banks indicated they were making money from small-dollar loans, but building relationships could be the key to profitability. Thirteen banks said small-dollar loan customers are now using other products, including deposit accounts and more sophisticated offerings, and one bank has approved many of these customers for auto loans after they have paid off their initial small-dollar loan. Armed Forces Bank says its overall relationship with small-dollar loan customers is as profitable as a traditional relationship. The advertising and linked savings strategies used by participating banks have the potential to lead to profitable small-dollar loan programs and to serve as models for other banks.
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More Clarity Sought on Military Cap Eligibility
American Banker (08/19/08) Flitter, Emily
The Defense Department is calling on Congress to tighten a law intended to shelter military service members and their family members from certain payday loans. The department provided the Senate Armed Services Committee with a report that claimed that the Talent amendment, which sets a maximum for interest rates on payday, automobile title, and refund-anticipation loans, has been pretty effective. However, it further asked Congress to accept the recommendation of HSBC North America, which has asked the Defense Department to clarify who is entitled to the cap. According to the department, banks and other lenders should be allowed to access the Defense Manpower Data Center, a database that helps determine who is eligible for military benefits. The Defense Department is considering altering the Talent amendment so that its definition of military service staff and their dependents is equivalent to the database's definition.
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Banks Are Missing Opportunities With Low-Income Customers
Dow Jones Newswires (08/19/08) Liberman, Gail; Lavine, Alan
A study from nonprofit micro-lender Accion USA and research company Encuesta indicates that almost one-third of low-to-middle income U.S. citizens are choosing expensive non-bank providers. According to the study, 53 percent of low-to-moderate-income Hispanics are either unbanked or underbanked, but regularly use non-banks for daily transactions. Banks should focus their attention on lower-to-moderate income Americans, because over 100 million U.S. consumers depend on non-bank providers for credit, according to TowerGroup. TowerGroup cautions banks that financial services firms, retailers, and others are competing for unbanked and underbanked consumers. Banks competitors' include H&R Block, Wal-Mart, and peer-to-peer lenders like Propser.com, VirginMoney, Finanz, and GreenNote. TowerGroup says banks can attract underserved Americans by offering immediate liquidity for paper checks; last-second bill-paying services; wire transfer services; low-balance checking and savings accounts with minimal fees; access to small-dollar, short-term unsecured credit; the ability to build or restore credit histories; online transactions; and the ability to take other forms of identification.
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Ballot Taking Shape on Ohio's New Payday-Lending Law
Toledo Blade (OH) (08/15/08) Provance, Jim
It took the Ohio Ballot Board almost five hours to unanimously agree on the language of a ballot that asks voters to decide whether to allow a payday-lending law to go into effect. The new law would cap the annual rate of check-cashing and payday-lending institutions at 28 percent annually, give borrowers at least 30 days to pay back the loan, and limit the maximum loan amount to $500. The payday-lending and check-cashing industry was able to convince the board not to mention the 391 percent annual interest rate that critics argue is the loan's real rate. The ballot issue is now worded to ask voters if they favor the law as passed or not, with a yes vote allowing it to take effect, and a no vote repealing the section in question.
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Synovate Study Finds U.S. Hispanics and African-Americans Still Have Much Lower Ownership of Several Financial Services and Products
WebWire (08/15/08)
U.S. Hispanics' and African-Americans' ownership of multiple financial services and products still does not match the general market, according to Synovate's 2008 U.S. Diversity Markets Report. Synovate recently polled 2,000 Hispanics, 1,000 African-Americans, and 1,000 general market consumers. This year, 77 percent of U.S. Hispanics have some kind of bank account, up from 70 percent four years ago, but still less than the 90 percent of general market and African-American consumers. Ownership of stocks or bonds is 33 percent for African-Americans, 18 percent for Hispanics, and 60 percent for general market consumers. The gap is not as great for certificates of deposit, with 25 percent of African-Americans, 24 percent of Hispanics, and 36 percent of general market consumers owning one. Credit card ownership is 69 percent for African-Americans, 51 percent for Hispanics, and 87 percent for general market consumers. While over half of general market consumers hold a mortgage, 47 percent of African-Americans and 26 percent of Hispanics hold one.
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Amount Financed Down, Avg. Maturity and LTV Stabilize, Fed Reports
F&I Magazine (08/19/08)
The average amount financed on U.S. new-vehicle purchases is continuing to decrease, falling to $24,505 for each automobile in June, less than the $24,579 in May and $28,174 at the end of the first quarter. The loan-to-value ratio on new-vehicle purchases increased a little, climbing from 92 percent in May to 93 percent in June. Average loan maturity dropped from 64 months in May to 63.5 months in June.
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Consumers Respond to Fewer Lease Options
F&I Magazine (08/18/08)
A poll of over 11,000 lessees whose lease contracts expire in 2008 revealed that 17 percent plan to purchase their current leased car or truck, up from 10 percent last year. The survey, conducted by CNW Market Research, also found that this year 22 percent of lessees will purchase a new vehicle, versus 14 percent last year; and 7 percent will purchase a used vehicle on a long-term contract, compared to 3 percent last year. In 2008, 27.82 percent of lessees intend to lease from a different auto manufacturer, a decrease from 48.76 percent last year. If a lease is not offered on the kind of automobile the lessee drives, over half of those polled said they would choose a segment where a lease is available.
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Lender Directory Goes Live on the SubPrime Auto Finance News Site
SubPrime Auto Finance News (08/14/2008) Reed, Jennifer
SubPrime Auto Finance News has put its Lender Directory on its Web site. The directory lists auto lenders that still serve the non-prime and subprime credit tiers. SubPrime Auto Finance News partnered with www.OnlineBkmanager.com to develop the list. The directory is a resource for dealers across the nation who are having a hard time locating indirect auto lenders agreeing to serve their special finance clients, because many have stiffened underwriting requirements and withdrawn from lower credit tiers in response to tough capital markets and the economy.
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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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