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June 4, 2009
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AFSA Conveys Industry’s Concerns about H.R. 2309
GMAC, GM Gain Court Approval to Continue Auto Loans, Incentives, More
AIG to Sell Argentina Consumer Finance Operations
Discover Financial Unveils New Mobile Service Solution
Can Prepaid Bridge Debit Divide for MasterCard?
Open-Loop Gift Card Issuers Given Reprieve
Payroll Card Market Opportunities Beckon
An Overhaul of Financial Rules Is Taking Shape
FHA Extends Credit to Purchase
Fed Mortgage Efforts Prove Costly
Test Case for Why Underbanked Still Elude Industry
How to Build Business From the Underbanked
Battle Lines Form Over Rate-Cap Legislation
Banks Find Ways to Boost Fees; Checking Accounts Latest Target
Fitch: 2007 Auto Loan ABS Losses Highest on Record
As TALF Deadline Nears, 7 Deals Come to Market
Car Dealers to Get Inventory Loans
AFSA Conveys Industry’s Concerns about H.R. 2309
AFSA staff attended a June 3rd markup of H.R. 2309, the Consumer Credit and Debt Protection Act held by the House Energy and Commerce’s Subcommittee on Commerce, Trade and Consumer Protection. The bill passed the subcommittee by a party-line vote of 16-9.
In advance of the markup, AFSA and several other trades submitted a joint letter expressing a number of concerns with the legislation. AFSA also distributed a news release to auto trade press on May 15 regarding the proposed legislation’s potential impact on the vehicle finance industry, and submitted written testimony for the subcommittee’s May 12 hearing on H.R. 2309.
No schedule has been set for the bill to come before the full House Energy and Commerce Committee, but AFSA will continue to meet with committee members and their staffs to express the industry’s concerns about the bill.
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GMAC, GM Gain Court Approval to Continue Auto Loans, Incentives, More
SubPrime Auto Finance News (06/02/2009) Reed, Jennifer
GMAC will be able to continue to conduct its direct operations with General Motors in the "ordinary course" of its business, thanks to a recent decision by the U.S. Bankruptcy Court. The move means GMAC will be able to continue offering auto financing products and services to GM dealers and customers, as well as the dealers and customers of Chrysler. In addition, the U.S. Bankruptcy Court has given GM approval to continue honoring all vehicle warranty programs and dealer incentive plans, and has told the troubled automaker that it can access up to $15 billion of a $33.3 billion debtor-in-possession financing facility from the U.S. Treasury and the governments of Canada and Ontario. GM plans to use the credit facility to pay for employee wages, health care benefits, supplier payments, and other operating expenses, among other things. GM may eventually be given approval to access the remainder of the facility as well. Meanwhile, DBRS has announced that it has conducted an analysis of rated outstanding retail auto loan, lease, and wholesale ABS transactions. The company confirmed the ratings for all outstanding retail auto loan and lease ABS transactions, and classified the ratings for Superior Wholesale Inventory Financing Trust XI (SWIFT XI) wholesale ABS transaction as "Under Review with Developing Implications." DBRS says it will continue to monitor GM's bankruptcy filing and its impact on the servicer, the servicer's operations, and the performance of the obligors in the trusts, and will resolve the Under Review status as soon as possible.
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AIG to Sell Argentina Consumer Finance Operations
Insurance Journal (06/03/09)
American International Group, Inc. (AIG) announced that it has agreed to sell all of its shares in its consumer finance operations in Argentina to Banco de Galicia y Buenos Aires S.A. and an investment group arranged by Grupo Pegasus. The finance operations to be sold include Compania Financiera Argentina S.A., Cobranzas y Servicios S.A., and AIG Universal Processing Center S.A. Financial terms of this sale have not been disclosed, but AIG said it is subject to approvals by the Argentine Central Bank and the Argentine National Commission for the Defense of Competition.
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Discover Financial Unveils New Mobile Service Solution
Trading Markets (05/29/09)
Discover Financial Services has released Mobile Reminders, which allows card members to have more control over finances and access to Discover card accounts. By registering on Discover.com, users can receive eight account activity reminders through text message or email, receiving account information directly to their mobile devices. Card members can then manage their accounts without having to be in front of a computer.
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Can Prepaid Bridge Debit Divide for MasterCard?
American Banker (05/28/09) P. 1; Aspan, Maria
MasterCard is promoting the use of prepaid cards, which are becoming more popular as the recession continues. "The relative size of prepaid to debit ultimately remains to be seen, but the opportunity is vast," says MasterCard's Timothy Murphy. He cites a study by Boston Consulting Group, which forecast that the global prepaid open-loop market would expand to about $680 billion by 2015, a more than 300 percent increase from 2007. Another appealing characteristic of prepaid to MasterCard is the greater number of potential customers compared to debit. "The reality is that a lot of prepaid providers are smaller financial institutions, they're program managers, they're processors," Murphy says. "Those institutions, I think, are capable of driving the growth of prepaid, and one of the things you need to be able to do to grow prepaid ... is to work with them." Murphy points out that there was a "shifting of focus" from debit to prepaid for MasterCard's Integrated Processing Solutions system last autumn.
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Open-Loop Gift Card Issuers Given Reprieve
Green Sheet (06/01/09)
An amendment to the Credit Card Accountability Responsibility and Disclosure Act of 2009 was revised by the Senate prior to President Obama's signing of the legislation. The revision allays industry concerns that the availability of open-loop, network-branded prepaid gift cards to consumers would be greatly reduced had the bill been passed without modification. Springbok Services general counsel Brad Fauss wrote in SellingPrepaid E-Magazine that the unmodified version of the bill's amendment would have banned issuers from imposing dormancy or service fees on both closed-loop, private-label gift cards and open-loop, network-branded cards. The former can only be redeemed at the merchant from which they were bought, while the latter can be redeemed at millions of businesses worldwide because Visa- and MasterCard Worldwide-branded cards are almost universally accepted. Fauss noted that merchants that issue closed-loop gift cards receive all funds loaded onto the cards, while issuers of open-loop gift cards make money chiefly on fees attached to the cards. "If the primary revenue sources for prepaid cards are eliminated by restricting service fees, these products will no longer be profitable and may no longer be offered," he wrote.
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Payroll Card Market Opportunities Beckon
Selling Prepaid (05/28/09)
Payroll cards have vast market potential because just 5 percent of U.S. employers are using payroll-card programs for their workers, says FirstView CEO Cherie Fuzzell. Payroll cards target unbanked workers, who encompass roughly 80 million to 106 million U.S. consumers. Fuzzell points out that payroll-card programs are "generally" free to employers aside from "minimal" deployment fees and card issuance costs, while loading wages on cards rather than cutting checks saves employers about $150 per employee annually. Fuzzell says that moving to a payroll card can save each employee $1,000 a year, while payroll cards also can be used to access money at ATMs and make purchases online, over the phone, and at the point of sale. She says that independent sales organizations (ISOs) functioning as payroll card program managers can offer the cards to workers via banks' commercial lending, business banking, or treasury management departments. Banks also can direct customers whose requests to open accounts have been rejected to ISOs' payroll card products. Fuzzell observes that ISOs that already work with banks to offer merchant services can cross-sell payroll card solutions for their banks. She notes that widespread adoption has become possible thanks to the maturation of the infrastructure to manage payroll cards.
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An Overhaul of Financial Rules Is Taking Shape
New York Times (06/02/09) P. B1; Labaton, Stephen
Congress is turning its focus to a plan to overhaul the financial regulatory system to avoid another economic crisis down the road, and while there is talk of merging the four federal banking regulators into one agency, most observers do not expect such a move to occur. Ideas being floated would eliminate the Office of Thrift Supervision, create a new agency to oversee mortgages and credit cards, set up a watchdog to monitor firms that could burden the financial system if they fail, and beef up regulation of hedge funds and insurance. There also is talk of merging the Securities and Exchange Commission and the Commodity Futures Trading Commission, but leaders at the agencies are working on a deal that would put the former in charge of derivatives tied to publicly traded securities and the latter in charge of commodities-based derivatives.
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FHA Extends Credit to Purchase
Investor's Business Daily (06/01/09) P. A2
The U.S. government has agreed to "monetize" its new tax credit for first-time home buyers so that it can be put toward actual purchase costs. To qualify, borrowers must have a Federal Housing Administration-insured loan and contribute a minimum down payment of 3.5 percent. Department of Housing and Urban Development Secretary Shaun Donovan said that by allowing home buyers to use the tax credit for their purchase, the housing market can be stabilized more quickly.
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Fed Mortgage Efforts Prove Costly
Wall Street Journal (06/01/09) P. C3; Rappaport, Liz
Since Fall 2008, the Federal Reserve has purchased over $480 billion in mortgage-backed securities and over $130 billion in Treasury bonds in an effort to hold down mortgage rates, but with the 30-year fixed rate rising above 5 percent in the most recent week, experts say the central bank's purchase program has had a limited impact. A JPMorgan Chase analysis of the Fed's portfolio shows it is approximately 10 percent underwater and would suffer a $5 billion loss if these investments were marked to market. Although the Fed's per-borrower cost is about $2,500, according to the report, its purchases have assisted 2 million borrowers in refinancing who otherwise could not have.
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Test Case for Why Underbanked Still Elude Industry
American Banker (06/02/09) P. 1; Aspan, Maria
The New York State Banking Department's 10-year-long campaign to introduce mainstream banking services into underbanked communities is representative of the hurdles the industry faces in winning over this segment of the consumer population. Despite healthy interest by financial institutions in the state's Banking Development District (BDD) program, participants have fallen short of its objectives. For one, say some observers, many banks fail to offer extended business hours, multilingual staff, and other resources that are typical of the alternative financial outlets this demographic tends to use instead--including remittance providers and check-cashing outlets. Besides that, adds state banking superintendent Richard Neiman, there is a disconnect between the products and services offered by traditional banks and those patronized by underbanked consumers. "When you go into a check-casher, the fees are readily known and posted," he notes, "whereas in dealing with banks there may be a more complicated process of fees, regarding returned-check fees and bounced-check fees and interest rates, that may not be as easily understood by the individuals." As state regulators gear up to expand the New York program, Neiman says "there needs to be a much greater focus on not only the establishment of a branch but [also] how that branch should be operating and changing behavior." Jonathan Mintz, commissioner of the New York City Department of Consumer Affairs, agrees, declaring that the next generation of the BDD initiative should prod banks "to offer and sell the right mix of products and services--including basic bank accounts and clear, transparent options for overdraft protections."
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How to Build Business From the Underbanked
US Banker (06/09) Rosta, Joseph
A new study by Aite Group has found that banks could potentially get more check-cashing business from underbanked and unbanked consumers if they take several steps. The study surveyed 400 check-cashing store users in Virginia, and found that these consumers cash 53 percent of their checks at such businesses. The study also found that 28 percent of the checks cashed by these consumers are cashed at banks, while 19 percent are cashed at retail stores and other locations. In addition, the study found that 53 percent of those surveyed currently had a checking account, while 21 percent had a checking account in the past. Another 26 percent never had a checking account. The study noted check cashing stores have a 46 percent wallet share among customers who had checking accounts, and a 61 percent wallet share among customers who did not. According to Gwenn Bezard, the research director at Aite Group and one of the authors of the report, banks can do several things if they want to get a piece of the unbanked and underbanked market. For instance, banks could offer their customers prepaid cards and the ability to pay their utility and phone bills in their branches, Bezard said. Bezard noted that if banks make some small adjustments at some of their high-traffic locations, they could see "significant uptake" by unbanked and underbanked consumers within a year or two.
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Battle Lines Form Over Rate-Cap Legislation
American Banker (06/01/09) P. 1; Kaper, Stacy
The credit card, auto, and payday lending industries would be impacted by a bill to be considered by the Senate Judiciary Committee after Congress' recess. The legislation by Sen. Sheldon Whitehouse (D-RI) aims to prevent the issuance of high-cost loans and would make it easier for consumers to discharge debts in bankruptcy. When calculating annual percentage rates, fees would be factored in. Additionally, the bill defines "high cost" as 36 percent or 15 percent plus the 30-year Treasury yield, whichever is less. Furthermore, consumers with high-cost debt would be allowed to file for Chapter 7 bankruptcy without passing the means test.
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Banks Find Ways to Boost Fees; Checking Accounts Latest Target
USA Today (05/27/09) Chu, Kathy
With banks' ability to raise credit card fees clipped by recent federal legislation, consumer advocates expect them to turn their attention instead to checking accounts. Bank of America, SunTrust, and Wachovia are among those raising overdraft fees and other charges on checking accounts. Sen. Bernie Sanders (I-VT) is calling for reforms that go beyond recent efforts to rein in credit card companies and banks. "We need serious and major regulatory reform over these institutions or they will continue to rip off people in every way imaginable, with outrageous fees snuck in every single place," he remarks. Moebs Services expects overdraft fees to rise 6 percent to $39 billion this year, with a 2008 report from the Federal Deposit Insurance Corp. indicating that the fees already account for 74 percent of bank service charges on deposit accounts.
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Fitch: 2007 Auto Loan ABS Losses Highest on Record
SubPrime Auto Finance News (06/02/2009) Reed, Jennifer
Fitch Ratings recently released a report on the auto asset-backed securities (ABS) market showing that posted losses on the 2007 securitization vintage are at their highest levels ever. The report found that losses on the 2007 prime auto ABS vintage reached 1.43 percent during the first 16 months, and predicted that losses on the 2007 vintage will continue to surpass the losses seen in previous years, possibly even reaching a level of 3 percent to 3.5 percent. The report noted that while it is still too early to adequately forecast the 2008 vintage, losses are tracking similar to those in 2007. Through the first five months, losses on the 2008 prime auto ABS vintage reached 0.23 percent, compared with 0.24 percent for 2007. Finally, the report found that losses on the 2007 domestic captive ABS were also very high, with losses on domestic captives reaching 1.31 percent through the first 16 months. The report attributed the record losses to loose underwriting standards that created weaker pools with higher original terms and borrowers with lower-quality credit.
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As TALF Deadline Nears, 7 Deals Come to Market
Wall Street Journal (05/29/09) Geressy, Kellie; Natarajan, Prabha
Seven deals eligible for inexpensive funding under the Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF) were launched shortly before the June 2 deadline for the fourth round of TALF funding. The largest of those deals was a $1.5 billion deal backed by auto leases from BMW. The deal will be sold through joint lead managers Barclays PLC and JPMorgan Chase. It was priced June 2 and is scheduled for settlement on June 9. The deal's top-rated tranche has no price guidance. The next two largest deals were the $1 billion deals offered by Nissan Motor Co. and Ford Motor Co. The Nissan deal will be sold through joint lead managers Citigroup, Bank of America Securities, and HSBC Securities, while the Ford deal will be sold through joint lead managers Barclays, BNP Paribas, Citi, and HSBC. Both deals priced on June 2, and both are scheduled for settlement on June 9. The Nissan deal's top-rated tranche does not have price guidance yet, while the Ford deal's top-rated $290 million tranche has a price of roughly 0.20 percentage points over Libor. The John Deere Owner Trust, Chesapeake Funding LLC, American Home Mortgage Advance Trust, and First National Bank of Omaha have also offered deals worth a total of $2.78 billion.
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Car Dealers to Get Inventory Loans
Detroit News (05/28/09) Trowbridge, Gordon
The Small Business Administration has announced a program that will allow auto dealers to take out loans for between $500,000 and $2 million to finance new cars. Private lenders will make the loans, but they will be backed by a 75 percent federal guarantee. The pilot program will run from July 1 through Sept. 30, 2010.
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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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