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March 19, 2009
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AFSA Takes Position in Bankruptcy Cases
MoneySKILL Gets Good Media Exposure in Buffalo
AFSA Submits Comment Letter on Texas Legislation
Ford, Nissan Lead Automakers Selling Bonds for TALF
Nissan TALF Deal Rolled Out to Big Demand
GMAC Reports It Funded $1.5 Billion in New, Used Auto Loans From Dec. to Mid-March
Chrysler Seeks More Aid for Finance Arm, Chief Says
MasterCard Expands in Latin America
HSBC to Move Data Tasks to Chicago
Discover Financial Gets $1.2 Billion in TARP Capital
Card, Overdraft Bills Move Up
Higher Fees Could Be Rainmakers for the Bank Card Networks
Identity Theft Tops FTC Complaint List Again
Frank to Work on Bill to Revamp Fannie, Freddie
Senate Democrats Seek Support for Mortgage Modification Bill
Consumer-Loan Plan Is Off to Slow Start
Bill Takes Aim at Money Illiteracy
Fed Needs Success in Ambitious Consumer Loan Program
AutoNation Launches Payment Assistance Program
TransUnion: Worst in Auto-Loan Delinquencies May Be Over
E-Lien Titling Requirements Slowly Roll Out Throughout Country, Potentially Saving Lenders Costs
AFSA Takes Position in Bankruptcy Cases
On March 12, AFSA filed an amicus brief in the U.S. Court of Appeals for the Eighth Circuit in Nuvell Credit Company LLC v. Calicott.
Motor vehicle installment sale financers have a vital interest in this type of case. 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—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.
AFSA has filed amicus briefs in similar cases in the U.S. Court of Appeals for the Second, Fourth, Fifth, Ninth, Tenth and Eleventh Circuits. The Eleventh Circuit decision was favorable to the financial services industry. The case in the Tenth Circuit was dismissed. Decisions in other courts are still pending, however. AFSA has also filed amicus briefs in similar cases in a few district courts.
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MoneySKILL Gets Good Media Exposure in Buffalo
This excerpt from The Buffalo News article was among the media outlets covering MoneySKILL Mania— the second annual financial literacy competition hosted at the University at Buffalo.
Murmurs rumbled through the crowd when the answers were revealed. Some contestants smirked and nodded, others threw their heads back in exasperation. Intense music flowed from speakers as the contestants tapped out their next answers into handheld clickers.
No, it was not a clip from the game show "Who Wants to Be a Millionaire." It was MoneySKILL Mania, the second annual financial literacy competition hosted at the University at Buffalo with M&T Bank. And though there was no million dollars up for grabs, the financial future of students from 20 area schools was on the line.
High school financial literacy scores across the U.S. come in abysmally low -- around the 50 percent range -- according to a survey by UB finance and economics professor emeritus Lewis Mandell on behalf of the Jump$tart Coalition® for Personal Financial Literacy. In fact, bridging that vast knowledge gap is what Mandell had in mind when he and the American Financial Services Association Education Foundation developed MoneySKILL, the free online finance curriculum students used to prepare for Thursday's competition.
"All you have to do is open the newspaper to know even Congress isn't financially literate," said Kenneth McKinnon of Sacred Heart Academy, whose AP government seniors took first place in the competition. For the past six years, McKinnon has made the MoneySKILL curriculum a requirement for all of his students. Sacred Heart Academy won the top prize last year, too.
To view the entire article, please click the link below.
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AFSA Submits Comment Letter on Texas Legislation
On March 12, AFSA submitted a comment letter to the sponsor of Texas Senate Bill 996. This legislation would prevent transferring a credit in an amount equal to the motor vehicle sales or use tax, or applying it against tax due and payable from the rental or lease of another vehicle belonging to the same owner. In the comment letter, AFSA explained that preventing the lessor from applying accrued tax credits to new leases, a customary practice in the lease industry in Texas, would mean an increase in the cost of a lease. This would make leasing less attractive to the consumer. AFSA also pointed out that for many consumers, leasing could be a preferred alternative to the purchase of a vehicle because of possible incentives, such as the one that SB 996 would eliminate. In addition, removing these types of incentives would result in negative consequences to already strained consumers and the auto industry. For a copy of the letter, click below.
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Ford, Nissan Lead Automakers Selling Bonds for TALF
Bloomberg (03/18/09) Mulholland, Sarah; Lanman, Scott
Ford Motor Co. plans to sell debt backed by auto loans in one of the first offerings eligible for the Federal Reserve's Term Asset-Backed Securities Loan Facility. Ford's finance unit plans to sell $2.95 billion of the bonds, the company said March 18. The largest AAA segment of the sale maturing in 1.99 years could price to yield between 215 basis points and 225 basis points more than benchmark interest rates, according to a person knowledgeable about the transaction. "Anything that helps Ford sell cars is a good thing and anything that improves liquidity at Ford Credit helps the situation at the parent," says auto analyst Shelly Lombard of bond researcher Gimme Credit.
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Nissan TALF Deal Rolled Out to Big Demand
Reuters (03/17/09)
Nissan's $1.3 billion securities offering under the Term Asset-Backed Securities Loan Facility was well-received March 17. "The deal was four to five times oversubscribed in the first eight minutes that it was announced," says Payden & Rygel portfolio manager Mike Kagawa. The "AAA" securities will be sold in four tranches.
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GMAC Reports It Funded $1.5 Billion in New, Used Auto Loans From Dec. to Mid-March
SubPrime Auto Finance News (03/17/2009)
GMAC Financial Services has issued a statement about how Troubled Asset Relief Program (TARP) funds have been used to expand retail automotive financing. GMAC revealed that after it received the TARP funds in late December, it immediately extended the retail credit available to consumers. The aim was to simplify consumers' ability to purchase cars and trucks by reducing the minimum credit bureau score required for consumer auto financing. GMAC is now financing a wide range of auto buyers, as it has in the past. It is also providing competitive incentive and standard rates to help dealers sell vehicles. GMAC has financed approximately $1.5 billion in new and used retail auto contracts through mid-March. It has also funded roughly $6 billion of loans to dealers for the purchase of new car inventory and $1.6 billion for used inventory over the same time period. GMAC currently has enough funding to support consumer auto financing and hopes to boost its volume of retail business.
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Chrysler Seeks More Aid for Finance Arm, Chief Says
Bloomberg (03/17/09) Ramsey, Mike
Chrysler has requested more aid from the Treasury Department for its finance arm, Chrysler Financial. The company seeks to make financing more accessible to potential buyers. In January, the Treasury supplied funding to Chrysler Financial that allowed the company to finance 40,000 sales in February, which was double the number in January. "We have gone back to Treasury and said 'we need to re-up that amount,'" said Chrysler CEO Robert Nardelli in a recent CNBC interview. "We saw the evidence of how that works." Providing additional funds to Chrysler Financial could potentially boost sales by as much as 20 percent because a wider range of buyers would qualify for the loans, asserted Nardelli. He added that the Treasury is collaborating with Chrysler's secured bank lenders to convert the loans into equity in the automaker. Chrysler, which is controlled by Cerberus Capital Management, has received $4 billion in federal assistance and is seeking $5 billion more. Steve Rattner, an auto adviser for the Obama administration, has said that bankruptcy for auto makers "is not our goal nor a desirable outcome."
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MasterCard Expands in Latin America
Miami Herald (03/16/09) Mann Jr., Joseph A.
MasterCard's Latin American business is expanding at a healthy rate despite the economic decline, says MasterCard Worldwide's Richard A. Hartzell. Hartzell says the biggest rival to MasterCard in Latin America is cash, followed by checks and other card firms. MasterCard is usually used by high-income families for entertainment, travel, and luxury item purchases. Middle-income households tend to use credit cards for day-to-day purchases and lower-income families typically use them for buying on installments. Latin America and the Caribbean are among the fastest-growing divisions for MasterCard Worldwide. During the last five years the number of merchants in Latin America accepting MasterCard has doubled to 2.8 million, and Hartzell predicts that "the Latin America and Caribbean region will be a driving force in 2009 as the organization turns to economies outside the U.S. to generate significant volume and number of transactions."
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HSBC to Move Data Tasks to Chicago
Buffalo News (03/13/09) Epstein, Jonathan D.
The primary and backup data centers for HSBC North America Holdings are being relocated from Western New York to Chicago. According to company spokesman Wen Huang, the move will take place over the next two years. "We want to combine a majority of data center functionality in centralized locations," Huang said. "It's more cost-effective and will improve operational efficiency." The relocation, which is expected to begin this year and continue through 2010, is part of HSBC's broad plan to transfer operations and staff from Buffalo. The bank recently transferred its legal headquarters to Delaware and Buffalo-based executives to offices in New York City and Chicago. The move marks the end of HSBC's ties to Western New York, where the bank has operated data centers for years.
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Discover Financial Gets $1.2 Billion in TARP Capital
Bloomberg (03/13/09) Son, Hugh
The Treasury Department has given Discover Financial Services about $1.2 billion in cash. In exchange for the cash infusion, Discover sold 1,224,558 preferred shares and a 10-year warrant to buy 20,500,413 common shares at an exercise price of $8.96 each. The preferred stake is expected to pay dividends of 5 percent for the initial five years and 9 percent after that.
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Card, Overdraft Bills Move Up
American Banker (03/19/09) P. 3; Kaper, Stacy
Growing resentment over bank bailouts and executive bonuses, like those paid out by American International Group, are giving two credit card bills the support they need to effect a speedy passage. The bills, introduced by Rep. Carolyn Maloney (D-NY), seek to increase consumer protections in credit card and overdraft programs. The banking industry, which opposes the measures, argues that the rules are unnecessary, because federal regulators have already taken substantial action to overhaul credit card practices. Although the bills do emulate much of the new regulation, they go further by eliminating universal default and preventing banks from automatically enrolling customers in overdraft protection.
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Higher Fees Could Be Rainmakers for the Bank Card Networks
Digital Transactions (03/17/09)
MasterCard Inc. and Visa Inc.'s updated transaction fees could bring in an additional $600 million in revenue for the companies. MasterCard's new "Network Access and Brand Usage (NABU) Fee," which goes into effect April 17, raises the current half-cent fee charged to acquirers to 1.85 cents. Visa will replace its half-cent "Acquirer Processing Fee" with a 1.95 cent authorization fee beginning July 1. Acquirers who receive authorization but neglect to follow up with a settlement within a certain length of time could be required to pay a 4.5 cent penalty fee, called either an "Unmatched Authorization Fee" or a "Misuse of the Authorization Fee," according to Visa.
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Identity Theft Tops FTC Complaint List Again
Identity Theft Daily (03/17/09)
For the seventh consecutive year, identity theft was the chief source of consumer fraud grievances filed with the Federal Trade Commission (FTC), according to the agency, which received 813,899 total complaints in 2007. Of those, 258,427, or nearly one-third, pertained to identity theft. The FTC's annual report on fraud claims noted that consumer fraud losses exceeded $1.2 billion in 2007, or $349 per person, with credit card fraud being the most frequent form of identity theft. Of the 23 percent of fraud cases dealing with credit cards, 14.2 percent involved illegally opening a new account, and 9.4 percent dealt with fraud on existing cards.
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Frank to Work on Bill to Revamp Fannie, Freddie
Wall Street Journal (03/18/09) P. A7; Hagerty, James R.
Fannie Mae and Freddie Mac need to be overhauled because the current structure of the mortgage finance giants is "broken," according to Rep. Barney Frank (D-MA). The chairman of the House Financial Services Committee plans to introduce legislation to restructure the government-backed companies later this year. In an interview, Frank said the firms could be separated into entities whose primary functions would be to maintain liquidity to the residential-finance market and provide government subsidies for low-income borrowers.
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Senate Democrats Seek Support for Mortgage Modification Bill
Washington Post (03/13/09) P. D2; Merle, Renae
Democratic leaders in the Senate are considering adding provisions to the bankruptcy modification bill that would increase the Federal Deposit Insurance Corp.'s borrowing authority and raise the lending capacity of credit unions in an attempt to build support for the measure. The bill--which might not be taken up in the Senate until after Easter--should be limited to subprime and other risky loans and to borrowers who have not been offered more affordable mortgages by their lenders, the financial services industry says.
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Consumer-Loan Plan Is Off to Slow Start
Wall Street Journal (03/19/09) Rappaport, Liz; Hilsenrath, Jon
Several factors have prevented the Federal Reserve and Treasury Department's Term Asset-Backed Securities Loan Facility (TALF) from experiencing a successful start. Increasing distrust between banks and hedge funds has been one cause, with many hedge funds worried that they will be stuck with losses as a result of their agreements with banks. Public outcry over the bonuses that American International Group paid to its executives has made investors worry about taking too much money from a program funded by taxpayers. Many investors are also concerned that the government will keep changing the rules, or create new ones, in its attempts to combat the recession. TALF was established to make it easier for hedge funds and other investors to borrow from the Fed, using the cash to buy new securities backed by consumer financing. The early stage of the program has an outer limit of $200 billion, but the first TALF deals will probably come to only about $5 billion, and many investors will not obtain funds from the Fed.
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Bill Takes Aim at Money Illiteracy
Long Beach Press-Telegram (03/14/09) Blumenthal, Les
Sen. Patty Murray (D-WA) is introducing a bill that would authorize $1.2 billion in grants over five years to educate young people about financial matters. The financial literacy education would start in grade school and would continue into adulthood. The proposed legislation, which is being co-sponsored by Sen. Thad Cochran (R-MS), would offer grants to state education agencies that agree to create financial literacy standards. Nonprofits and 2- and 4-year colleges would also qualify for the grants. Surveys indicate that more than 50 percent of college students have $5,000 in high-interest debt when they graduate. However, many young people do not know the meaning of such concepts as minimum payments, credit reports, identity theft, or interest. Many are unaware that it may take several years for them to pay off school loans.
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Fed Needs Success in Ambitious Consumer Loan Program
Reuters (03/13/09) Cooke, Kristina
The Federal Reserve is poised to deploy its Term Asset-Backed Securities Loan facility (TALF) in an effort to reinvigorate consumer lending and small business lending. Under the program, the Fed will give investors loans to purchase new debt backed by auto, credit card, student, and small business loans. Some economists forecast that Americans will be reluctant to purchase new cars or get students loans even if financing becomes more available. After TALF was first announced, the difference in yield on three-year "AAA" credit card ABS over U.S. government debt narrowed significantly, but since then spreads have widened. The biggest problem for new car sales is demand rather than credit, asserts Jeremy Anwyl, CEO of Edmunds.com. Mike Kagawa, portfolio manager at Payden & Rygel, says demand for student and credit card loans could be low due to low-cost alternatives offered by other rescue programs.
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AutoNation Launches Payment Assistance Program
AutoRemarketing.com (03/18/09)
AutoNation President Mike Maroone has announced that his dealership group will provide six months of payments of up to $500 per month for new- or used-car purchasers who lose their jobs. The program is similar to Hyundai's Assurance program.
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TransUnion: Worst in Auto-Loan Delinquencies May Be Over
Subprime News (03/17/09) Reed, Jennifer
Auto delinquencies should begin to slow, according to Pete Turek, automotive vice president in TransUnion's financial services group. TransUnion predicted the 60-day auto delinquency rate would rise 41 percent from the beginning of the recession in fourth quarter 2007 through 2009, but 61 percent of the increase occurred in 2008, he says. The overall economy, weak labor market, and lack of disposable income have all contributed to auto-loan delinquencies. Fewer consumers are buying new vehicles and more people are holding onto their current cars longer, which has led to a decline in average auto debt. "As far as consumers taking on more debt, we see that such a spike is not occurring for two reasons: first is that the aggressive measures financial institutions have taken to mitigate risk have taken hold," he says. "Secondly, consumers who have lost a great deal of liquidity with the closing of home equity lines of credit and reduced card credit limits have become more conscientious in protecting those credit instruments still available to them and are making every effort to pay their bills on time." Turek adds that the delinquency rate will rise from 0.86 percent in the fourth quarter of 2008 to more than 1 percent by the end of this year.
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E-Lien Titling Requirements Slowly Roll Out Throughout Country, Potentially Saving Lenders Costs
Subprime News (03/12/09) Overby, Joe
Electronic lien titling (ELT) increases efficiency and reduces environmental waste in the automobile financing industry, argues VINtek founder and President Larry Highbloom, who describes ELT as a "batch" process that involves the transmission of information between DMV locations and lenders. "Through the establishment of unattended data-file exchange processes, the DMV sends electronic lien notifications to VINtek on behalf of a lender when the DMV processes title work representing the lender as the lienholder," he explains. Because VINtek possesses the electronic liens for its lender customers, the titling process is completed instantly, circumventing the step of requesting the title from the lienholder. Prior to electronic titling, state DMV offices would print a hard copy of the lien notification with the title and mail it to the lienholder, who would keep the title until the debt was fully honored. Highbloom adds that under ELT, lienholders and DMV offices save on supply and shipping costs because no paper copies are exchanged.
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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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