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February 12, 2009
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Joint Trade Letter Seeks Withdrawal of RESPA Rule
AFSA Submits Comment Letter on Mortgage Disclosure Improvement Act
AFSA Files Amicus Briefs in Similar Vehicle Finance Cases
Complimentary AFSA Webinar Will Address Outsourcing
New Service Conveys AFSA Messages on Capitol Hill
Wells Fargo May Cut Loans for Some Wachovia Customers
MasterCard-H&R Block Debit Deal
Prepaid Debit Seen as a Lure for 14 Percent of Checking Clients
Losses Mount on Credit Cards for Retailers
A New Way to Pay: Noca's Credit Card Alternative
Kanjorski Pushes Measure to Help Modify Loan Terms
Foreclosure Protests at D.C. Offices Reflect Trend
Banks May Keep Skin in the Game
Area Native in D.C. Helping Those Facing Foreclosure
Forestalling Foreclosure
FDIC: Industry Not Doing Enough for Unbanked
A Credit Score Gets Harder to Find
Wall St. Skittish on Bank Bailout
Comerica: Auto Affordability Erodes
New Initiative Provides Auto Financing for Work and Education
Joint Trade Letter Seeks Withdrawal of RESPA Rule
Several trade associations, including AFSA, sent a letter to Shaun Donovan, the new Secretary of the Department of Housing and Urban Development (HUD). The letter urged Secretary Donovan to withdraw the recent Real Estate Settlement Procedures Act (RESPA) rule and coordinate with the ongoing reform effort of the Federal Reserve Board (FRB) under the Truth in Lending Act (TILA). The associations wrote, “Considering that RESPA and TILA rules are so interrelated, successive disclosure changes, first by one agency and then the other, would be unnecessarily costly for the industry at a time when the industry can ill-afford the costs, and would confuse consumers rather than providing greater clarity. Instead, we recommend that you work together with the Board in a coordinated effort to reform the mortgage disclosure process.”
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AFSA Submits Comment Letter on Mortgage Disclosure Improvement Act
AFSA submitted a comment letter to the Federal Reserve Board (FRB) on Feb. 9 regarding changes to Regulation Z that would revise the disclosure requirements for mortgage loans. The revisions will implement the Mortgage Disclosure Improvement Act (MDIA), which was enacted in July 2008 as an amendment to the Truth in Lending Act (TILA). The MDIA was enacted to enhance disclosure of the terms of home mortgage loans.
The most notable changes AFSA suggested to the proposed rule included urging the FRB to: count Saturday as a business day in the context of early disclosures; not require a three business day waiting period if the initial annual percentage rate becomes overstated; consider making the proposed modification or waiver procedures more flexible; issue additional guidance regarding the format of the early disclosures; not change the timing of home equity lines of credit (HELOC) disclosures, and clarify that the amendments will be effective for all applications received by creditors on or after July 30, 2009.
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AFSA Files Amicus Briefs in Similar Vehicle Finance Cases
On Feb. 6, AFSA filed an amicus brief in the U.S. Court of Appeals for the Ninth Circuit in AmeriCredit Financial Services v. Penrod. On Jan. 27, AFSA filed an amicus brief in the U.S. Court of Appeals for the Eighth Circuit in Ford Motor Credit Company v. Mierkowski.
Motor vehicle installment sale financers have a vital interest in these cases. The 2005 amendments to section 1325(a) of the Bankruptcy Code added a paragraph that deals with certain claims secured by motor vehicles. The effect of this paragraph has been widely debated by creditors, debtors, counsel and commentators, with a split of authority in the bankruptcy courts. These cases afford the appeals courts an opportunity to address this debate over whether a creditor's claim is covered by the hanging paragraph where a portion of the financing is used to pay off negative equity from a trade-in vehicle.
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Complimentary AFSA Webinar Will Address Outsourcing
AFSA will host an educational webinar that explores outsourcing in today’s market as it relates to the management of consumer loan portfolios. Free for AFSA members, the webinar will be held Tues., Feb. 17, from 1:30 – 2:30 pm EST.
With mounting margin pressure, competition and an increased focus on core business, companies are beginning to look for new ways to get things done at a lower cost. The webinar will address questions such as "Why and when should you choose to outsource?” and "What business components could be outsourced?"
Moderated by Marguerite Watanabe, President, Connections Insights, the panel will include Kevin Barry, Chief Executive Officer, Peak5; Preston Miller, Auto Industry Expert/Former Chief Operating Officer, AmeriCredit; and Robert Micalizi, Director of Information and Risk Management, FirstCity Fund Advisors, Inc.
For more information about the webinar, please contact AFSA’s Matt Gannon at mgannon@afsamail.org or 202-776-7301.
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New Service Conveys AFSA Messages on Capitol Hill
In an ongoing effort to keep the industry’s messages in front of Congressional staffers, AFSA is participating in a new initiative launched by The Hill, a newspaper for and about the U.S. Congress. AFSA is among several prominent trade associations listed within The Hill’s electronic white paper portal as resources for staffers seeking information. To date, AFSA has posted three white papers, and plans to add more over time.
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Wells Fargo May Cut Loans for Some Wachovia Customers
Bloomberg (02/06/09) Levy, Ari
To stem the surge of defaults, Wells Fargo has agreed to offer a 20 percent reduction on mortgage loans for some Wachovia customers. As many as 478,000 borrowers have been asked to provide proof of current income and a 2007 income-tax statement, according to Wells Fargo spokeswoman Debora Blume. The plan is part of a broader initiative by Wells Fargo to avoid "preventable foreclosures," and is being proposed at a time when lenders are being pressured to retool loans to prevent foreclosures. Citigroup recently agreed to back Senate legislation that would allow bankruptcy judges to mark down borrowers' mortgage principal. But other banks argue that undeserving borrowers may try to obtain relief. Meanwhile, Federal Deposit Insurance Corp. Chairman Sheila Bair is backing a plan the Obama administration has pitched that would increase spending on loan modifications.
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MasterCard-H&R Block Debit Deal
American Banker (02/06/09) P. 6; Aspan, Maria
A new agreement between MasterCard Inc. and H&R Block makes the credit card firm the exclusive carrier for transactions made with H&R Block's reloadable prepaid Emerald cards. The five-year deal, which forbids other PIN debit networks from facilitating the transactions, gives MasterCard an edge over competitors. H&R Block expects this year to sell 3 million of the cards to consumers who want easier access to their tax refunds. "By choosing MasterCard as its exclusive debit brand, H&R Block gains efficiencies in its card program and actionable insight into its growing portfolio," said MasterCard executive Bill Mathis.
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Prepaid Debit Seen as a Lure for 14 Percent of Checking Clients
American Banker (02/12/09) P. 16; Aspan, Maria
According to a recent report by Aite Group LLC, banks risk losing up to $20 billion in revenue if a large percentage of checking account holders shifts to using prepaid debit cards. Aite noted that some 14 percent of U.S. checking account holders would save money if they were to switch. “If consumers become more comfortable with prepaid debit cards, loading more money on their cards, banks will find themselves losing more customers,” said Gwenn Bezard, a research director at Aite. Bezard urges larger banks to include prepaid cards among their independent products rather than utilize them as third-party products. An earlier Aite survey of 400 people observed that 30 percent already have prepaid debit cards, pointing to an increasing level of consumer comfort with these products.
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Losses Mount on Credit Cards for Retailers
New York Times (02/10/09) P. B1; Bernard, Tara Siegel
Losses on private label credit cards are rising at a faster rate than losses on prime credit cards, reports a new Fitch Ratings study. The study found that losses on private label cards reached 10.51 percent in January, an increase of 44 percent over January 2008 and the highest level reported since 2006. Meanwhile, losses on prime credit cards reached 7.5 percent in January, an increase of 40 percent from 2008. Experts say that losses on private label cards are growing faster than losses on prime cards because the recession is putting a huge strain on the lower- and middle-income consumers who tend to use private label cards. However, the losses on private label cards are not uniform across all issuers. Retailers that cater to more affluent customers, such as Nordstrom, have experienced smaller losses than retailers whose customers tend to have less-than-stellar credit. Experts say that losses on private label cards will continue to grow as the economy worsens and more people lose their jobs. Fitch is predicting that losses on private label cards could surpass 12 percent by mid year, while losses on prime cards could reach 8 percent.
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A New Way to Pay: Noca's Credit Card Alternative
CNet (02/08/09) Needleman, Rafe
Noca is introducing Secure Check, a payment system that allows consumers to pay for online transactions by check via the Automated Clearing House network. Processing the payment would cost just 0.25 percent of the transaction, compared with fees of 2.5 percent to 4 percent when using a credit card or PayPal. "There's no reason to use IBM servers today," as the credit card processing companies do, says PJ Gupta, CEO of Noca. "There are two to three order of magnitude of inefficiencies there." Noca's servers handle and encrypt the transactions, and the type and amount of the transaction also triggers Yodlee's verification process, which would require the buyer to include personal information from financial records, such as their previous address or the amount of their regular mortgage check. Although Noca offers more detailed transaction statements than credit cards or bank accounts, it does not provide chargeback or dispute arbitration services.
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Kanjorski Pushes Measure to Help Modify Loan Terms
Pocono Record (02/11/09) Pierce, David
Legislation introduced by Rep. Paul Kanjorski (D-Pa.) and approved by the House Financial Services Committee would allow mortgage servicers to renegotiate loan terms without worrying about lawsuits filed by investors for lowering the value of the debt. The bill would require that the trustee for the debt instrument featuring the modified mortgage be notified following the change. Kanjorski projects that the bill, now up for consideration by the full House, could spark a 25-percent decline in foreclosures across the country.
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Foreclosure Protests at D.C. Offices Reflect Trend
Washington Post (02/11/09) P. B1; Fears, Darryl
Numerous protests have occurred in various cities throughout the United States in the past few months, with the demonstrators rallying against what they see as an excessive number of home foreclosures. The rallies across the country appear to be independent of each other. The latest protest took place at Alex Cooper Auctioneers on Feb. 10 in Chevy Chase, Md. The rallying group consisted of local residents and ACORN group members. ACORN claims that home auction businesses play a prominent role in the home foreclosure process. Larry Holmes, a coalition spokesman, says that homeowners are feeling, "disbelief [that is] evolving into rage."
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Banks May Keep Skin in the Game
Wall Street Journal (02/10/09) P. C3; Rappaport, Liz; Mollenkamp, Carrick
At the recent annual conference of the American Securitization Forum, there was talk of a proposal that would require issuers of mortgage-backed securities to hold onto a portion of the debt as a means of ensuring the quality of that debt. Supporters, including Federal Deposit Insurance Corp. division of supervision and consumer protection director Sandra Thompson, believe mortgage lenders need to assume more responsibility for the loans they make and sell. However, critics point out that banks and other companies that retained collateralized debt obligations still face tens of billions in write downs; and requiring them to "keep some skin in the game" does not address the matter of due diligence.
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Area Native in D.C. Helping Those Facing Foreclosure
Times Leader (Penn.) (02/09/09) Nardone, Ralph
Hope Now Executive Director Faith Schwartz draws inspiration from her humble beginnings in Scranton, Pa., in her work to help families facing foreclosure. Reared in Northeastern Pennsylvania, Schwartz grew up having a strong work ethic and a sense that one could overcome whatever circumstances life dealt. She brings that rural, working-class sensibility to her job as the head of Hope Now, which with the aid of other organizations, fights predatory lenders. Schwartz says non-profits like hers must learn to partner with government agencies, lenders, and investors to pool their resources so they can continue their important work during the economic recession. For homeowners on the brink of losing their homes, she recommends contacting Hope Now and meeting with local HUD-approved housing counselors to discuss any problems they have with their mortgages. "Foreclosures are not good, and the more people we can help, the less foreclosures there are," she says.
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Forestalling Foreclosure
New York Times (02/06/09) P. B1; Bajaj, Vikas; Bernard, Tara Siegel
Policymakers are considering allowing bankruptcy courts to modify the terms of mortgages in order to keep the number of foreclosures from growing. A similar strategy was pursued on an smaller scale in the 1980s to resolve the farm crisis, but many farmers still lost their farms or had to scale them back. Some observers contend that similar allowances for Chapter 13 filings would have the same result, with Credit Suisse estimating that just 20 percent of a projected 8 million foreclosures would be avoided.
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FDIC: Industry Not Doing Enough for Unbanked
American Banker (02/06/09) P. 3; Adler, Joe
Most banks know there are underserved consumers within their reach, and most have not made expanding services for this market segment a priority, according to a Federal Deposit Insurance Corp. (FDIC) study on the unbanked market. Authorized by the 2005 deposit insurance reform law, the study is the first of its kind commissioned by the federal government. The FDIC found that 73 percent of about 700 banks knew the unbanked population was not being reached in their region, and that more than 70 percent were not focused on expanding their services. About 63 percent of banks offered basic financial education materials such as brochures to underserved populations, and 53 percent held financial literacy sessions for underbanked people. Also, about one-third tried to reach underserved individuals through business customers, but only 14 percent of banks work with employers that offer payroll cards. The FDIC recommends that the government and industry establish joint goals for improving the number of banked households, and suggests creating a national task force and pursuing additional reporting on the issue.
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A Credit Score Gets Harder to Find
Wall Street Journal (02/05/09) P. D4; Kim, Jane J.
As of Feb. 14, consumers no longer will have access to credit scores based on Experian Group Ltd.'s data via myFICO.com, though ratings tied to data from Equifax Inc. and TransUnion LLC will remain available through Fair Isaac Corp.'s Web site. Experian says credit scores based on its data can be obtained through its Web sites and resellers, but concerns are being raised by consumer advocates. Mortgage lenders and others will be making loan decisions based on credit scores unavailable to consumers--a move that Credit.com's John Ulzheimer says "gives them a little more anonymity to make offers that aren't in the best interests of the consumer."
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Wall St. Skittish on Bank Bailout
Associated Press (02/11/09) Crutsinger, Martin
The stock market tumbled sharply following Treasury Secretary Timothy Geithner's announcement of a plan to infuse up to $2 trillion into the banking system and broader economy. Geithner also pledged the Obama administration would move to prevent "catastrophic failure" of financial companies, but investors remain concerned that the government is not doing enough. Geithner acknowledged that the plan will likely need to be altered. "We are going to have to adapt our program as conditions change," he said. We will have to try things we never tried before." The Financial Stability Plan (formerly the Troubled Asset Relief Program), calls for using some of the bailout money to jumpstart lending. However, the program will make loans only against AAA-rated asset-backed securities, and many automobile loans will not qualify. The American Financial Services Association (AFSA) is calling on the Obama administration to alter those mandates and open the program to more lenders. "While TALF is a step toward restoring market liquidity, we believe the program's current eligibility requirements will prohibit most finance companies from participating," AFSA President and CEO Chris Stinebert said in a letter last week. "Absent the ability to participate in TALF, many financial services companies, especially those within the auto industry, would not be able to finance consumer loans for products and purchases essential to the nation's recovery."
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Comerica: Auto Affordability Erodes
SubPrime Auto Finance News (02/10/2009)
Comerica Bank's Auto Affordability Index found that auto affordability eroded further in the fourth quarter of 2008. The index revealed that the procurement of an average-priced new vehicle took 22.8 weeks of median family income, up 0.5 weeks from revised third-quarter affordability of 22.3 weeks. The increase in the average interest rate paid on car loans explains the result, with the total cost of purchasing an average-priced light vehicle at $27,700, up from $27,160 in the quarter before. "The underlying data shows quite clearly that car buyers are facing stringent financing conditions," says Comerica Bank chief economist Dana Johnson. "In the latest quarter, car buyers had to put down bigger down payments, pay higher interest rates, and limit the maturity of their loans."
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New Initiative Provides Auto Financing for Work and Education
F&I Magazine (02/10/09)
The Ohio Department of Development's Office of Community Services and the state's Finance Fund have introduced the "Cars for Jobs and Diplomas" program to provide affordable used car financing and consumer assistance to about 60 low-income participants across the state. Qualifying participants will have an opportunity to buy a car that enables them to obtain or keep employment or education. For every dollar saved in a participant's qualified savings account, two dollars will be matched in a reserve account. Local case management agencies will determine eligibility, and the Ohio Community Action Network will administer the program.
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Abstract News © Copyright 2009 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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