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July 17, 2008
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Himpler Testifies Before House Financial Services Subcommittee
Federal Reserve Board Issues New HOEPA Rule
Electronic Title Processing Discussed at NTSF Committee June Meeting
MoneySKILL Training Reaches Teachers Nationwide
New Leaders Named in AFSA Law Committee
GMAC Financial Services Is Granted 10-Year Extension of FDIC Disposition Requirement for GMAC Bank
High-Grade Deere Reaps Bounty in Funding Drought
HSBC's Kevin Newman Named 'Maverick Banker of the Year'
Interchange Measure Clears Chaotic Committee Vote
New Law: Gift Cards Good for 5 Years
Arbitration Works Better Than Lawsuits
Republicans Push Back as Paulson Urges Aid for Mortgage Giants
U.S. Unveils Plan to Aid Mortgage Giants
Senate's Housing Bill Faces Hurdles
Gathering Looks at How Some Struggle With High-Interest Debts
Underbanked Poll: Effort Is Good, Execution's Off
Fed: Average Amount Financed Via Auto Lenders Shows Steep Decline
Universal Special Auto Finance Expands to Prime Lending
F&I Can Aid Internet Sales
Himpler Testifies Before House Financial Services Subcommittee
Bill Himpler, AFSA’s Executive Vice President of Federal Affairs, testified on July 17 during a hearing entitled, “GAO Report on Regulation B: Should Lenders Be Required to Collect Race and Gender Data of Borrowers for All Loans,” which was held by the House Financial Services Subcommittee on Oversight and Investigations. The Subcommittee held the hearing to examine key findings of a recently completed 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.
In his testimony, Himpler stated that AFSA recognizes the importance of ensuring that all people have equal access to credit and is committed to eliminating discrimination in lending. AFSA believes that ECOA and Regulation B contain the necessary restrictions and enforcement tools to end discrimination, and AFSA does not believe that access to affordable credit will be enhanced by requiring non-mortgage creditors to collect race and gender data. To the contrary, imposing data collection obligations may decrease the credit options available or increase the cost of credit for consumers. While both the government and the industry have strived to make the credit application process as colorblind as possible, AFSA believes the proposed requirement counters this goal.
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Federal Reserve Board Issues New HOEPA Rule
On July 14, the Federal Reserve Board issued new regulations on mortgage lending, using its authority under the Home Ownership and Equity Protection Act (HOEPA).
One of the rule’s most notable provisions is requiring creditors to establish escrow accounts for property taxes and homeowner’s insurance for all first-lien mortgages. While the Board did not replace the escrow requirement with enhanced disclosure requirements to ensure borrowers’ understanding of tax and insurance payment obligations as AFSA requested, the Board did include AFSA’s recommendation to allow lenders more time to develop compliant escrow systems
The rule also establishes a definition of “higher-priced mortgage loans” that will include virtually all closed-end subprime loans secured by a consumer’s principal dwelling. Which loans qualify as “higher-priced” will be determined by a new index that will be published by the Federal Reserve that is based on a survey currently published by Freddie Mac. The definition is intended to overcome the technical problems with the ARP trigger that was initially proposed, but provide similar market coverage.
The new rules will take effect on Oct. 1, 2009, with the exception of the escrow requirement, which will be phased in during 2010.
AFSA issued a statement to the media following the announcement of the new rule, cautioning that the association remains concerned about the rule’s “potential repercussions,” given the current economy and the retraction that’s already occurring in the mortgage marketplace.
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Electronic Title Processing Discussed at NTSF Committee June Meeting
The National Title Solutions Forum Committee meeting in Las Vegas late in June reinforced the committee’s mission to encourage electronic title processing in more states. The committee met with Department of Motor Vehicles (DMV) representatives from Utah, California and Massachusetts to discuss title processing issues in those states in an attempt to make a smooth transition to electronic lien recording and lien release. Members were alerted to the comment period on the Commonwealth of Virginia’s petition to the National Highway Traffic Safety Administration – and their preliminary grant for alternative methods for disclosing odometer readings – which closes on July 24, 2008.
At the meeting, the committee also adopted a new logo, which identifies a national lienholder position with state DMVs, where NTSF member organizations finance 67% of financed vehicles.
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MoneySKILL Training Reaches Teachers Nationwide
More than 250 teachers enthusiastically received training on MoneySKILL® at three conferences last week: Pennsylvania Governor’s Institute on Financial Education, the West Virginia Finance University Economics and Financial Education for Teachers, and the National Academy of Finance Institute (representing 41 states and D.C.). The training offered an overview of the curriculum, how to incorporate the course in the classroom and how to use its many features such as module selection and presentation, and student retake of a module – features that were requested by teachers.
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New Leaders Named in AFSA Law Committee
AFSA’s Law Committee has named new subcommittee chairs. The committee decided that the law committee vice chair would also serve as the chairman of the Litigation Subcommittee, making Dave Korman, EVP & General Counsel of Ford Motor Credit, the subcommittee’s new chairman. Replacing Korman as chairman of the Emerging Issues Subcommittee is Jim Sheeran, General Counsel of Tidewater Finance Company, Inc. In addition, Jim Swartz, Associate General Counsel of Ford Motor Credit, will serve as the vice chairman of the Emerging Issues Subcommittee.
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GMAC Financial Services Is Granted 10-Year Extension of FDIC Disposition Requirement for GMAC Bank
PRNewswire (07/16/08)
GMAC Financial Services has announced that the Federal Deposit Insurance Corp. (FDIC) has approved a 10-year extension of GMAC Bank's current ownership by extending the existing disposition requirement that was developed in connection with the sale of a majority stake in the company. "We are very pleased with the FDIC's prompt action on our waiver request," says GMAC CEO Alvaro de Molina. "The long-term extension granted by the FDIC will permit us to strengthen GMAC Bank, which provides an important source of funding for mortgage and automotive financing activities. This development along with the successful completion of the global refinancing announced last month helps to enhance flexibility during this turbulent market environment," de Molina says.
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High-Grade Deere Reaps Bounty in Funding Drought
Financial Week (07/14/08) Cole, Marine
The credit squeeze has not choked farm equipment manufacturer Deere & Co.'s access to the debt market, nor prevented the company from raising nearly $2 billion in the past month, and CFO Michael Mack attributes Deere's success to its risk management strategy and strong credit ratings. Deere chiefly uses John Deere Capital to draw money from the debt market, and the captive finance unit helps clients finance equipment purchases. In addition, Deere sells loans backed by agricultural and construction equipment using the asset-backed securities market, and John Deere Credit President James Israel says that, "In the credit operation, our primary mission is to help facilitate the sale of products." He notes that the global market for the company's products is robust, thanks to higher commodity prices, demand for food, and demand for crops tapped for renewable energy. Deere's solid relationships with its dealers enables the screening of customers, which contributes to the company's low credit losses, according to Mack. Deere has been making investments in the building of wind farms and then selling the electric power the farms generate.
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HSBC's Kevin Newman Named 'Maverick Banker of the Year'
ATM Marketplace (07/11/08)
The first ever "Maverick Banker of the Year" award has been given to Kevin Newman, group general manager of personal-financial services for HSBC Bank USA. The award, created by Banking Strategies magazine in conjunction with BAI Mavericks in Banking, recognizes Newman for his customer-centric approach and openness to questioning the status quo at HSBC. Credit and regulatory problems in the market can make many bankers behave more conservatively, but Newman is applauded for his "efforts to generate organic growth and deliver innovative banking solutions to … consumers," said Debbie Bianucci, president and CEO of BAI.
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Interchange Measure Clears Chaotic Committee Vote
American Banker (07/17/08) P. 1; Kaper, Stacy
Despite continued infighting among lawmakers in both parties, the House Judiciary Committee approved interchange rate legislation July 16 by a vote of 19 to 16. The bill, co-sponsored by Rep. John Conyers (D-Mich.), would create an exemption to antitrust laws, allowing merchants to join forces and bargain collectively on interchange fees. The bill was quite different than a March draft, and some lawmakers expressed frustration that they had not had more time to review the new version. "I'm concerned that this bill has some serious problems with it," said Rep. Mel Watt (D-N.C.). Conyers tried to alleviate his colleagues' concerns, saying that the bill could be revised further. The bill in its current form would forgo a three-judge panel that would have intervened when interchange negotiations break down and would prevent merchants and credit card companies from engaging in boycotts. The bill further states that cost savings from negotiations should be doled out to consumers or employees of merchants or financial companies. Some Democrats argued that the cost savings should go only to consumers, while others wanted savings to go to merchants as well. Rep. Artur Davis (D-Ala.) noted that the bill could ultimately hurt consumers because card companies could decide to boost card rates to offset losses from interchange fees.
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New Law: Gift Cards Good for 5 Years
Detroit News (07/15/08) Heinlein, Gary
Michigan Gov. Jennifer Granholm has signed into law a series of bills mandating that stores honor gift cards and certificates for as long as five years after they are given out, and to clearly publish all terms and conditions when they are sold. The legislation takes effect by Nov. 1, in time for the Christmas retail season. Granholm stated the law "protects citizens' pocketbooks and makes sure consumers are getting the most from their dollars." She added that "recipients should be free to spend them without pressure or penalty." The legislation stipulates that Michigan merchants cannot change the terms or conditions of a gift card or certificate after it is dispensed. Also, inactivity charges and additional fees cannot be applied. Stores cannot reject cards or certificates during sales, close-outs, or liquidations. Lastly, merchants cannot refuse gift cards or certificates as partial payment for goods that have a higher price than the remaining balances on them.
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Arbitration Works Better Than Lawsuits
Wall Street Journal (07/14/08) P. A17; Varney, Christine
Congress is considering the Arbitration Fairness Act of 2007, which would void arbitration provisions in consumer contracts related to credit card agreements, cell phones, and health insurance policies. According to this opinion piece in the Wall Street Journal, the legislation is a boon for plaintiffs attorneys and a detriment for consumers and businesses because hefty courtroom settlements are likely to increase if arbitration is eliminated from consumer contracts. Lawmakers already have eliminated a number of arbitration agreements in poultry and farm contracts and is considering doing so in agreements between auto dealers and buyers. Many lawmakers contend arbitration does not benefit consumers, but in actuality arbitration can reduce dispute costs for consumers and ensure a fair outcome, says this opinion piece. For instance, flexibility can be greater in arbitration, allowing consumers to spend time on a telephone hearing or submit paper documents regarding the dispute, rather than attending an in-person hearing. Moreover, small claims are rarely brought to court by attorneys, but arbitration allows even small claims to be resolved. The National Workrights Institute's 2004 report indicates consumers are more successful in arbitration than in court, with 63 percent of consumers winning in arbitration versus 43 percent of consumers winning in court. This commentary suggests Congress should take a closer look at the benefits of arbitration before enacting a law eliminating a practice that benefits both consumers and businesses.
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Republicans Push Back as Paulson Urges Aid for Mortgage Giants
Washington Post (07/17/08) P. D1; Montgomery, Lori; Birnbaum, Jeffery H.
Treasury Secretary Henry Paulson Jr. held a closed-door session with House Republicans on July 16, trying to assure them that the White House's plan to prop up Fannie Mae and Freddie Mac will not result in a taxpayer bailout. Paulson spent close to an hour in the hostile room, asserting that taxpayers would be protected and that the federal government's offer of help would be temporary and carefully engineered and executed. Afterwards, he told reporters, "This is something I want to see done quickly, and I am optimistic this is going to be done quickly." If GOP legislators' skepticism is not overcome, President Bush may have no other choice but to ally with Capitol Hill Democrats to push his plan through Congress.
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U.S. Unveils Plan to Aid Mortgage Giants
Washington Post (07/14/08) P. A1; Irwin, Neil; Birnbaum, Jeffrey H.
The Bush administration has outlined a plan to help Fannie Mae and Freddie Mac weather investor concerns about capitalization and expects the measures to be passed by Congress and signed into law by the president by the end of next week. Under the plan, the government-sponsored enterprises would be able to trade certain assets for cash at the Federal Reserve's discount window in the event of an emergency. Additionally, the Treasury secretary would be given authority to boost Fannie Mae and Freddie Mac's $2.25 billion credit lines as necessary and negotiate terms under which the government would purchase their stock. According to Treasury Secretary Henry Paulson, "Use of either the line of credit or the equity investment would carry terms and conditions necessary to protect the taxpayer."
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Senate's Housing Bill Faces Hurdles
American Banker (07/14/08) P. 2; Kaper, Stacy
The Senate passed a housing bill on July 11 that would establish a new regulator for Fannie Mae and Freddie Mac and allow the FHA to insure mortgages for more than the homes are worth once lenders write down a portion of the loan balance, but it remains to be seen whether the bill will be implemented quickly. The measure will return to the House and undergo changes by House Financial Services Committee Chairman Barney Frank (D-Mass.). Senate Banking Committee Chairman Christopher Dodd (D-Conn.) says the bill would be effective immediately so that the new regulator can take action quickly to help stabilize the housing market; but Frank insists that to move so fast would be "a mistake." Dodd says it remains uncertain whether Sen. Richard Shelby (R-Ala.)--the top GOP legislator on the Senate banking committee--would agree to participate in additional negotiations when the bill returns to the Senate.
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Gathering Looks at How Some Struggle With High-Interest Debts
Providence Journal (RI) (07/15/08)
Sen. Sheldon Whitehouse (D-R.I.) organized a July 14 meeting at the Urban League of Rhode Island to see firsthand how some of his constituents are dealing with the credit crisis. Meanwhile, Whitehouse is sponsoring legislation that would encourage banks to maintain reasonable credit card fees and interest rates. Interest rates on consumer loans "is an area … that needs attention," Whitehouse said. Banks are "trying to get away with too much," he said at the meeting. Among the attendees at the meeting were the Rev. Billy and Aida Ojopi, whose adjustable rate mortgage has reset and who are also now paying an extra $1,200 a month in credit card fees because of increasing card rates.
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Underbanked Poll: Effort Is Good, Execution's Off
American Banker (07/14/08) P. 10; Fajt, Marissa
While an increasing number of community banks are making efforts to reach out to the unbanked, few are offering the types of lead-in products that could bring them in, according to a recent survey from the Independent Community Bankers of America. While half of the banks surveyed are marketing to recent immigrants and others outside the banking mainstream, less than half of those are offering remittances, noncustomer check cashing, or prepaid phone cards that are in demand among the unbanked. Banks consider these products unprofitable, according to the survey, but those that do offer the products say they get the unbanked customer in the door and into a relationship that could lead to other, more profitable products. Banks are missing a huge opportunity, according to Luz Urrutia, president of El Banco de Nuestra Comunidad. "The only way to develop a profitable relationship is start a relationship at the customer's level of sophistication," she says. In the survey, 47 percent of respondents said they serve the unbanked, with more than half of those offering services in other languages and 64 percent offering financial literacy programs. However, the majority said they still need a "a better understanding of the financial needs of underserved consumers," and only 20 percent said their efforts were profitable so far. Of the 53 percent who said they do not reach the unbanked, the main reason cited was local demographics, with "profit and risk concerns" coming in second.
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Fed: Average Amount Financed Via Auto Lenders Shows Steep Decline
SubPrime Auto Finance News (07/10/2008)
The average amount financed at auto lenders in May fell to the lowest point it has reached since 2004 and 2005, according to Federal Reserve data. The trend may be the result of consumers increasingly buying smaller, more fuel-efficient autos that are less expensive. In May the average amount financed at auto lenders was $24,911, down from $27,397 in April. However, the average interest rate rose from 4.54 percent in April to 5.71 percent in May. In general, the May loans are maturing after 64 months, the Fed says, compared to 63.1 months in April.
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Universal Special Auto Finance Expands to Prime Lending
Ward's Dealer Business (07/01/2008)
Universal Special Auto Finance is tapping into the prime market by rolling out Universal Prime, a new program for consumers with superior credit scores. "Our new prime lending model is innovative, efficient, and generates consistent and impressive profitability for financial institutions and auto dealers on the short and long term," said CEO John Scordo. In 2008, the company also launched Universal Solutions, a program that offers auto dealers the opportunity to finance their own deals.
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F&I Can Aid Internet Sales
Ward's Dealer Business (07/01/2008) Dorfler, Bryan
Studies indicate that most consumers conduct vehicle and buying research online before visiting a dealership. Auto finance and insurance (F&I) is often overlooked in facilitating vehicle sales through online leads. As such, F&I should be a more fundamental part of the online sales process. This can be done by showcasing promotional finance offers early and frequently. In addition, dealerships should "mystery shop" their online department, both through the Web site and third-party lead providers. They should also study the focus and placement of finance options with the Web site designer, and employ F&I products to help complete the sale. F&I training for the BDC and Internet divisions should be conducted on a regular basis. Lastly, dealerships need to utilize Internet communications to market accessories and enhanced service agreements to those customers who did not purchase them at time of delivery.
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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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