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February 19, 2009
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AFSA’s Take on the Homeowner Affordability and Stability Plan
AFSA Continues to Make the Case for Finance Companies’ Inclusion in Financial Stability Programs
CEO Panelists Announced for AFSA Independents Conference & Exposition
AFSAEF Leadership Development Programs Now Accepting Applications
New Member Welcome
Potential Buyers Seek Only Citi's Good Parts: Report
MasterCard Looks for Acquisitions and Deals
Discover Hoping a Light Touch on Cuts Pays Off
Wal-Mart Lowers Fees for Its Branded Debit Cards
What Will Credit Cards Look Like in 25, 50 or 100 years?
Backing for Card Bill; Dodd May Focus Elsewhere
Obama Housing Plan Could Be Foundation for Turnaround, Say Experts
Housing Fix's Challenge: Making Modified Loans Attractive
OCC and OTS Expand Data Collection on Mortgage Performance
Don't Let Judges Tear Up Mortgage Contracts
Satisfaction Slides in Customer Study
Why You Can't Get a Loan
Viewpoint: Bankruptcy Bill Provision Poses Threat to Credit
Credit Freeze Leaves Thousands of Student Borrowers Stuck in Default
Stimulus Package's Tax Credit for New Car Buyers Means Auto Shoppers Must Be Prepared to Take Advantage of Savings
GM, Chrysler Seek Nearly $22 Billion More U.S. Loans
BMW Introduces Special Finance Payment Program
AFSA’s Take on the Homeowner Affordability and Stability Plan
On Feb. 18, AFSA issued a statement to the media in response to the Homeowner Affordability and Stability Plan announced by President Obama that day. In its comment, AFSA said it supports the plan’s underlying themes of creating stability within the housing market and reaching out to at-risk homeowners before they get into trouble. However, the association objects to the plan’s provision that would allow bankruptcy judges to modify the terms of a mortgage. Unless tight restrictions were placed on this capacity, AFSA believes this step ultimately will do more harm than good, raising borrowing costs for all homeowners.
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AFSA Continues to Make the Case for Finance Companies’ Inclusion in Financial Stability Programs
In an ongoing effort to get credit flowing to consumers, AFSA continues to stress the importance of including finance companies in the Obama administration’s financial stability programs. On Feb. 12, AFSA sent a letter to Treasury Secretary Timothy Geithner quantifying the effects of the Term Asset-Backed Securities Loan Facility (TALF) program on the association’s member companies that provide auto financing.
The letter to the Treasury follows one the association sent to President Obama a week prior requesting that his administration support an expansion of the Term Asset-Backed Securities Loan Facility (TALF) eligibility requirements to allow more finance companies to participate, as well as requiring banks that accept TARP money to keep the lines of credit they provide to finance companies open and fluid.
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CEO Panelists Announced for AFSA Independents Conference & Exposition
The CEO Panel has been finalized for AFSA’s 26th Independents Conference & Exposition, March 18 – 21. With the theme “Working Together: Protecting Our Future,” the panel will allow CEOs from leading independents companies to give an update on how current economic conditions and other factors are affecting their industry. Funding and other operational issues will be discussed during the March 19 morning session.
Moderated by keynote speaker Dr. Barry Asmus, the session features insight from Ian Anderson, President, Westlake Financial; Joshua Johnson, President & CEO, Mariner Finance, LLC; Franc Lee, President & CEO, First Tower Corp./Tower Loan; Jonathon Levin, President & CEO, Turner Acceptance Corporation; and Chuck Moore, President & CEO, Regency Finance Company.
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AFSAEF Leadership Development Programs Now Accepting Applications
The AFSA Education Foundation (AFSAEF) has rolled out its 2009 Leadership Development Program at the University of North Carolina at Chapel Hill and the National Institute on Consumer Credit Management (NICCM) at Marquette University to help cultivate promising future leaders.
The intensive six-day 2009 Leadership Development Program at UNC will run July 8-15, and the National Institute on Consumer Credit Management is slated for June 7-12.
Led by professors from the nation’s best schools, the UNC leadership development program allows participants to immerse themselves in cutting-edge principles of management and leadership through class discussions, case analyses and simulations, including an outdoor team-building exercise.
NICCM provides a valuable and enriching experience in layered modules of learning, with the first year focused on learning and the second on knowledge application. This program will help participants broaden their knowledge and sharpen their skills for the challenges that lie ahead.
For more information, contact Susie Irvine, AFSAEF President & CEO, at 202-466-8611 or susie@afsamail.org. Brochures for both programs can be downloaded from the Education Foundation’s Web site.
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New Member Welcome
AFSA welcomes new associate member Oscar Montano Inc. Headquartered in Pasadena, Calif., the company provides executive search services for the auto finance and transportation finance industries. Web site
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Potential Buyers Seek Only Citi's Good Parts: Report
Reuters (02/17/09) Mukhopadhyay, Bhaswati
Citigroup's attempt to increase capital by selling some of its assets is coming up short. Assets such as CitiFinancial, CitiMortgage, and Primerica are not selling because the businesses are in sectors that are facing the most economic turmoil. Potential buyers are more interested in assets that Citigroup will not sell, such as Banamex.
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MasterCard Looks for Acquisitions and Deals
Reuters (02/13/09) Lagorio, Juan
MasterCard is seeking to expand its business through the acquisition of technology companies and new partnerships, says chief technology officer Martina Hund-Mejean, adding the company is "very much in the technology areas that are connected to the main business that we are doing." Although MasterCard posted higher-than-anticipated quarterly earnings partly propped up by a hike in fees charged to banks, the firm has said that its net revenue growth in 2009 would probably come up short of its long-term goals due to a precipitous global decline in consumer spending. MasterCard ended 2008 with $2.1 billion in available funds, but it has no plans to buy back shares or increase its dividend. "The economic times are extremely tough, and we do believe that we want to keep our resources right now in order to provide flexibility should we see some attractive investment opportunity," Hund-Mejean says.
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Discover Hoping a Light Touch on Cuts Pays Off
American Banker (02/13/09) P. 1; Aspan, Maria
Discover Financial Services hopes its "consumer-friendly" marketing strategy will win it more business from long-term credit card customers. The firm sees an opportunity to provide customers with the perks that other card companies are now slashing en masse, including low interest rates, reward programs, and extended credit lines. While Discover has also cut back on its consumer rewards program, the company has been careful with its reductions. "We remain steady and conservative, and we are very hopeful and desirous of wanting to emerge out of this [cycle] even stronger," says Harit Talwar, Discover's new chief marketing officer.
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Wal-Mart Lowers Fees for Its Branded Debit Cards
Associated Press (02/18/09) D'Innocenzio, Anne
Wal-Mart Stores is reducing the fees for using its store-branded Visa prepaid debit cards in response to rising demand in the midst of the economic crisis. It will now cost customers $3 to buy and activate the card, $3 to reload it at a Wal-Mart outlet, and $3 in monthly fees. The cards let customers who lack bank accounts or have expensive banking arrangements deposit paychecks, pay bills, check balances, and shop anywhere that accepts the cards. Wal-Mart's Jane Thompson says the company had issued 1 million cards with a total of $1 billion loaded on them by last summer, and she says Wal-Mart's goal is to raise that figure twofold by this summer. Wal-Mart's cards are issued by GE Money Bank, which has an arrangement with Visa and Green Dot. Thompson says that about 20 percent of Wal-Mart's customers are underbanked or lack bank accounts.
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What Will Credit Cards Look Like in 25, 50 or 100 years?
CreditCards.com (02/17/09) MacDonald, Jay
The visions of future credit cards are diverse, but one constant is the expected elimination of the physical card itself as electronic point-of-sale (POS) terminals are upgraded to handle Web-based applications. Cell phones are gaining ground as the next probable payment instrument, with Mercator Advisory Group's George Peabody noting that "if you look at what is going on with mobile devices and applications being built by retailers for the iPhone, it is certainly a noncard-based transaction." Shift4's Randy Carr says that a credit card is unnecessary for a cell phone-based transaction because consumers would simply enter a PIN to confirm their identity to the retailer. Javelin Strategy & Research's Bruce Cundiff cites several advantages of mobile devices, including convenience, Internet access, and expanding handset capabilities. Anticipated near-future applications include stores that can identify people by their mobile device to customize their advertisements and promotions. Peabody expects the replacement of the legacy POS terminal by a device based on mobile technology that will probably use radio frequency identification, Internet protocol, or both to facilitate instantaneous transactions. Analysts agree that future credit payments will likely be shaped by the willingness or unwillingness of consumers to be tracked by marketers, and Cundiff notes that "the further integration of technology has brought about simultaneous growth in both convenience and security."
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Backing for Card Bill; Dodd May Focus Elsewhere
American Banker (02/13/09) P. 4; Kaper, Stacy
A Senate Banking Committee hearing on Feb. 12 indicated that lawmakers support credit card reform. "Not enough has been done to protect consumers and ensure they are able to properly manage their credit card," said Sen. Daniel Akaka (D-HI). "We must do more to educate, protect, and empower consumers." Akaka said he intended to revive card legislation that would require issuers to show consumers how long it would take to pay their debt if paying minimum payments. Issuers would also have to direct consumers to reliable credit counselors. Sen. Robert Menendez (D-NJ) introduced a bill calling for consumers under age 21 to opt in for card solicitations and bar universal default and retroactive rate increases. Earlier, Sen. Christopher Dodd (D-CT), the committee's chairman, reintroduced a bill that would limit how card companies raise interest rates and prohibit the raising of interest rates on existing debt. Furthermore, companies would not be allowed to charge interest on penalty fees. Dodd's bill would also task the Government Accountability Office with examining the effect of interchange fees on retailers and consumers. Dodd said he did not "have a timetable" for the bill, and predicted difficulty in getting it passed even though many of the measures resemble rules scheduled for implementation by July 2010.
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Obama Housing Plan Could Be Foundation for Turnaround, Say Experts
Financial Week (02/18/09) Roland, Neil
President Obama’s $275 billion plan to stem the tide of home foreclosures is being praised by many experts once critical of the Bush administration’s unwillingness to help troubled homeowners. The plan offers financial incentives to mortgage lenders to reduce payments and gives incentives to investors in securitized mortgages to allow servicers of those loans to modify terms. The stimulus would allocate $75 billion for mortgage modification, and calls for an additional $200 billion to be spent by the Treasury in the purchase of preferred stock from Fannie Mae and Freddie Mac. According to Moody’s senior director of housing economics Celia Chen, Obama’s plan would reduce the tide of foreclosures to 1.7 million in 2010.
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Housing Fix's Challenge: Making Modified Loans Attractive
Wall Street Journal (02/18/09) P. A2; Simon, Ruth
Loan modifications must result in lower monthly payments for borrowers if they are to prevent foreclosure, critics say. Critics note that workouts designed to save homeowners from foreclosure often result in higher payments because by the time they are completed, the borrower is deeply entrenched in late payments. That past-due principal, interest, taxes, and insurance usually gets tacked on to the new payment, making it greater than the existing obligation and jeopardizing the success of the modification. "If you restructure a loan so that people pay the same or pay more, it's probably not going to work," sums up Iowa Attorney General Tom Miller. Alan White, a professor at Valparaiso University School of Law in Indiana, says 38 percent of recent loan workouts generated steeper payments for borrowers while 13 percent kept payments the same. However, he says, there are indicators that lenders are becoming more aggressive about assisting struggling borrowers. According to White, 12 percent of recent loan modifications included some forgiveness of principal, interest, and fees, compared with 10 percent in November and 2 percent between July 2007 and June 2008.
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OCC and OTS Expand Data Collection on Mortgage Performance
Office of Thrift Supervision News Release (02/13/09)
The Office of the Comptroller of the Currency and the Office of Thrift Supervision (OTS) will release mortgage performance data in March that includes additional information on the affordability and sustainability of loan modifications. The agencies have asked national banks and thrifts to provide more information with hopes of learning more about the effectiveness of modification efforts. "We have promised to continually improve this data collection-and-reporting program to ensure that the results are meaningful and useful in the ongoing effort to address the nation's foreclosure crisis," says OTS director John Reich. The next Mortgage Metrics Report will address loan modifications that raised borrowers' monthly principal and interest payments, led to no change in payment, decreased payments by 10 percent or less, and reduced payments by more than 10 percent. The data will show the percentage of loans modified in the first and second quarters of 2008 that are 60 or more days past due at six months after modification. "This is important information on banks' efforts to modify loans and will help inform lenders and policymakers as to what type of modifications work, with a particular focus on the effect of significant changes in monthly payments," adds Comptroller of the Currency John Dugan.
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Don't Let Judges Tear Up Mortgage Contracts
Wall Street Journal (02/13/09) P. A13; Zywicki, Todd J.
George Mason University law professor Todd Zywicki blasts efforts on Capitol Hill to let bankruptcy judges modify home loans by reducing both the interest rate and principal amount of the mortgage. He warns that giving bankruptcy judges this power will increase the risk of mortgage lending at the time when the loans are made. He reasons: "Increased risk increases the overall cost of lending, which in turn will require future borrowers to pay higher interest rates and upfront costs, such as higher down payments and points." Zywicki urges Congress not to create "a new mess" by converting the mortgage crisis into a bankruptcy crisis and thus setting the stage for a host of unintended consequences that will further freeze credit markets and raise interest rates for new home buyers down the road.
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Satisfaction Slides in Customer Study
American Banker (02/18/09) P. 2; Kuehner-Hebert, Katie
David VanAmburg with the American Customer Satisfaction Index at the University of Michigan's Ross School of Business said bank customer satisfaction levels dwindled between the fourth quarter of 2007, before the subprime fallout took place, and the fourth quarter of 2008. "Banks are now laying off people, closing branches, doing all the things they need to do to cut costs to handle the massive writedowns on losses, and that is having a negative impact on even those customers who have nonmortgage relationships with banks," said VanAmburg. For the survey, researchers gathered customer satisfaction data from 190 banks and also accumulated ratings from the retail, insurance, and e-commerce sectors. The banking sector had a score of 75 in 2008, down from 78 in 2007. Excluding the five largest banks, the satisfaction score remained at 80, unchanged from the previous year.
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Why You Can't Get a Loan
CNN Money (02/17/09) Ellis, David
Consumers say they are not receiving much of the credit that banks and other lenders are allegedly extending after receiving much-needed assistance from Congress last fall. One explanation given by industry experts is that non-banking institutions that supply credit, or "shadow-banks," are extending less credit to the greater economy. Firms are less able to offload debt onto money-market funds and insurance firms in exchange for quick capital, forcing them to ask lending banks for credit, says Rick Spitler of Novantas. On top of this, hedge funds, pension funds, and other large institutional lenders are intensely wary of securities backstopped by credit cards, mortgages, and commercial loans, thwarting the efforts of banks to offer new loans. Local banks and credit unions, struggling to pick up the slack, are increasingly unable to meet the number of loan requests, explains Professor Sherrill Shaffer of the University of Wyoming in Laramie.
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Viewpoint: Bankruptcy Bill Provision Poses Threat to Credit
American Banker (02/13/09) P. 8; Brooks, Brian P.
A critical loophole in the Helping Families Save Their Homes in Bankruptcy Act will exacerbate the existing damage in the credit markets if not amended, argues attorney Brian Brooks in this opinion piece. The bill, sponsored by Rep. John Conyers (D-Mich.), intends to give federal bankruptcy judges the authority to renegotiate the terms of home mortgages as they do with other kinds of cash-strapped debtors' consumer credit. An overlooked provision buried in the bill asserts that lenders are not allowed to deal with claims in bankruptcy for home mortgage obligations that are "subject to a remedy for rescission under the Truth in Lending Act (TILA)." When TILA was enacted by Congress in the 1960s, it included a balanced solution that permitted the borrower to invalidate the full principal amount of the loan--excluding any interest and fees--if the lender neglected to make the divulgences stated in the statute. The Helping Families bill, in its current state, dismisses TILA's balanced solution and releases a borrower who finds a valid TILA violation from his interest payments and the principal itself, according to the commentary. Lender violations such as giving the borrower only one copy of a Notice of Right to Rescind, or telling the borrower he has three days to rescind but failing to specify the date, are both grounds for a loan rescission.
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Credit Freeze Leaves Thousands of Student Borrowers Stuck in Default
Chronicle of Higher Education (02/13/09) Vol. 55, No. 23, P. 26; Field, Kelly
Given the credit crunch, about 15,000 students each month are unable to sell "rehabilitated" loans to a new lender after defaulting. Guarantee agencies have asked the Education Department to buy up frozen loans under a loan-rescue law enacted in 2008, but the department claims it does not have authority. Some guarantors were able to sell rehabilitated loans to affiliated agencies, but 19 out of 35 U.S. guarantors currently cannot find loan buyers, according to Timothy M. Fitzgibbon, vice president for debt-management services at the National Council of Higher Education Loan Programs. Fitzgibbon estimates that the backlog of loans waiting for rehabilitation grows by $150 million each month. Because terms and payment amounts reset when loans are purchased, guarantors are arguing that loans that are almost rehabilitated should be considered "new." Until the issue is settled, guarantee agencies encourage borrowers to make payments until buyers are found.
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Stimulus Package's Tax Credit for New Car Buyers Means Auto Shoppers Must Be Prepared to Take Advantage of Savings
PR Newswire (02/18/09)
The Obama administration's economic stimulus package includes $2.3 billion in tax incentives for new car and truck purchases, which could save car buyers hundreds of dollars. Taxpayers will be able to deduct both local and state sales tax paid on new car purchases up to $49,500. The tax incentive will cover the purchase of any new car through the end of the year. Non-profit automobile financing education group AWARE says given the potentially significant savings, consumers should continue to do their homework to prepare for any auto financing decisions. "This tax credit may make a new vehicle purchase more feasible for many consumers in the near future," said AWARE spokesperson Eric Hoffman. "Auto buyers should educate themselves about financing before making a purchase. Shoppers should maintain a solid credit track record, and shop around for financing among several sources, including banks, credit unions, financing companies, and auto dealers."
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GM, Chrysler Seek Nearly $22 Billion More U.S. Loans
Reuters (02/18/09) Krolicki, Kevin; Gupta, Poornima
General Motors Corp. (GM) and Chrysler LLC have requested an additional $22 billion from the U.S. government, citing worsening financial troubles. The companies and some lawmakers say that inaction will make things worse for the U.S. economy, but other analysts are doubtful that additional government support will be an improvement. GM said it is progressing its deal to reduce $48 billion in debt that it owes to bondholders and the United Auto Workers union, but it failed to meet the initial requirement to complete agreements by Feb. 17. The company's efforts to raise $2 billion to $3 billion in cash by selling assets has gone slowly since the plans were announced in the summer. GM also said it would increase cost-cutting measures, including eliminating 47,000 jobs this year and closing 14 U.S. plants by 2012. Chrysler is expected to eliminate 3,000 jobs this year and reduce capacity by 100,000 units. Under the Chrysler restructuring plan, a $1.5 billion loan from Daimler and one for $500 million from Cerberus would be converted into equity. GM said it expects to raise $1.5 billion from the sale of its AC Delco parts business and a transmission plant in Strasbourg, France. The company will phase out the Saturn brand by 2011, and could discontinue its Hummer SUV line within weeks if talks with possible buyers do not pan out.
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BMW Introduces Special Finance Payment Program
Subprime News (02/17/09)
BMW is offering to pick up the first two payments on 18 models in its inventory in an attempt to boost consumer demand. Owners who purchase certain vehicles, including models in the 1, 3, 5, 6, and X5 series, through BMW Financial Services are eligible to skip the first two payments up to $750 per month, or $1,500 total. This offer can be combined with BMW's APR financing program that extends a low monthly interest rate ranging between 0.9 percent and 3.9 percent. For example, 0.9 percent financing is available for up to five years on the 328i and the 528i models through the end of March. The program, which began Feb. 2, will conclude on March 2 for all 2008 models and on March 31 for all 2009 models. BMW executive Peter Miles said the automaker will not offer another deal like this later on in the year. "We are sending a signal to car buyers that this is a great time to shop for a new vehicle," he said.
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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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