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June 11, 2009
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Three Executives Join AFSA Board of Directors
Proposed UDAP, Reg Z Clarifications Should be Adopted, Says AFSA
Risk-Based Pricing Defended in AFSA Comment Letter
AFSA Comments on NMLSR Education and Testing Proposals
Ohio Supreme Court Agrees with AFSA Amicus Brief
Experian: More Consumers Buying Used Vehicles as Lender Criteria Tightens
VisaNet to Raise Up to $3.7 Billion in Brazil IPO
Sallie Mae Soars After Cramer, Analyst Comments
Credit-Card Delinquencies Increase
Report: Debit Volume to Rise 7 Percent
Putting the Brakes on India's Young Consumers
Interchange Fee Bill Reintroduced
Foreclosure Crisis Spreads From Subprime to Prime Mortgages
NeighborWorks Report Says Servicers Are Overworked
US Consumer Credit
Bankruptcy Filings Up More Than 33 Percent
Fed: Average Auto Loan Interest Rate Creeps Higher
Hensarling Proposing Measure to Close TARP by Dec. 31
J.D. Power Provides Glimpse Into Online Auto Loan Chatter
Three Executives Join AFSA Board of Directors
Kurt Grossheim, President & CEO of GE Money Bank, Kathryn Madison, Executive Vice President & Chief Servicing Officer of HSBC Consumer & Mortgage Lending, and John T. Noone, President of Global Marketing and Sales at Ford Motor Credit Company, LLC are the newest members of AFSA’s Board of Directors.
Grossheim is responsible for leading the GE Money Bank’s activities and supporting the growth and profitability of GE’s Retail Consumer Finance and Sales Finance businesses. With GE since 1990, he has more than 20 years of experience in consumer lending in both the domestic and international markets and has held several leadership roles for GE in Austria and Germany. Grossheim replaced Margaret Keane on the board.
Madison is responsible for all aspects of the servicing organization including the default, servicing, analytics and servicing strategy groups. She oversees more than 4,600 employees in three countries and is responsible for a budget in excess of $500 million. She replaced Rob O’Han on AFSA’s board.
Noone is responsible for sales, marketing and brand, and also has senior management responsibility for operations in Ford Motor Credit Company’s Asia-Pacific and Africa, Europe and Latin America business units. He also serves on the boards of Ford Motor Credit Company, FCE Bank and several other international affiliates. Noone has been with the company since 1972. He replaced David Korman on the AFSA Board and Executive Committee.
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Proposed UDAP, Reg Z Clarifications Should be Adopted, Says AFSA
AFSA submitted a comment letter to the Federal Reserve Board (FRB), the Office of Thrift Supervision (OTS), and the National Credit Union Administration (NCUA) on June 4 in response to the agencies’ proposed clarifications to aspects of their December 2008 final rules under the Federal Trade Commission Act that prohibit certain unfair credit card practices, known as the UDAP Rule. AFSA’s letter also included a response to the FRB’s proposed clarifications to its December 2008 final rule under the Truth in Lending Act (TILA) amending Regulation Z to improve the disclosures consumers receive in connection with credit card accounts and other revolving credit plans.
In its letter, AFSA commended the agencies for their willingness to provide creditors with additional clarity under the applicable rules and said it generally believes that the proposed clarifications should be adopted. Among the agencies’ specific recommendations supported by AFSA is permitting credit card issuers to offer deferred interest programs, which provide consumers (and merchants) significant benefits and can be extremely useful in providing consumers with an appealing credit option.
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Risk-Based Pricing Defended in AFSA Comment Letter
Two bills introduced in the New York Legislature would restrict risk-based pricing and would have serious implications for the cost of credit for New York consumers, said AFSA in a June 4th comment letter submitted to the bills’ sponsors.
NY Assembly Bill 1537 and companion Senate Bill 2572 would prohibit businesses that provide any service in New York from relying solely upon a consumer credit report to determine the cost of a loan or extension of credit. As currently drafted, the bills’ provisions extend to banks, non-banks, captive and non-captive vehicle finance companies, credit card issuers, licensed and registered mortgage bankers, mortgage brokers, mortgage loan servicers and installment lenders.
In its comment letter, AFSA explained that prohibiting these institutions from relying solely on a consumer’s credit report does not make sense because it “would undermine our consumer credit system, consequently reducing access to credit at a time when access is already tight.” The purpose of relying solely on the credit reporting system in credit decisions is to avoid decisions influenced by personal characteristics or other factors prohibited by law.
AFSA also objected to the bills’ restrictions on risk-based pricing because the best indicator on whether an individual will repay an obligation is his or her past behavior.
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AFSA Comments on NMLSR Education and Testing Proposals
On June 8, AFSA responded to the Conference of State Bank Supervisors’ (CSBS) request for input about the Nationwide Mortgage Licensing System and Registry (NMLSR) education and testing policy proposals. The proposal provides criteria that would have to be met to be listed as a NMLS approved course provider.
In its comment letter, AFSA expressed concerns that the educational and testing program proposed by the NMLSR ignores considerations of cost and flexibility. In addition, said AFSA, the arrangements for education and testing are not uniform because they do not make it clear whether the tests themselves will be administered entirely through NMLSR or whether approved training providers will be able to do so.
AFSA also pointed out the implications data storage issues will have on education and testing because they fall short of what is required for effective functioning. The association requested information about future plans to acquire greater data storage capacity.
Industry consultation on education and testing working groups is important, said AFSA, so that meaningful feedback can be given as the process is developed and refined.
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Ohio Supreme Court Agrees with AFSA Amicus Brief
On June 10, the Supreme Court of Ohio released its decision in a case, State ex rel. Cordray v. Midway Motor Sales, Inc., where the Ohio Attorney General (OAG) filed suit against an Ohio dealership and GMAC as a result of odometer fraud committed by the dealership. The dealership involved in the case “rolled back” the odometers on some GMAC-owned off-lease vehicles, without GMAC's knowledge, consent, or participation.
The 7-0 decision in favor of GMAC agreed with the position put forward in an amicus brief submitted by AFSA and the Association of Consumer Vehicle Lessors (ACVL). The decision said that the state law requiring the seller of a motor vehicle to provide the buyer with a statement certifying the accuracy of the odometer reading is not a “strict liability” statute, and therefore does not impose liability on a seller of a vehicle unless the seller knowingly provided an inaccurate odometer statement.
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Experian: More Consumers Buying Used Vehicles as Lender Criteria Tightens
SubPrime Auto Finance News (06/09/2009)
Used-auto loans accounted for a higher percentage of total automobile loans written in the first quarter of 2009, according to Experian. In the first three months of 2008, new-vehicle loans accounted for 35.7 percent of all vehicle loans, while in the first quarter of 2009 this figure fell to 31.9 percent. "Loans are still available, but lenders are changing terms," said Melinda Zabritski, Experian Automotive's director of automotive credit. "This is pushing some consumers out of the new-vehicle market and into the used-vehicle market." Independent dealers, who generally cater to customers with lower credit scores, are receiving more business as traditional lenders raise their lending standards. Experian says independent dealers accounted for 35 percent of all used-vehicle loans in the first quarter, up from 31.6 percent in the year-ago period.
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VisaNet to Raise Up to $3.7 Billion in Brazil IPO
Bloomberg (06/09/09) Marotto, Telma; Marcelino, Francisco
Visa's Brazilian payment processor, VisaNet, plans to raise up to $3.7 billion in an initial public offering (IPO). VisaNet says investors Banco Bradesco, Banco Santander, Banco do Brasil, and Visa will sell as many as 477.7 million voting shares. VisaNet's listing would make it the second payment processing firm on the Sao Paulo exchange. MasterCard's Brazilian payment processor, Redecard, started trading last July. "VisaNet has a similar company in the market that has had a good performance," says M Safra director Guilherme Figueiredo. "It's a benchmark with a good history." Figueiredo speculates that international investors may purchase as much as 80 percent of the VisaNet IPO. The company, which canceled plans for an IPO in March, has plans to sell more shares if there is enough demand.
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Sallie Mae Soars After Cramer, Analyst Comments
Reuters (06/08/09) Stempel, Jonathan
Several analysts say that student loan provider Sallie Mae would not be crippled if President Obama moves forward with his plan to end the Federal Family Education Loan Program (FFELP) and shift most of the nation's $90 billion of student lending into the direct-loan program. Among the analysts who says that such a move may not spell the end of Sallie Mae is David Long, an analyst at William Bair & Co. Long noted that even if FFELP ends, Sallie Mae could still make loans for the Department of Education, since the direct loan program is incapable of handling all the government-guaranteed loan volume alone. Long also noted that Sallie Mae could be chosen by the Department of Education to service loans made under its Loan Purchase Program because it could minimize loan losses and service the loans more efficiently than its peers. Another analyst who says that Sallie Mae's days are not numbered is CNBC analyst Jim Cramer. Cramer noted that the government could use Sallie Mae to service loans and collect bad debts even if it eliminated FFELP.
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Credit-Card Delinquencies Increase
Wall Street Journal (06/09/09) Saha-Bubna, Aparajita
Credit card delinquencies rose by 11 percent between the first quarters of 2008 and 2009 as taxpayers used their tax refunds to cover daily expenses instead of paying down their balances, according to TransUnion LLC. The number of consumers who were behind on their payments by three months or more rose from 1.19 percent in March 2008 to 1.32 percent this March. Credit card companies are ultimately forced to absorb the losses if consumers do not pay their balances, which could mean more trouble for card issuers. The delinquencies coincide with new legislation that would make it harder for credit card companies to exact new fines and raise rates.
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Report: Debit Volume to Rise 7 Percent
CardLine (06/08/09)
PIN and signature debit card transaction volume will grow by 7 percent this year, after growing 8 percent between July and December 2008, according to the Pulse Network's 2009 Debit Issuer report. Signature debit transaction volume increased 4 percent between July and December 2008, while PIN debit volume jumped 15 percent. Pulse's Cindy Ballard says debit card use will continue to grow despite the recession because consumers use debit cards for many of their necessary purchases. The report notes that 27 percent of the debit card purchases made last year were for items less than $10. In addition, the report says that 66 percent of issued debit cards were active last year, meaning they had been used within the past 30 days.
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Putting the Brakes on India's Young Consumers
Washington Post (06/07/09) Lakshmi, Rama
Indian banks are offering fewer credit cards and reducing their limits now that credit has become tight in a slumping global economy. For young middle-class consumers, such as Geetanjali Bahl, the cutback means they will not be able to spend freely for the first time. Bahl, a 35-year-old public relations professional in New Delhi, says her credit limit had been slashed by more than half to just a little over $500. Banks flooded the market with credit cards over the past decade as the economy took off. The Indian credit card market expanded 30 percent from 2006 to 2007, says Sandeep Bhalla, head of Citibank India's credit card division. The country now has more than 25 million card users, and many are 35 years old or younger. Meanwhile, the Indian Cards Council reports that nonpayment on credit cards rose to 20 percent between April 2008 and March 2009, compared with a rate of 6 percent the previous year. And last year, the Reserve Bank of India warned that banks "need to ensure prudence while issuing credit cards."
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Interchange Fee Bill Reintroduced
American Banker (06/05/09) P. 16; Kaper, Stacey
Merchants might gain more control over interchange fees under legislation introduced by Rep. John Conyers (D-MI), who is the House Judiciary Committee Chairman. The bill would eliminate antitrust obstacles to allow merchants to establish collective bargaining pacts with banks when setting interchange rates.
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Foreclosure Crisis Spreads From Subprime to Prime Mortgages
USA Today (06/09/09) Armour, Stephanie
Foreclosures are beginning to rise among borrowers with prime mortgages--a trend that could jeopardize the housing recovery. Prime, fixed-rate loans were responsible for almost half of the increase in the start of foreclosures in the first quarter, with 56 percent of the rise in all foreclosure starts and about half of the gain in prime, fixed-rate foreclosure starts taking place in California, Florida, Arizona, and Nevada. Defaults on prime, fixed-rate loans are likely to increase unless the job market improves, according to economists.
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NeighborWorks Report Says Servicers Are Overworked
National Mortgage News (06/08/09)
According to a NeighborWorks America survey of housing counselors, servicing company workers who deal with foreclosure prevention and loan modifications are "understaffed and overworked." The counselors' most frequent complaint is associated with long servicer response times. Seventeen percent of counselors said that it can take servicers up to 60 days to respond to a counselor's workout proposal. Counselors also mentioned that servicers frequently lose documents and each time they place a call, they inevitably end up speaking with a different representative.
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US Consumer Credit
Cbonds (06/08/09)
Consumer credit continues to decline, with banks reducing available credit and consumers bracing for unemployment and other worst-case scenarios. Research shows an $8.6 billion drop in revolving credit and a $7.1 billion decrease in nonrevolving credit in April, marking a total decline of $15.7 billion versus a revised $16.6 billion in March. The contraction in consumer credit indicates a possible deepening of the recession at a time when the business cycle seems to be nearing recovery.
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Bankruptcy Filings Up More Than 33 Percent
Credit Unions Online (06/08/2009)
U.S. bankruptcy filings rose to their highest level in March 2009 since the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) took effect in 2005. According to the Administrative Office of the U.S. Courts, bankruptcy filings totaled 1,202,503 in March, which is a 33.3 percent increase from March 2008. Non-business filings accounted for 1,153,412 of all bankruptcy filings in the 12-month period ending March 31, 2009. Personal or consumer filings rose 32.4 percent from 871,186 a year ago.
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Fed: Average Auto Loan Interest Rate Creeps Higher
SubPrime Auto Finance News (06/09/2009) Reed, Jennifer
The Federal Reserve has reported that the average interest rate on a new car loan at an auto finance company rose from a record-low of 2.74 percent in March to 2.79 percent in April. The average amount financed, meanwhile, rose from $27,999 in March to $28,115 in April--a figure that was the second-highest on record. The Federal Reserve also reported that the average maturity level on new-car loans at auto finance companies held steady at 61.2 months in April. In addition, the median loan-to-value ratio stood at 89 month-over-month in April, which was identical to the median ratio recorded in March. The Fed also released statistics that helped illustrate the state of the nation's credit markets. The Fed noted that all types of consumer credit decreased at an annual rate of 7.5 percent in April. Revolving consumer credit decreased at an annual rate of 11 percent during the month, while non-revolving credit fell at an annual rate of 5.25 percent, the Fed said.
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Hensarling Proposing Measure to Close TARP by Dec. 31
Bloomberg (06/08/09) Johnston, Nicholas
Rep. Jeb Hensarling (R-TX) wants to make it easier for banks and other financial institutions to repay money received from the federal government's Troubled Asset Relief Program (TARP). Hensarling intends to introduce a bill that would require the Treasury to accept repayments from financial institutions that are "safe and sound." The size of the $700 billion TARP would be reduced as money is repaid, and the program would not be able to provide additional funding to financial institutions. "It's time to terminate the TARP program," says Hensarling, who wants to close TARP on Dec. 31, but recipients would not have to repay the funds by the end of the year. About 600 financial institutions have received $300 billion in TARP funds so far, but the conditions that lawmakers have created for accepting the money has Wall Street firms looking for a way to sever ties to the program. For example, firms have to reign in executive pay, and the 19 biggest banks have to show that they can sell new shares before repaying the money.
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J.D. Power Provides Glimpse Into Online Auto Loan Chatter
SubPrime Auto Finance News (06/05/2009) Reed, Jennifer
Daniel Pavlinac, senior director in the Web Intelligence Research Division at J.D. Power and Associates, discussed the firm's research into what consumers are saying about auto loans online, during the Non-Prime Auto Financing Conference. According to Pavlinac, Web surfers are talking about industry initiatives such as assurance programs, but they are mostly saying "that when times are tough and I'm worried about my job, I'm not buying anything." Downloading millions of conversations each week revealed that about 40 percent of people discussing auto loans are frustrated borrowers who lack credit or have bad credit, 15 percent are approved borrowers who were able to get auto loans, while about 60 percent are avoiders who are dealing with a financial set-back such as loss of a job. He added that Gen Y, which accounted for 40 percent of people discussing auto loans, represents the greatest target opportunity. "This is 80-plus million consumers who will have a bigger impact than baby boomers when they gain complete purchasing power," 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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