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AFSA Hears from Bipartisan Congressional Leaders

Nearly 100 AFSA members, including finance company executives and business partners, visited Capitol Hill on Oct. 25 during the 95th AFSA Annual Meeting in Washington, D.C. Participants traveled to the Capitol to meet with Members of Congress who sit on key committees and represent states where AFSA members do business. To cap off the day, AFSA organized a town hall forum featuring a diverse range of views, including: Speaker of the House John Boehner (R-OH); Rep. Barney Frank (D-MA), namesake of the Dodd-Frank Act; House Majority Whip Kevin McCarthy (R-CA); and Reps. Brad Sherman (D-CA), Jim Himes (D-CT), Ed Perlmutter (D-CO) and Patrick McHenry (R-NC). With the exception of Speaker Boehner, all of the aforementioned sit on the House Financial Services Committee.
AFSA members visited congressional offices to talk about the challenges and opportunities facing finance companies today, as well as the impact of public policy on the availability of consumer and commercial credit. Topics of discussion included CFPB implementation, the presence of longstanding state-based regulation, emerging concerns among policymakers about military service members, and needed modernization of the Telephone Consumer Protection Act, which impacts collections. AFSA’s government affairs staff will build upon the relationships nurtured during the fly-in and continue to advance these legislative objectives going forward.

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New AFSA Chair Installed at Annual Meeting

During AFSA’s 95th Annual Meeting in Washington, D.C., John Noone, Ford Motor Credit Company president, was installed as the association’s 2011-2012 Chair.

During his one-year term, Noone will preside over the AFSA Board and Executive Committee meetings, serve as an ex-officio member of all AFSA committees, and represent AFSA at industry and association-sponsored conferences and meetings.

He has been a member of AFSA’s Board of Directors, Executive Committee and Vehicle Finance Division Advisory Board since 2009. Noone’s career encompasses virtually every aspect of automotive financing worldwide. He currently is leading global efforts focused on strategy, business development and regulatory issues. He joined Ford Credit in 1972, and has held numerous staff and operations positions covering the North America, Asia Pacific and Africa, Europe and Latin America business segments.

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Three Executives Honored with AFSA’s Distinguished Service Award

In recognition of their significant contributions to AFSA and the consumer finance industry, three long-time members were presented with the Distinguished Service Award (DSA) during AFSA’s 95th Annual Meeting in Washington, D.C. The recipients were Joe McCaw, president of Life of the South; Sandy McLean, chairman and chief executive officer of World Acceptance Corporation; and Stephen Smith, senior vice president of American Honda Finance Corporation.

McCaw has been an AFSA Premier Business Partner since 1989 and currently serves on the association’s Business Partner Advisory Board and the AFSA Education Foundation Board of Directors.

McLean led AFSA as the 2009-2010 Chairman, and currently serves on the association’s Executive Committee, Board of Directors, and the AFSA Education Foundation Board of Directors.

Smith served as the 2008-2010 chairman of AFSA’s Vehicle Finance Division and currently serves on the association’s Board of Directors and Executive Committee. He also serves on the board of Americans Well-Informed on Automobile Retailing Economics, or AWARE, an industry educational coalition.

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Inside the Beltway
Commentary: Durbin Amendment Backfires
Politico (10/25/11) Corker, Sen. Bob

Sen. Bob Corker (R-TN) argues in this opinion piece that the Durbin amendment, which limits the price banks can charge retailers for customers’ use of debit cards, was not the solution to the problems with the country’s biggest banks. Retailers argued that big banks were charging them too much for debit-card transactions and that a price cap on interchange fees would pass savings along to consumers. “Unfortunately, as many of us predicted, the reality looks somewhat different,” Corker wrote. Banks now must either run their debit card businesses at a lost or charge consumers a fee, Corker stated. “And what about the savings we were promised in the form of lower retail prices? I wouldn’t waste time looking for those. Prices paid by consumers are unlikely to drop 1 cent. Interchange revenue will just go to the big box retailers’ bottom lines – while consumers foot the bill,” he stated. “The Durbin amendment should serve as a lesson to Congress and this administration that “feel good” measures passed in a spirit of populism that cause politicians to pick industry winners and losers are often counterproductive. And he American people are left paying the price – literally,” he added.

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FTC Plans Deep Dive Into Auto Leasing
Automotive News (10/26/11) Henry, Jim

The Federal Trade Commission’s third roundtable on auto finance, which will take place Nov. 17 in Washington, will focus on auto leasing and may lead to stiffer dealership lending regulations. According to the FTC, the panel topics at the roundtable will include: understanding vehicle leasing; identifying widespread leasing practices; consumer protection issues in vehicle leasing; identifying ways to educate consumers; and identifying practices that harm consumers and finding potential remedies. Requests from prospective panelists will be accepted until Nov. 4. While the FTC’s notice announcing the Washington roundtable seems to suggest the session may be the last, the FTC maintains that they have yet to decide on how many roundtables will be held.
In the two previous roundtables, consumer groups highlighted abusive practices such as “yo-yo financing,” which they say occurs when a dealer makes a customer come back after delivery to sign a new contract for more money. Auto lenders and dealers insist that these abuses are not widespread and that F&I transactions are already subject to regulation. Dealer reserve (or dealer markup) has also been a central disagreement during the roundtables. Consumer advocate groups have commented that dealer markup is arbitrary and that it is being applied in a way that could amount to discrimination. Industry groups, however, point out that indirect lenders don’t lend money to customers at the rate the lender buys a contract from a dealer at and that even after the dealer reserve is added, indirect loan rates are still lower than direct-to-consumer loans from banks. They also added that auto lending is already subject to anti-discrimination regulations.

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Officials Target College Financial Aid Letters
Atlanta Journal-Constitution (10/26/11) Choi, Candice

The lack of clarity in financial aid award letters has played a role in driving up graduates’ debt loads to record levels, according to federal officials. On Oct. 25, the Consumer Financial Protection Bureau (CFPB) and Department of Education announced a plan to simplify financial aid letters and are asking for feedback on a draft form that makes clearer distinctions between scholarships and loans and includes figures such as the estimated monthly payment and total debt upon graduation. The final version of the form, which is expected in coming months, could also include a school’s graduation and loan default rates. The adoption of these model forms will initially be voluntary, but if voted on by Congress they could be made mandatory for schools that receive federal financial aid. In their announcement about the initiative, federal officials stated that “jargon-laden financial aid award letters using inconsistent terms and calculations,” is one of the reasons for the increase in student debt, because students don’t understand how much their loans will actually cost them. Mark Kantrowitz, a financial aid expert, has noted that college is one of the few major life expenses that don’t come with standardized disclosures about costs. Students also often take on these large debt loads without questioning whether they make sense because they have been conditioned to believe a college education will pay for itself, but now that students are having trouble finding jobs the risks are all too clear, said Anthony Ogorek, a financial advisor. Unlike other types of debt, student loans can’t be discharged in bankruptcy, and borrowers who fail to pay can have their wages garnished.

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White House Help on College Loans Isn't So Much
The San Francisco Chronicle (10/27/11) Pender, Kathleen

The U.S. Education Department announced two changes to some federally-backed student loans on Oct. 25 as part of President Obama’s loan relief program. First, students who have at least one loan issued by the Department of Education under the direct loan program and one issued by a lender under the Federal Family Education Loan Program – which ended in July 2010 – that consolidate them into the direct loan program can lower the interest rate on some of their loans by a quarter of a percentage point. This will mainly affect borrowers who have graduated or left school. However, Mark Kantrowitz, the publisher of Finaid.com, noted that the additional discount on loans that students will receive if they sign up for automatic payments under the program is not really an enhancement because it is already available for all borrowers in the direct loan program. The department says that about six million borrowers could get this break and that borrowers moving into the direct loan program will also save the government money in servicing costs and lower loan defaults because borrowers only have one monthly payment.
The other change is the Pay as You Earn Program, which enhances the current Income Based Repayment (IBR) Program that helps borrowers who owe a lot relative to their income. This will mainly affect students who are currently in college or will be next year. Under a law passed last year, borrowers who take out their first loan in July 2014 or later and enter the IBR program will have their payments capped at 10 percent of discretionary income instead of 15 percent. Pay as You Earn accelerates the start date of the 2014 changes to help students in college today. To qualify, students must have taken out their first federal student loan in 2008 or later and at least one more in 2012 or later. The Administration estimates 1.6 million borrowers could one day benefit from Pay as You Earn, and says that the two programs combined won’t cost taxpayers because savings from the loan consolidation program will offset the interest rate reductions and loan forgiveness. Lauren Asher, president of the Institute for College Access & Success, said that “raising awareness of Income Based Repayment can help millions of borrowers who are struggling now to get their payments under control and qualify for forgiveness after 25 years.”

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Expansion of Mortgage Program is Limited in Scope
The New York Times (10/24/11) Appelbaum, Binyamin

The Federal Housing Finance Agency (FHFA) announced an expansion of a mortgage refinancing program with a goal of reducing the monthly payments of up to one million homeowners, but analysts said the plan’s modest scope will do little to heal the housing market or help the broader economy.
The program changes, which will take effect over several months, will let borrowers who have made at least six consecutive monthly payments qualify for new loans regardless of the diminished value of their homes. However, the program will only apply to loans that Fannie Mae and Freddie Mac acquired before May 31, 2009, and will not reduce the amount that borrowers owe. To be eligible, borrowers must have at least 20 percent equity in their homes.
While administration officials estimate that refinancing could reduce the average borrower’s annual payments by about $2,500 and lead to about $2.5 billion available for spending on other things, the actual impact will be much less because households are not likely to spend all of their savings. “Problems in the housing market are a serious impediment to a stronger economic recovery,” said William C. Dudley, the president of the Federal Reserve Bank of New York. “This calls for a comprehensive approach to housing policy, starting with an urgent effort to remove the obstacles that make it difficult for all borrowers to refinance at today’s low mortgage rates.”
Problems in the original program were obvious from the beginning, but the mortgage industry and acting FHFA director Edward J. DeMarco have been reluctant to make necessary concessions. The revised effort is built on sweeping voluntary agreements with the mortgage industry to allow borrowers to refinance even if their homes have declined in value.

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National and State News
Bloomington Will Not Try to Limit Payday Loan Rates
The Pantagraph (10/24/11) Wells, Rachel

On Oct. 24, Bloomington, Ill. Alderman decided they would not pursue the proposed payday lending interest rate cap, after City Attorney Todd Greenburg reversed his opinion that the city had the authority to limit interest rates, following a recent Illinois Supreme Court ruling against Chicago’s attempt to tax online ticket sales. “I cannot as the legal advisor to the city tell you, in good faith, that if you choose to regulate interest rates on payday loans that your actions will be upheld by the courts,” he said. However, the city is looking at other avenues to address these companies’ activities, including debating a resolution at their Nov. 14 meeting that would urge the Illinois General Assembly to enact a limit and possibly considering requiring payday loan companies to better educate their customers about the loans they offer, the city’s mayor Steve Stockton said. However, some still do not think that is enough. Don Carlson, executive director of Illinois People Action – a group that has been pushing the rate cap – disagreed with the council’s decision against the ordinance and their use of a resolution to the state legislature as an alternative, stating that legislators aren’t likely to approve anti payday-loan laws and that education measures aren’t good enough. Others, who were opposed to the ordinance, want the right to shop for a loan where they want, and criticized the group for “threatening people with horror stories.”

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Chief of Freddie Mac Will Step Down
The Wall Street Journal (10/27/11) Timiraos, Nick and Zibel, Alan

Charles E. Haldeman, Jr., the CEO of Freddie Mac, will step down next year, the Federal Housing Finance Agency (FHFA) said in a statement. Haldeman’s exit is the latest in a string of departures over the past two years that has led to thinned executive ranks and dozens of top managers leaving the firm – a trend some have blamed on the stress of working for a company whose future is uncertain. Haldeman always intended to be at the company for about three years, but a “siege mentality” that has made it difficult for top leaders to execute decisions quickly contributed to his timing, people close to Haldeman said. When Haldeman joined Freddie Mac, he told colleagues he expected Congress and the Obama Administration to clearly decide on the company’s future by the end of 2012, when he would leave the firm, but instead Washington remains uncertain about how to move forward, which is having a “really negative impact on the morale at the company,” Haldeman stated in a previous speech. The FHFA has also said that two board members – John Koskinen, the chairman of the board, and Robert Glauber - will step down in February when they reach their mandatory retirement age. Freddie Mac asked the FHFA to waive the retirement restriction for one year, but they declined - a decision which some say may have influenced Haldeman’s timing. In a company-wide voicemail Haldeman said that his decision was “very bitter-sweet,” but that he wanted to announce his plans now to ensure a “smooth transition.” The departures come in the midst of a debate over whether Freddie and Fannie should be doing more to help the housing market. In February, the White House said that Fannie and Freddie would be “wound down,” a position supported by congressional republicans. Haldeman said the stark language was not helpful to company morale. According to employees at Freddie, while Haldeman’s pressure to cut costs created friction with some managers, he was well liked.

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October 27, 2011

Forward To A Colleague

Balboa Insurance
Wells Fargo Preferred Capital
GoldPoint Systems
Counselor Library
Carleton, Inc
Allied Solutions
ParaData Financial
Life of the South
AFSA Newsbriefs

AFSA Newsbriefs is a weekly executive summary of AFSA initiatives and consumer credit articles. AFSA Newsbriefs is free for members. Send an email to newsbriefs@afsamail.org to subscribe.

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.