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October 1, 2009
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Editor's Note
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AFSA Testifies on CFPA
Wide Array of Issues Addressed at AFSA SGA Forum
CIT Said to Weigh Financing From Citigroup, Barclays
Xerox Takes Gamble in Bid for ACS
Visa and NYSE Euronext Partner to Reinforce Commitment to Financial Literacy Education
Wells Fargo Grants Automotive Credit New Credit Facility
Credit Card Companies React to Titusville Man's Petitions
New Rules Unveiled for Credit Card Cos.
Credit Card Fees: 5 Things You Should Know
HMDA Data Finds Decline in Lending
Reed Files Bill to Reduce Foreclosures
Lawmaker Wants to Hold Ratings Firms Liable for Inaccuracies
Subprime Uncle Sam
Battle Waged Over Consumer Agency
Dodd Builds Support to Create Single Regulator
Senator Hagan Talks About Bill to Change Education
FDIC Chief Wants Overdraft Fees Restricted
How Is Floor Plan ABS Performing?
Luxury Vehicle Market Tanks
Asset-Backed Trading Quiet as New TALF Sales Emerge
AFSA Testifies on CFPA
During a Sept. 30 hearing held by the House Financial Services Committee, AFSA Executive Vice President Bill Himpler cautioned policymakers not to be “tricked and trapped into thinking that more bureaucracy is what’s needed to improve consumer protection.” Even if the proposed CFPA was scaled back in accordance with recent revisions, it still “would require an immense amount of resources – as well as a restructuring of existing regulatory personnel – before it could become operational.”
AFSA’s approach would improve consumer disclosures, increase financial education and enforce existing consumer protection laws fully. “While the current financial regulators already have many enforcement tools at their disposal, changes are needed to enable these regulators to fully utilize these tools,” Himpler testified. The committee is expected to vote on the CFPA proposal the week of Oct. 12.
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Wide Array of Issues Addressed at AFSA SGA Forum
AFSA’s 11th State Government Affairs Forum held Sept. 22-24 in Miami brought together industry representatives to discuss pressing financial services issues. Meeting attendees heard firsthand from HUD on the SAFE Act state implementation and HUD’s interpretative rule, which is currently being reviewed by the Office of Management and Budget. The meeting’s session on credit cards addressed the future of that industry and provided an overview of the recently passed CARD Act. Andy Koblenz with NADA, and Heather DeSandre with JD Power Associates addressed the audience on the future of dealer financial institutions relations and focused on dealer experience and satisfaction. Jack Norris from the Florida Office of the Attorney General participated in a session on State Attorney General Enforcement of TILA and Other Laws. The Learning from Our Critics session featured insight from Mike Calhoun, President of the Center for Responsible Lending.
On the AFSA/NACCA joint day, industry representatives had the opportunity to interact with state regulators. Wright Andrews with Butera & Andrews and Rick Fischer with Morrison & Foerster discussed the Consumer Financial Protection Agency and keynote speaker John Mercurio, Executive Editor of The Hotline, gave a political update on current campaign news and events.
Next year’s SGA Forum will be held June 13-15, 2010, in Indianapolis.
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CIT Said to Weigh Financing From Citigroup, Barclays
Bloomberg (09/30/09) Paulden, Pierre; Haunss, Kristen
Sources say that CIT Group is considering accepting an offer of financing from Citigroup and Barclays Capital. Those reports come on the heels of recent speculation that CIT was in talks with Citigroup and Bank of America to refinance a $3 billion loan with an $8 billion to $10 billion secured-loan facility. However, CreditSights noted that it could not confirm reports that CIT was in talks with the two banks about the facility. CreditSights also said that the Federal Reserve would have to approve any transaction between CIT, Citigroup, and Bank of America. Assuming that the Federal Reserve does approve the transaction, the financing would buy CIT's management time with its bondholder steering committee, which ordered it to submit an "acceptable" restructuring plan by Oct. 1, said CreditSights analyst Adam Steer. But he added that the extra debt would not reduce the likelihood of an exchange offer or prepackaged bankruptcy, and that CIT would still need to raise equity to satisfy regulators and re-establish its business. In addition to the secured-loan facility, CIT could also be looking to create $6 billion to $9 billion of capital by exchanging $30 billion worth of unsecured notes through debt swaps, said Brian Charles, a debt analyst at RW Pressprich & Co. CIT's bondholders are also trying to provide the company with roughly $2 billion in loans.
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Xerox Takes Gamble in Bid for ACS
Wall Street Journal (09/29/09) Bulkeley, William M.; Pereira, Joseph
Under the guidance of new CEO Ursula Burns, Xerox Corp. announced the most ambitious acquisition in the company's more than 100-year history, following the lead of other hardware manufacturers expanding into services with a $5.6 billion bid for Affiliated Computer Services Inc. (ACS). Aimed at revitalizing Xerox, the acquisition of ACS--which has 74,000 workers, 20,000 more than Xerox--is a big risk. But Burns, a long-time Xerox employee who ascended to the CEO position in July, is looking for untapped markets as Xerox's mainstay copier and printer products face competition from Hewlett-Packard Co. and other rivals. She said the companies would "be pursuing a $500 billion market" -- the back-office operations for businesses and governments. The combined companies expect revenue of more than $22 billion. "There's a strong strategic rationale for the deal. Customers want to do more things with fewer providers, and there are too many companies in" the services arena, said Peter Bendor-Samuel, the CEO of Everest Group.
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Visa and NYSE Euronext Partner to Reinforce Commitment to Financial Literacy Education
MELODIKA.net (09/26/2009)
NYSE Euronext and Visa Inc. recently launched the Financial Soccer financial literacy video game. The free, branded game merges soccer with an award-winning financial literacy curriculum. Copies of Financial Soccer were distributed to each trader on the Exchange floor. "Visa and NYSE Euronext share a strong commitment to financial literacy and to reaching young people in innovative and interesting ways. For example, our co-branded DVD, Financial Soccer, is an interactive program that makes learning about finance fun and sets tangible goals for financial responsibility," said NYSE Euronext CEO Duncan Niederauer.
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Wells Fargo Grants Automotive Credit New Credit Facility
SubPrime Auto Finance News (09/29/2009)
Wells Fargo Preferred Capital has granted Automotive Credit Corp. a senior credit facility valued at $50 million. "We have significantly expanded our client based and positioned our company for future growth as new clients like Automotive Credit Corp. are able to grow their businesses through greater access to capital," said Wells Fargo Preferred Capital President Tom Murphy. "The expansion of our business demonstrates Wells Fargo's commitment to the consumer and auto finance industry. Our customers have more than $3.1 billion of available credit lines with Wells Fargo Preferred Capital, enabling them to extend in excess of $5 billion in consumer loan products."
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Credit Card Companies React to Titusville Man's Petitions
Florida Today (FL) (09/30/09) Price, Wayne T.
7-Eleven recently conducted a national customer petition drive that gathered about 1.6 million signatures from people who believe credit card transaction fees should be reduced. But Visa and MasterCard say that based on their own research, it is clear that consumers understand that transaction fees are part of the cost of doing business. "It's surprising that 7-Eleven, a company that prides itself on convenience, would mount such an aggressive campaign against the most convenient form of payment," Chris McWilton, president of U.S. markets at MasterCard Worldwide, said during a Sept. 29 teleconference. "Of those consumers who were inclined to sign the petition, 80 percent mistakenly believed that consumers would directly and immediately benefit from a reduction in merchant fees," MasterCard stated.
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New Rules Unveiled for Credit Card Cos.
CBS News (09/29/09) Axelrod, Jim
The Federal Reserve on Sept. 29 announced the new set of consumer protections it wants to include in the Credit Card Act, passed into law by President Obama this past spring. The bill contains more than 800 pages of rules. "It takes what might be cracks and crevices and tries to cement them up and give people a working blueprint of what they are going to have to comply with and how Congress wants this carried out," said Credit.com founder Adam Levin. The regulations, slated to go into effect in February, restrict interest rate hikes for the first 12 months after opening an account, rate hikes on an existing balance, and the issuing of cards to individuals under 21 unless they provide proof of income or a parent's signature.
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Credit Card Fees: 5 Things You Should Know
U.S. News & World Report (09/29/09) Palmer, Kimberly
The interchange fee debate is intensifying as Congress considers instituting limitations in response to complaints by retailers. Credit card issuers defend the fees, saying they are a required component of the smooth functioning of the card system. Aite Group analyst Ron Shevlin says that the fees cover the convenience cards represent both for cardholders and merchants. A recent report indicates that interchange fees are higher in the United States than in other countries, but the Electronic Payments Coalition's Trish Wexler says the merchant discount fee is actually average. Shevlin says that fees on rewards cards tend to run higher since such rewards are partly offered by issuers via higher interchange rates, while the dramatic growth in rewards card usage has triggered a hike in such fees. Fees also can vary depending on the venue, with MasterCard's Shawn Miles noting that although rewards cards have slightly higher interchange rates, customers tend to spend more money on those cards, which works to the advantage of merchants. In the meantime, card networks and banks argue that pending legislation that restricts interchange fees would force issuers to hike fees in other areas, citing as an example an increase in annual fees charged on cards following Australia's restriction of interchange rates.
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HMDA Data Finds Decline in Lending
American Banker (10/01/09)
Federal regulators released a report Sept. 30 indicating that the number of high-priced loans fell in 2008, but the percentage of those loans going to African-American and Latino consumers increased. Even so, the report, based on Home Mortgage Disclosure Act data, also showed that African-American, Latino, and Asian consumers were less likely to receive traditional loans than were Caucasian consumers, and the percentage of African-American and Latino consumers denied loans climbed. The decline in higher-priced private lending resulted in an increase in loans backed by the Department of Veterans Affairs and the Federal Housing Administration (FHA). FHA-backed loans rose threefold from 2007 to 2008.
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Reed Files Bill to Reduce Foreclosures
Providence Journal (RI) (10/01/09) Ziner, Karen Lee
Sen. Jack Reed (D-RI) has introduced legislation that he says will enable banks and mortgage lenders to speed up loan modifications. The Preserving Homes and Communities Act of 2009 would require that qualified homeowners be offered workouts; establish a new mortgage payment assistance program; and provide incentives for state and local governments to use mediation programs to find alternatives to foreclosure. The bill would provide $6.375 billion for states to create revolving loan funds for grants or subsidized loans to homeowners; $80 million in competitive federal matching funds for states and localities to establish mandatory mediation programs; and $5 million for the Department of Housing and Urban Development to oversee the development of a single database for monitoring mortgage markets.
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Lawmaker Wants to Hold Ratings Firms Liable for Inaccuracies
Associated Press (10/01/09) Gordon, Marcy
Rep. Paul Kanjorski (D-PA) has drafted a bill that would hold credit-rating agencies collectively liable for inaccuracies related to their assessments on the creditworthiness of public companies and securities. The lawmaker believes that collective liability would force Moody's Investors Service, Standard & Poor's, and Fitch Ratings to "police one another and release reliable, high-quality ratings." The agencies have come under fire for not providing investors with adequate warning of the risks in subprime mortgage securities, which were downgraded last year and spawned hundreds of billions of dollars in losses and write-downs at big banks and investment firms.
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Subprime Uncle Sam
Wall Street Journal (09/29/09) P. A24
As financial institutions face new "capital cushion" requirements to lower risks and losses to taxpayers, some observers believe the Federal Housing Administration (FHA) should abide by the same requirements given that the number of high-risk mortgages backed by the agency has reached record heights. The FHA's insurance portfolio is slated to rise to $1 trillion by the end of 2010 from $410 billion in 2006; and over the last three years, the number of mortgages backed by the FHA has surged to 25 percent from about 2 percent. The Wall Street Journal editorial staff point out that taxpayers could be hit with losses of more than $100 billion if home prices continue to decline in the hardest-hit markets in Arizona, California, Florida, and Nevada. They insist that the minimum down payment for FHA-insured loans should be raised to 5 percent from 3.5 percent, pointing out that private lenders have hiked down-payment requirements to upwards of 20 percent and that government data reveals a link between low down payments and high default rates.
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Battle Waged Over Consumer Agency
Washington Post (DC) (10/01/09) P. A12; Dennis, Brady
Speaking before the House Financial Services Committee, supporters and opponents of the new Consumer Financial Protection Agency (CFPA) discussed the merits and drawbacks of its creation. Supporters contend the new agency would provide the federal government with the tools it needs to help consumers receive fair treatment, while opponents suggest the new agency would only increase existing gaps in protection for consumers because its staff would be inexperienced. "Putting an untested, inexperienced agency in charge of consumer protection for the entire financial marketplace could exacerbate existing problems, rather than reducing them," said Bill Himpler, American Financial Services Association executive vice president. Committee Chair Barney Frank (D-MA) plans to mark up the legislation by the week of Oct. 12.
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Dodd Builds Support to Create Single Regulator
American Banker (09/30/09) P. 1; Kaper, Stacy
Senate Banking Committee Chair Chris Dodd (D-CT) continues to push for a single federal regulator despite opposition from community bankers and members of the House. He said, "Last week I suggested further consolidation of bank regulators would make a lot of sense. Since that time, I have heard from many who have argued that I should not push for a single bank regulator. The most common argument is not that it's a bad idea--it's that consolidation is too politically difficult. That argument does not work for me." Dodd is crafting legislation to strip supervisory power from the Federal Deposit Insurance Corp. and the Federal Reserve Board, while also consolidating the Office of the Comptroller of the Currency and Office of Thrift Supervision, like the Obama administration has proposed. Dodd says, "It's clear that we must eliminate the overlaps, redundancies, and additional red tape created by the current alphabet soup of regulators. We don't need a superregulator with many missions, but a single federal bank regulator whose sole focus is the safe and sound operation of the nation's banks. A single operator would ensure accountability and end the frustrating pass-the-buck excuses we've been faced with." Community banks are concerned that a single federal banking regulator would provide larger banks with an unfair advantage, which Dodd says he would not allow. Government Accountability Office Managing Director of Financial Markets and Community Investment Richard Hillman says, "Our analysis indicated that additional opportunities exist beyond the Treasury's proposal for additional regulatory consolidation that could further decrease fragmentation in the regulatory system, reduce the potential for differing regulatory treatment, and improve regulatory independence."
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Senator Hagan Talks About Bill to Change Education
digtriad.com (09/28/09) Rivera, Tanya
Sen. Kay Hagan (D-N.C.) wants children nationwide to know more about managing money. Hagan is sponsoring a proposed Financial Literacy Bill that would educate students in grades six through 12 on such topics as budgets, checkbooks, credit cards, and loans. Hagan says it is crucial that students learn about what debt really means prior to becoming adults. Under Hagan's bill, states would apply for grants to help them implement the program. States would be required to use 80 percent of grant funds for classroom purposes, she says.
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FDIC Chief Wants Overdraft Fees Restricted
USA Today (09/27/09) Chu, Kathy
Federal Deposit Insurance Corp. Chair Sheila Bair is calling on the Federal Reserve to impose stricter regulations on overdraft fees, despite concerns that consumers will be dropped by banks if they are no longer profitable and that increased regulation will hinder banks' financial recovery. "If we had early regulatory intervention on this, the genie would have never gotten out of the bottle," Bair says. The Federal Reserve is expected to issue a rule on overdrafts by year's end.
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How Is Floor Plan ABS Performing?
SubPrime Auto Finance News (09/29/2009) Reed, Jennifer
DBRS has uncovered some evidence of resiliency in dealers' ability to pay floor planning during the current tough times for U.S. domestic automakers. Many market participants were expecting payment rates on floor plan asset-backed securities (ABS) collateral to slow due to a disruption in new-vehicle production, consumer aversion to purchasing vehicles, and manufacturers facing bankruptcy. "Thus far, this situation has not materialized, in part due to the robustness of dealer floor plan transaction structures that seek to protect investors through the rapid amortization of the ABS notes," says DBRS. At the time General Motors filed for bankruptcy, the outstanding ratings of Superior Wholesale Inventory Financing Trust XI were placed "Under Review with Developing Implications," but the transaction was paid down in full on Sept. 14, almost two and half years ahead of schedule. And with the DaimlerChrysler Master Owner Trust 2006-1, the Class A notes were paid down in full five months after Chrysler's bankruptcy triggered early amortization, and two months before the anticipated maturity. The dealer floor plan sector has also benefited from the Cash for Clunkers program. "Not only have payment rates increased, but the levels of previously financed inventory remaining on dealer lots are at all-time lows," says DBRS.
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Luxury Vehicle Market Tanks
Lansing State Journal (MI) (09/29/09) Snavely, Brent
Sales of luxury vehicles fell 31.8 percent through August, while total sales dropped by 27.9 percent. As a result of the decline in luxury vehicles, a number of high-end vehicle makers are increasingly offering incentives to lure drivers back into their showrooms. For example, Porsche offered an average of $4,412 in cash-back rebates and other deals on its cars--which range in price from $46,000 to $130,000--through August, according to Autodata Corp. That represents an increase of 657 percent over the incentives offered by Porsche during the same period of 2008. Meanwhile, Bentley has begun offering 0.9 percent financing on its Continental GT luxury coupe, which starts at $180,000. Other luxury automakers are trying to boost sales by marketing their products as being fuel efficient.
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Asset-Backed Trading Quiet as New TALF Sales Emerge
Reuters (09/28/09) Leinfuss, Nancy
U.S. asset-backed securities (ABS) were traded quietly in the background on Sept. 28 as investors turned their attentions to a fresh influx of supply. "Market activity has been thin today. Most people are looking at the new TALF deals," an ABS investor noted. Issuers proffered $4.3 billion in ABS deals before the start of the Oct. 2 subscription round set by the Fed's Term Asset-Backed Securities Loan Facility (TALF). Harley-Davidson, Mercedes-Benz, Ford Credit, and CitiFinancial are among the issuers to join the bevy of companies marketing deals under TALF. In September's round of subscriptions, investors asked the Fed for $6.5 billion in TALF loans to pay for the $16.6 billion in ABS securities provided through the program. Since the program's inception in March, roughly $77 billion in ABS agreements have been retailed under TALF, with more than half of those loans--$47.5 billion--having been issued to investors.
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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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