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July 24, 2008
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New White Paper on Interchange Fees Released
AFSA Submits Comment Letter on Regulation Z
Annual Financial Performance Survey Results Available
NTSF Committee Prepares Comments on Petition for Alternative Odometer Disclosure Requirements
New Search Tool Increases Value for Buyer’s Guide
GMAC Financial Services Announces ResCap Management Changes
Chrysler CEO Disputes Report of Loss of Low-Interest Loans
International House and Merrill Lynch Continue to Prepare Women for Leadership Positions
HSBC Picks Itasca for New Operations Center
Wells Fargo CFO Sees Big Opportunities in the Credit Crisis
Activists Touchy About Contactless Payments
Critics Detail the Ills of 401(k) Debit Cards
Poll Gauges Appeal of Decoupled Cards
U.S. Senate to Take Up Fannie-Freddie Bill After House Approval
City Sues Mortgage Giant
Fed Loan Rules Fall Short of Proper Audience
The Goal of Mortgage Disclosure: To Underwrite Yourself
Dartmouth Professor to Examine Financial Capability in Consultation With U.S. Treasury Department
Financial Literacy Dropping Among Students
Repossessions Flower as Economy Withers
Buying & Selling Auto Loan Portfolios: New Options Help Credit Unions Mitigate Risk
New White Paper on Interchange Fees Released
AFSA’s State Government Affairs Department (SGA) has released a white paper focusing on the interchange fee legislation being introduced both at the federal and state level. The paper includes information on the House Judiciary Committee markup on H.R. 5546, The Credit Card Fee Act of 2008, which took place on July 16. At the markup, the controversial bill was amended and then passed by the Committee.
The paper also includes a brief history of interchange fees, an analysis of the decision in Australia ordering the suspension of these fees, and provides links to the legislation that has been introduced at the state and federal level.
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AFSA Submits Comment Letter on Regulation Z
On July 18, AFSA submitted a comment letter in response to the proposed rule issued by the Federal Reserve Board amending Regulation Z. The Board intends to combine these proposed rules with its June 2007 amendments to the open-end credit provisions of Regulation Z (Truth in Lending). The Board expects to release the final rules by the end of the year.
On the whole, AFSA supports many of the proposed modifications. However, the association did have comments on some of the more substantive provisions. In particular, AFSA urged the Board to limit the introductory/promotional rate disclosures to written and electronic advertisements, and not to other types of advertisements. Additionally, AFSA commented that the proposed elimination of the term "grace period" will be confusing for consumers, and disagreed with the Board's assertion that a cut-off time prior to 5 p.m. to receive payments is "unreasonable."
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Annual Financial Performance Survey Results Available
RSM McGladrey has sponsored and conducted a financial performance survey for AFSA, gathering and analyzing comparative member company data for 2007 and 2006. The survey, which RSM McGladrey does for AFSA members on an annual basis, is designed to assist finance company leaders in evaluating the performance of their operations. Many independent member companies, and some of AFSA’s largest member companies, participated in the survey.
As reported in the summary of the survey results, the industry experienced a higher cost of funds and lower profits for 2007. Direct loan companies were profitable, carrying a 5.8% median pre-tax return on assets. Indirect companies were slightly below with results of 2.0%. Growth was strong this year, with direct loans growing 12.4% and indirect loans growing 10.3%. Projected growth for 2008 remains at a manageable level of approximately 10%.
Participating companies receive the survey results on a complimentary basis. Complete survey results are also available for purchase through AFSA.
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NTSF Committee Prepares Comments on Petition for Alternative Odometer Disclosure Requirements
AFSA’s National Title Solutions Forum Committee (NTSF) submitted a July 24 comment letter in support of the National Highway Traffic Safety Administration’s (NHTSA) proposed rule which determines that the Commonwealth of Virginia’s alternate methods of disclosing odometer readings are consistent with the Truth in Mileage Act (TIMA). Virginia’s alternate methods allow the use of individual authentication schemes to conduct electronic vehicle title transfers and associated odometer disclosures in place of actual “wet ink” signatures.
The proposed rule would allow other states to develop the use of electronic signature technology on odometer disclosure statements without the need for each state to separately request a ruling from NHTSA.
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New Search Tool Increases Value for Buyer’s Guide
AFSA’s online Industry Buyer's Guide now has a Google search button to help users find the Web sites of Buyer's Guide participants using basic key words. The Buyer’s Guide is an extensive online resource of industry suppliers providing products and services from “advertising services” to “vendor finance solutions.” Only companies who are associate members of AFSA can be listed in the Buyer’s Guide.
“We hope this added search capability will help finance company executives easily find product and services provided by a wide-range of AFSA associate members,” says Marguerite Watanabe, Chair of AFSA’s Associate Member Board.
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GMAC Financial Services Announces ResCap Management Changes
PRNewswire (07/22/08)
GMAC Financial Services has announced that Thomas Marano has been named chairman and CEO of Residential Capital (ResCap), effective immediately. Marano previously served as non-executive chairman of ResCap. He replaces CEO Jim Jones, who has decided to leave the company. "Tom brings extensive experience in the mortgage and capital markets to ResCap at this critically important time for the company," says GMAC CEO Alvaro de Molina. "Under Tom's leadership, ResCap will continue to execute our ongoing plan to streamline the business and focus on core mortgage lending and servicing businesses in the U.S. and select international markets."
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Chrysler CEO Disputes Report of Loss of Low-Interest Loans
Detroit News (07/22/08) P. C1; Morath, Eric
Chrysler Financial insists its upcoming credit review process has nothing to do with rumors of a dropoff in low-interest loan issuance. Like other leading manufacturers of trucks and SUVs, Chrysler is experiencing a decline in sales as consumers buy smaller vehicles with better gas mileage. The lending woes at Chrysler are emblematic of the nationwide credit problem, as other major financial institutions are also hesitant to issue high-risk loans. Chrysler LLC Chairman and CEO Bob Nardelli asserts his company still has access to capital and "will continue to offer competitive financing and lease options for our customers and dealers." One of Chrysler's strategies for avoiding higher borrowing costs is a new zero-percent financing offer for six years on Dodge Ram pickup trucks.
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International House and Merrill Lynch Continue to Prepare Women for Leadership Positions
Business Wire (07/22/08)
Merrill Lynch has renewed its corporate sponsorship of the Women's International Leadership (WIL) Program at International House with a $50,000 grant. The training program offers skills-based leadership training, public speaking workshops, field experience in multicultural communities, a mentor project, and conflict resolution and negotiating coaching to a select group of women from around the world. The grant will subsidize a generous portion of WIL's operating budget, including publications, program-related activities, networking activities, and staff salaries. Merrill Lynch also offers support through mentors and role models. "Through this partnership, we have built relationships and financial awareness with future women leaders who will have an impact in their respective communities and professions while also exposing them to careers and opportunities in business," says Candace Browning, president of Merrill Lynch Global Research and a member of the WIL Advisory Council.
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HSBC Picks Itasca for New Operations Center
Chicago Tribune (07/21/08)
HSBC North America Holdings has selected Itasca, Ill., as the location for its new operations center. The $95 million, 304,000-square-foot center will accommodate approximately 2,000 employees from five existing sites in the Chicago suburbs. Construction will begin this year, and occupancy will begin in the third quarter of next year. HSBC will continue to maintain its operations center in Schaumburg, Ill.
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Wells Fargo CFO Sees Big Opportunities in the Credit Crisis
Reuters (07/16/08)
Wells Fargo CFO Howard Atkins expects the company to add market share and pursue small acquisitions in the coming months as competitors continue to suffer from the credit crunch. He declined to comment on whether San Francisco-based Wachovia could be a target. However, he did say the lender would continue to pursue smaller acquisitions, primarily in the western two-thirds of the United States, where the bank can realize a 15 percent annual rate of return.
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Activists Touchy About Contactless Payments
Consumer Financial Services Law Report (07/23/08)
The Consumer Federation of America, Consumers Union, and Consumer Action recently wrote a letter to the Federal Trade Commission asserting that the privacy and security challenges of contactless payments should be tackled before consumers adopt contactless payment systems. The consumer groups warned that the integration of contactless payment systems with mobile phones could facilitate the capture of location information, which could be exploited in proximity marketing and consumer profiling. The consumer proponents also argued that payments should not be authenticated without the provision of passwords or PIN numbers.
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Critics Detail the Ills of 401(k) Debit Cards
Wall Street Journal (07/22/08) P. D6; Burton, Jonathan
A 401(k) debit card comes with more advantages and fewer risks than a standard 401(k) loan, some financial experts say in defense against attacks by consumer groups. Studies indicate that employees appreciate the freedom to access their retirement accounts and may be more likely to contribute to one if they can borrow from it in an emergency. Reserve Solutions, a subsidiary of the N.Y.-based money management company The Reserve, educates consumers on its Web site about the advantages and disadvantages of using its ReservePlus debit card to extract from a retirement fund. Legislators have a "gross misunderstanding" of the product, says The Reserve Chairman Bruce Bent. "We have to do a better job on education so people can appreciate what [the card] does, instead of having this visceral reaction that it's bad," Bent urged in an online statement. The borrowing limit for a ReservePlus account is either $50,000 or 50 percent of a person's retirement savings, depending on which is less.
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Poll Gauges Appeal of Decoupled Cards
American Banker (07/18/08) P. 5; Wade, Will
Decoupled debit cards appeal to 40 percent of 1,041 adult consumers surveyed by Synergistics Research, with 14 percent of respondents saying that they were very interested in such a card, 26 percent describing themselves as somewhat interested, and 58 percent replying that they had no such interest. Card issuers are expected to promote decoupling through rewards programs, Synergistics says. Fifty-four percent of consumers who do not participate in debit rewards programs said they consider the idea to have value, as did 72 percent of consumers who do have debit rewards cards. Banks "should be prepared for competition from decoupled cards if this new product takes hold in the market, and the pressure is definitely on," says Synergistics CEO William H. McCracken. "A significant number of consumers see value in a decoupled debit card."
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U.S. Senate to Take Up Fannie-Freddie Bill After House Approval
Bloomberg (07/24/08) Faler, Brian
Treasury Secretary Henry Paulson believes the Senate will pass a housing bill to prop up the housing market and give President Bush an opportunity to sign a relief plan this week. On July 23, the House passed a sweeping package that would assist borrowers at risk of foreclosure, fund purchases of foreclosed homes, and allow the government to invest in and lend to Fannie Mae and Freddie Mac in order to restore confidence in the mortgage finance giants. Some Republicans expressed concern that the bill puts taxpayer funds in jeopardy and does not adequately overhaul Fannie Mae and Freddie Mac. President Bush will sign the bill, according to the White House.
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City Sues Mortgage Giant
KNSD (07/23/08)
San Diego City Attorney Mike Aguirre has filed a civil complaint in San Diego County Superior Court against Countrywide Financial in an effort to stop foreclosures in the city and make the city a "foreclosure sanctuary" when it comes to subprime loans. The lawsuit is aimed at subprime loans with balloon payments. Aguirre said he may target other lenders as well.
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Fed Loan Rules Fall Short of Proper Audience
Daytona Beach News-Journal (FL) (07/19/08) London, Aaron
The Federal Reserve recently released new rules for home mortgage loans that are designed to protect consumers from unscrupulous lenders and prevent another credit crisis, but without any focus on financial literacy there is still nothing to protect consumers from their own reckless borrowing habits. Some who defaulted on their mortgages knew they could not afford them when they signed the contracts and simply did not consider the long-term implications. Financial literacy and responsibility are the real source of the subprime crisis, according to this opinion piece in the Daytona Beach News-Journal, and consumers in today’s market need to know more about finance than how to balance their checkbook. The Fed’s new rules will bar bankers from using deceptive practices and require them to disclose more information to consumers, but unless borrowers know what to do with that information the rules will be useless, the commentary says.
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The Goal of Mortgage Disclosure: To Underwrite Yourself
American Enterprise Institute (07/18/2008) Pollock, Alex J.
Borrowers need simpler information about mortgages in order to understand whether they can afford them, says Alex J. Pollock, a resident fellow at the American Enterprise Institute who has designed a one-page mortgage form that will help borrowers understand that the goal is “to underwrite themselves.” Lenders already know they need to determine whether the borrower can pay, but borrowers must actively ask themselves the same question. The one-page form gives less information but more focused information, offering just the relevant information that allows consumers to consider whether they can afford the loan. “Complete information, as we try to give it in current mortgage disclosures, is the same as giving no information,” he says. Disclosures serve the legal purposes of lenders rather than consumers, and the more complete the information is, the more complex it becomes, which simply confuses consumers, he says. Timing is also key, because disclosure is useless at closing, after everything is already signed. Pollock suggests offering disclosures at the time of mortgage approval, as lenders then have all the information they need to underwrite a borrower and can easily share it. The one-page form lists a borrower’s income, their total payment per month including principal, interest, taxes, and insurance, how the payment will change as interest rates change, the maximum possible rate on the loan, what percentage of the borrower’s income the payment will amount to, and disclosures of any prepayment fee and closing costs. Sen. Charles Schumer (D-N.Y.) recently introduced a one-page form as well, and the city of Washington, D.C., already requires use of a similar form for all adjustable rate loans. Pollock says Americans should be free to take any risks they choose, as long as they completely understand the risk.
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Dartmouth Professor to Examine Financial Capability in Consultation With U.S. Treasury Department
Dartmouth News (07/23/08)
Dartmouth economics professor Annamaria Lusardi will head a research group to develop a baseline financial literacy survey aimed at U.S. adults. The study will be funded by the FINRA Investor Education Foundation, and the Treasury Department will play a consultative role. "My research has shown that two thirds of older Americans don't clearly understand basic financial concepts, such as compound interest, the effects of inflation, and risk diversification," Lusardi says. "Furthermore, this lack of financial literacy can be linked to a lack of preparedness for retirement. I hope my work will raise awareness and help address this national problem." Preliminary survey data will be available to the public and researchers in 2009.
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Financial Literacy Dropping Among Students
Kerrville Daily Times (Texas) (07/21/08) Harrison, Conor
A 2008 test reveals that financial literacy among students throughout the United States is on the decline, with only 48 percent of the test's questions answered correctly. In 1997, the number of correctly answered questions stood at 57 percent. Only 17 percent of students indicated that stocks would yield better results than savings bonds. Meanwhile, just 49 percent of students correctly indicated that those paying the minimum balance on a credit card would pay more over time than those who pay the full balance each month. According to Laura Levine, executive director of the group that administered the test, "The data suggests that not only age, but problem-solving ability are important factors in students' abilities to grasp and apply financial information." With college tuition and student loan debt on the rise, experts note that many graduates are postponing marriage, home ownership, and having children as a result.
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Repossessions Flower as Economy Withers
News & Observer (07/24/08)
Approximately 1.6 million vehicles may be repossessed in 2008, according to Manheim. That would be the highest number of repossessions in at least 10 years. Typically lenders contact borrowers within 60 days once payments have ceased, but lenders are now attempting earlier in the process to stave off repossession, according to the American Financial Services Association (AFSA). "Companies are reaching out to borrowers early," says AFSA representative Lynne Strang. "They're communicating early to try to help them to reach a workable arrangement sooner rather than later." Repo company Lizard Lick Towing & Recovery repossesses 50 vehicles a week, up from 20 to 30 a week in 2007. Lizard Lick owner Ron Shirley says the repossessed vehicles come mostly from middle-class consumers, not lower-income consumers with subprime auto loans. To avoid reposessesion, non-profit group Americans Well-Informed on Automobile Retailing Economics recommends that consumers develop a reasonable budget prior to purchasing a car; take advantage of the education programs offered by many finance companies; contact their lender if they fall behind on a payment; be prepared to discuss with their lender whether payment problems are short- or long-term; and seek credit counseling if needed.
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Buying & Selling Auto Loan Portfolios: New Options Help Credit Unions Mitigate Risk
Credit Union Journal (07/14/08) Vol. 12, No. 28, P. 9; Sheridan, Mike
Banks and credit unions are reluctant to lend to even those with pristine credit histories in the current market slump, and are turning to buying and selling dealer-originated loan portfolios to increase their liquidity. The market for car loans is still strong, because people need cars even in a recession, and some families even prioritize their car payments over their mortgage. Used cars are in particularly high demand in a market crunch, and while used car dealers have traditionally been underserved by lenders, they are looking more attractive as consumers’ priorities shift and new technologies give lot dealers the ability to implement the kind of process improvements usually found in the new car business. Small loan packages used to be more trouble than they were worth for lenders due to cumbersome due diligence processes, but technology has considerably reduced the time and effort that goes into commercial paper transactions and now allows lenders to pre-select and bid on the types of loans they want to purchase.
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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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