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May 7, 2009
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Meeting with Government Officials Latest in AFSA’s TALF Efforts
AFSA Submits Amicus Brief in TILA Case
Slots Still Available for AFSAEF Leadership Development Programs
AFSAEF Supports Spanish Publication Project
Chrysler Financial Halts Floor Planning, Chrysler Subvented Rates
GMAC CFO: Want to Regain Share in GM Retail Sales
Harley Davidson Completes Funding Agreements to Support Financial Services Retail and Wholesale Lending
Senators Sort Out Curbs on Credit Cards
Interchange Fees Rear Their Head
Senate Passes Mortgage Aid Bill
Survey Finds RESPA Changes Are Top Compliance Concern for Lenders
Rising Redefaults Raise Loan Mod Mandate Odds
Proposals Would Transform College Aid
FTC Delaying ID Theft Rules
Recession Report: Are You Being Served?
US Auto Lenders Press Obama Administration to Expand TALF
SBA Widening Eligibility for 7(a)
How Is Obama Administration Impacting Auto Finance Market?
Meeting with Government Officials Latest in AFSA’s TALF Efforts
On May 5, AFSA met with Treasury and White House Auto Task Force officials to address ways to increase participation in the Term Asset-Backed Securities Loan Facility (TALF). While TALF is beginning to attract greater participation, with nearly $10 billion worth of transactions occurring in the first week of May, the figure is still a far cry from the facility’s $1 trillion borrowing capacity. Most notably, no floorplan auto ABS were issued under TALF in March and April 2009.
During the meeting, AFSA emphasized the importance of building upon TALF’s growing momentum and recommended three ways to attract greater participation. Specifically, AFSA’s recommendations were to:
• Expand TALF eligibility to include all investment grades for floorplan financing.
• Tighten TALF’s “haircuts” to attract companies with eligible ABS, such as those in the wholesale markets that have not participated because the current haircuts and spreads are too costly.
• Bring clarity and avoid future actions that would retroactively “change the rules,” such as imposing executive compensation restrictions or “profit taxes” that, in effect, penalize TALF participants after they’ve decided to use the program.
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AFSA Submits Amicus Brief in TILA Case
On May 5, AFSA submitted a joint amicus brief in a case with important ramifications related to the Truth-in Lending Act (TILA). The case, Vallies v. Sky Bank, alleges a technical TILA disclosure violation – an understatement of the Finance Charge and APR based on the creditor’s alleged failure to furnish the TILA disclosures that are required to exclude a GAP protection fee from the finance charge. These disclosures were made by the automobile dealership that arranged for the loan, not Sky Bank. Vallies sought a class wide award of actual damages from Sky Bank equal to the amount of the GAP protection fee. Several consumer advocacy groups have also filed a joint amicus brief on behalf of Vallies.
An adverse ruling in the case, which is being considered by the U.S. Court of Appeals for the Third Circuit, would widen the industry’s exposure in all types of TILA litigation dramatically. If Vallies prevails, a simple mistake in a TILA disclosure form could automatically bankrupt a small creditor and significantly hurt a large one, without any proof that a single debtor actually relied on it and, there, suffered any harm because of it. “Just one misdisclosure could result in staggering ‘actual damage’ awards – in this case, $4 million,” the brief stated.
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Slots Still Available for AFSAEF Leadership Development Programs
It’s not too late to register for the AFSA Education Foundation’s (AFSAEF) 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. NICCM will be held June 7-12, and the intensive six-day UNC program will run July 8-15.
A low-cost investment in the development of future leaders, the UNC and NICCM programs offer high returns well into the future. Now in its 58th year, NICCM teaches management skills in layered modules of learning, with the first year focused on learning and the second on knowledge application. Led by professors from the nation’s best schools, the UNC leadership development program will address topics such as negotiation, team-building, ethics, and the responsibilities of leadership.
To register, contact Susie Irvine, AFSAEF President & CEO, at 202-466-8611 or susie@afsamail.org.
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AFSAEF Supports Spanish Publication Project
The AFSA Education Foundation is supplying 10,000 copies of Entiendo El Financiamiento De Vehiculos, the Spanish version of Understanding Vehicle Financing, to include in the Federal Citizen Information Center (FCIC)’s annual Spanish publication distribution project.
The FCIC identifies appropriate Spanish publications that are available in quantities large enough to allow widespread promotion and distribution to community and educational organizations serving Latino populations. The organizations then receive a promotional mailing offering them the publications.
AFSAEF has been distributing publications through the FCIC for more than ten years.
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Chrysler Financial Halts Floor Planning, Chrysler Subvented Rates
SubPrime Auto Finance News (05/05/2009)
Chrysler's recent Chapter 11 filing has led Chrysler Financial to immediately suspend its U.S. and Canadian dealer wholesale financing. The suspension will be temporary, and existing customers are expected to experience no disruptions to the servicing of their accounts. Chrysler Financial will also freeze participation in Chrysler's subvented APR programs while it examines the situation. It will continue to offer standard rate financing for retail consumers and to service its existing portfolio. Officials said that, "Chrysler Financial … continues in business as an independent and separate legal entity from the automobile manufacturer, and remains focused on running its business operations." Tom Gilman, chairman and CEO of Chrysler Financial, said, "In support of the decision made by President Obama and the Automotive Taskforce to move forward with the Chrysler Financial and GMAC transition, the company is committed to working with our lenders, employees, dealers, and customers to manage through the results of this decision."
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GMAC CFO: Want to Regain Share in GM Retail Sales
Dow Jones Newswires (05/05/09) Saha-Bubna, Aparajita
GMAC CFO Robert Hull told analysts and shareholders on May 5 that the company is striving to bring its financing volume back up to pre-credit crisis levels. As General Motors' financing division, GMAC financed only 17 percent of the automaker's vehicles in the first quarter of 2009, down 32 percentage points from last year's first quarter. In 2008 the finance arm provided funds for 32 percent of GM's retail sales and more than 80 percent of its dealership sales. Hull said during the conference call that vehicle leasing is still an option, if GMAC can develop a profitable business strategy. GMAC registered as a bank in December 2008 to become eligible for Federal Deposit Insurance Corp. debt coverage through the Temporary Liquidity Guarantee Program.
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Harley Davidson Completes Funding Agreements to Support Financial Services Retail and Wholesale Lending
PR Newswire (04/30/09)
Harley-Davidson and Harley-Davidson Financial Services (HDFS) have reached funding agreements to supply the roughly $1 billion in projected funding capacity the company needs for HDFS lending this year. HDFS boosted the size of an existing asset-backed commercial paper conduit facility from $500 million to up to $1.2 billion, based on the level of outstanding receivables. Harley Davidson and HDFS have also replaced a 364-day, $950 million bank credit facility with a new 364-day, $625 million credit facility. Combined, the two agreements offer additional available credit of up to about $375 million over the life of the agreements for HDFS lending activities.
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Senators Sort Out Curbs on Credit Cards
Wall Street Journal (05/06/09) P. A4; Reddy, Sudeep
A bill that seeks to prevent credit card companies from changing interest rates or other terms on consumers who make timely payments is being reworked after winning approval from the Senate Banking Committee in late March. Senators are butting heads when it comes to how much leeway the industry should be given with regard to rate hikes or credit limit reductions. Senate Democrats want to restrict their reach unless consumers are delinquent, while Senate Republicans argue that credit card companies should be allowed to adjust terms based on risk. Some senators are calling for caps on interest rates or limits on future rates, but House Financial Services Committee Chairman Barney Frank (D-MA) opposes such a move. However, Frank does support a ban on retroactive interest rate hikes. Meanwhile, Federal Reserve Chairman Ben Bernanke turned down a request from Sen. Charles Schumer (D-NY) and Senate Banking Committee Chairman Christopher Dodd (D-CT) to immediately implement credit card reforms that will go into effect next year, noting that such a move could prompt credit card companies to boost rates right away.
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Interchange Fees Rear Their Head
Roll Call (05/05/09) Palmer, Anna
Credit card companies are pushing back against a retail industry group that is lobbying Sen. Christopher Dodd (D-CT) to add a provision limiting interchange fees to his consumer credit card bill. The Electronic Payments Coalition (EPC) has accused the Merchants Payments Coalition of "venue shopping" to get the provision added to legislation. "At the end of the day, merchants don’t want to pay their share of the interchange system and they want consumers to pay it instead," says EPC spokeswoman Trish Wexler. Meanwhile, Visa and Mastercard argue that interchange fees are needed to cover their infrastructure costs and that they should be compensated for the risks they take guaranteeing payments to merchants.
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Senate Passes Mortgage Aid Bill
Washington Post (05/07/09) P. A18; Merle, Renae
The Senate passed legislation on May 6 that aims to curtail foreclosures by streamlining the Hope for Homeowners program and protecting mortgage servicers from investor lawsuits when they modify loans. The bill easily passed due to the exclusion of an amendment that would have allowed bankruptcy judges to modify mortgages, and it must now be reconciled with the version passed by the House.
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Survey Finds RESPA Changes Are Top Compliance Concern for Lenders
Risk Center (05/06/09) Jones, David
A QuestSoft survey of 355 lenders reveals that their biggest compliance concern this year involves changes to the Real Estate Settlement Procedures Act (RESPA), with 74 percent citing new fee accuracy rules under RESPA as a major issue. In addition to more extensive disclosures and a requirement that the good faith estimate be provided to borrowers within three days of application submission, lenders are concerned about a House bill that calls for a rewrite of RESPA to better align with the Truth in Lending Act. QuestSoft President Leonard Ryan notes that "lenders need easy-to-use programs and tools to keep up with and comply with constantly changing regulations."
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Rising Redefaults Raise Loan Mod Mandate Odds
American Banker (05/05/09) P. 1; Flitter, Emily
Reports show redefault rates on mortgage modifications completed thus far stand at about 50 percent, which experts attribute to the fact that servicers have balked at reducing borrowers' monthly payments. Observers say the Obama administration's plan encouraging servicers to voluntarily lower payments so that they eat up no more than 31 percent of the borrower's income--with similar modifications made on second loans--could reduce redefault rates and ease the financial crisis. They believe Congress and the administration will take more drastic measures, such as passing legislation to allow bankruptcy judges to make modifications, if the industry does not take steps to curtail defaults and foreclosures.
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Proposals Would Transform College Aid
Washington Post (05/04/09) Murray, Shailagh
President Obama's fiscal 2010 budget includes a number of proposals that could change the student loan industry. The budget, which was approved by Congress on April 29 and could become law by October, calls for ending the private Federal Family Education Loan program and giving the government's Direct Loan program authority over all student loans. The Congressional Budget Office says the move would save $94 billion over 10 years--money that the Obama administration wants to use to expand the Pell Grant program. In addition, the budget calls for the distribution formula for federal Perkins loans to be changed so that needier students are given higher priority and schools that control costs are rewarded. The changes could result in an additional 2.7 million students receiving Perkins loans, and would increase lending from the current level of $1 billion a year to $6 billion annually. Supporters of the budget say the student loan provisions will make college and vocational training available to lower-income students. The private lending industry, however, is fighting the bill in an effort to preserve its role in the distribution of student loans. Industry officials say private student loans provide better default protections and are better able to serve smaller schools. The industry is calling on lawmakers to convene a summit of industry leaders to find a compromise.
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FTC Delaying ID Theft Rules
Columbus Dispatch (OH) (05/03/09) Gibson, Elizabeth
The Federal Trade Commission (FTC) has decided to push back the compliance deadline for new identity theft rules by three months. The commission took the action because some businesses are unprepared for the changes. Under the law, creditors are required to implement fraud-protection plans. For some, the definition of creditor was a source of confusion. "It was clear to us that a lot of the low-risk entities that don't usually think of themselves as creditors still don't understand how to comply," said Betsy Broder, an assistant director of the FTC's consumer-protection bureau. The new deadline is Aug. 1.
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Recession Report: Are You Being Served?
Collections & Credit Risk (05/09) Vol. 14, No. 5, P. 15; Grabarek, Bill
The underserved population could be as lucrative a segment as it was before the economic downturn. People with thin and no credit histories still want loans, so creditors will need to continue to rely on alternate data sources beyond mainstream credit scoring as they develop their own testing procedures. The underserved population also includes the unbanked and underbanked, such as people who may have a checking account but continue to use the services of check-cashing businesses. This segment is not going anywhere, says Gwen Bezard, research director at Aite Group. The credit crisis shows that lending practices have had more of an impact on borrowers' ability to repay than have their credit scores, according to Bezard. "There are a lot of people with good credit scores who are not able to pay," she says.
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US Auto Lenders Press Obama Administration to Expand TALF
Dow Jones Newswires (05/05/09) Mitchell, Josh
Executives from the American Financial Services Association (AFSA) met with White House and Treasury Department officials on May 5 to press for changes to the Term Asset-Backed Securities Loan Facility (TALF), a program run by the Treasury and the Federal Reserve that allows investors to borrow money from the central bank to buy new securities backed by different types of consumer debt, such as auto loans. Under the program, which was designed to provide loans that car dealers could use to finance their inventories, investors that use TALF funds to purchase securities must buy those that have the highest ratings from the three major rating agencies. According to AFSA President and CEO Chris Stinebert, this provision has limited the auto finance industry's ability to use TALF to generate funding. Data released by AFSA shows that no TALF money was used to finance car dealers' inventory in March and April. Stinebert said in a letter to President Obama's leading auto industry adviser that the auto finance industry's ability to use the program to generate funding will remain limited unless changes are made to the program, including expanding TALF to include debt of all investment grades.
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SBA Widening Eligibility for 7(a)
American Banker (05/04/09) P. 4; Flitter, Emily
The Small Business Administration (SBA) has announced that it has relaxed the eligibility requirements for its 7(a) lending program as part of an effort to make government guaranteed loans available to more businesses. Under the new rules, businesses that have a total net worth of $8.5 million or less and have an average after-tax net income of $3 million or less over the last two fiscal years will be able to qualify for 7(a) loans. The Obama administration is hoping the change, which will be in place through September 30, 2010, will benefit the auto industry. According to the SBA, the change will allow some RV and car dealers to have access to more working capital. Other changes are also in the works at the SBA. Sources say the agency is asking the Office of Management and Budget for permission to begin guaranteeing floor plan financing.
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How Is Obama Administration Impacting Auto Finance Market?
SubPrime Auto Finance News (04/30/2009)
Legal and compliance analysts from Wolters Kluwer Financial Services say President Obama's policies have affected the auto finance market in a number of different ways. For example, there has been a reduction in subprime auto lending since Obama took office due to the fact that most of the near-prime and subprime lenders have pulled out of the subprime market, said Kevin Kopp, the general manager of indirect lending at Wolters Kluwer. Kopp also noted that there has been an increased focus on consumer protection and industry regulation in the auto sector since Obama took office. This increased focus can be seen in the growing number of stringent regulatory exams, enforcement actions, and shuttered financial institutions, said Edward Kramer, the executive vice president for regulatory programs at Wolters Kluwer. According to Kopp, dealers should respond to this increased focus by making sure their stores do everything possible to reduce risk. Financial institutions, meanwhile, should take all the necessary steps to fight identity theft, money laundering, and terrorist financing, said Kevin Byrne, senior regulatory consultant at Wolters Kluwer. Byrne noted that such crimes are becoming more and more common due to the recession and the increased sophistication and globalization of financial criminals.
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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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