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New White Paper Provides Overview of Interest Rate Cap Legislation
AFSA has published a white paper that covers state and federal legislation imposing interest rate caps on installment and other consumer loans. The paper explains why arbitrary rate caps hurt consumers and discusses the Talent Amendment. It also summarizes relevant legislation in the 2011-2012 session. Thirty-eight bills have been considered in 19 states and Congress relating to 36 percent or lower rate caps; one bill has been enacted in New Hampshire. Bills with other rate cap provisions have been enacted in four states – Maine, New Mexico, Tennessee and Wisconsin – and are currently being considered in Congress and five states. The paper also reports on the Missouri faith-based ballot initiative aimed at capping interest rates on installment loans and other products at 36 percent.
Lawmakers Move to Expand Mortgage Protections for MilitaryHousingWire (05/15/12) Prior, Jon
An amendment to the National Defense Authorization Act that would extend protections under the Servicemembers Civil Relief Act (SCRA) was introduced in the House of Representatives. The bill, sponsored by Reps. Elijah Cummings (D-MD), Bob Filner (D-CA) and Adam Smith (D-WA), would expand SCRA to include servicemembers operating in support of contingency operations, such as national emergencies, surviving spouses of servicemembers whose death is service-related, and veterans considered to be 100 percent disabled at the time of discharge. The amendment will extend a stay on foreclosure proceedings against a servicemember, which is set to sunset at the end of this year, by three months to 12 months. Penalties to lenders who violate the SCRA will also be doubled to a fine of $110,000 for first violations and $220,000 for subsequent violations. Lenders would also have to designate a compliance officer to ensure they are complying with the SCRA and provide a toll-free phone number and website to assist servicemembers dealing with SCRA problems.
Mortgage Principal Reductions Weighed for Fannie, FreddieBloomberg (05/16/12) Benson, Clea and Hopkins, Cheyenne
The Federal Housing Finance Agency (FHFA) may follow a California effort to pay for writedowns using federal dollars set aside for areas with the worst housing-market declines, by permitting servicers to forgive debt on certain mortgages owned or guaranteed by taxpayer-owned companies. Lenders do not bear any cost of the principal reduction. Currently, the agency bars principal reductions on other Fannie Mae and Freddie Mac-backed troubled loans under the grounds that it would hurt the company’s finances. In January, the Treasury offered the GSE’s 63 cents for each dollar of principal reduction using unspent funds from the Troubled Asset Relief Program. While FHFA Acting Director Edward J. DeMarco has yet to say whether they will allow them to accept the payments, he has raised concerns that debt forgiveness would result in new costs for the firms by encouraging defaults by homeowners who are underwater but have continued to make payments. Assistant treasury secretary for financial stability Timothy G. Massad maintains that the Treasury is suggesting it “be used only where the economics justify it relative to the probability and cost of a foreclosure, and that’s likely to be a relatively small number of loans.”
New Jersey Lawmakers May Scrap Troubled Gift Card LawAssociated Press (05/16/12) Delli Santi, Angela
The New Jersey Senate Budget Committee will consider legislation on May 17 that would reverse a 2010 law enabling the state to claim the value of gift cards unused for two years as “unclaimed property.” The law was projected to generate $65 million in revenue for the state. Under the law, in order for the state to claim the value of the cards, gift card sellers are required to obtain ZIP codes from buyers, otherwise the value reverts to the company or the state in which the company is incorporated. Assembly Bill 1871, which was passed by the Assembly in March, would ensure that the law is not implemented. It would also prohibit retailers from charging dormancy fees or imposing expiration dates on card use, and reinstate the 15-year abandonment period before a state can claim revenue from travelers checks and seven year period before it can claim uncashed money orders, both of which were cut down to a three year period in the 2010 budget. “The governor's changes were decidedly anti-consumer and anti-business at a time when we should be protecting both,” said Paul Moriarty, a sponsor of the bill. Andy Pratt, the state’s Treasury Department spokesman said that the administration does not intend to backtrack on the 2010 law, and that it is “in the process of developing regulations based on the current law that will address some of the concerns people have.”
S&P/Experian: Auto Loan Defaults Sink to Lowest Point in Eight YearsSubPrime Auto Finance News (05/16/12)
Auto loan default rates in April dropped to 1.07 percent, continuing the positive trend seen in the first quarter of 2012, according to data released by S&P/Experian Consumer Credit Default Indices. In addition to auto loans, the national composite rate, and first and second mortgage default rates also reached new lows in the first quarter of 2012. The first mortgage default rate dropped 12 basis points in April over March to the lowest rate since July 2007 and the second mortgage rate fell to its lowest in seven years. Bank card default rates, however, had a marginal increase to 4.49 percent in April from 4.47 percent in March, but is still close to the recent low in February.
J.D. Power: April Leasing Stays ConsistentAuto Remarketing (05/14/12) Zulovich, Nick
New vehicle leasing levels and lease mix across segments remained consistent in April, according to J.D. Power’s April Industry Health Review. The seasonally adjusted annualized rate for the entire new-vehicle retail sales industry was slightly higher in March, but almost ten percent higher year-over-year. According to J.D. Power’s senior director Thomas King, “in terms of the absolute volume of leases, the strong retail sales are helping lenders generate more contracts.”
King attributes some of the industry growth to the return of buyers with lower credit scores, who typically have a lower tendency to lease vehicles, to the market. Rather than leasing a new vehicle, which King says remains a key purchase method for new vehicle buyers, these customers could be signing a finance contract for 72 months or longer. New vehicle financing for 72 months or longer dropped slightly from March, but “remain at record levels from a historical perspective,” constituting 29.3 percent of new vehicle sales in April, 19.9 percent higher than in 2011. King expects demand for extended term loans to remain strong, and although the use of these loans increases the risk associated with a finance contract for a lender, he says the “combination of strong residual values on new vehicles and strong used vehicle prices are helping to mitigate that risk.”
San Jose City Council Votes to Cap Payday LendersSan Jose Mercury News (05/16/12) Woolfolk, John
On May 15, the city of San Jose, Calif. adopted an ordinance to cap the number of payday lenders in the city, becoming the largest city to limit the number of payday lenders and the first to block these businesses from opening around very low-income areas. Payday lending businesses that are currently in the city are permitted to remain. New payday lending businesses are permitted if they replace a payday lender currently in the city at the same location within six months. Otherwise, businesses must meet ordinance restrictions, and be a quarter-mile from any other payday lender or any low-income area.
AFSA Newsbriefs is a weekly executive summary of AFSA initiatives and consumer credit articles. AFSA Newsbriefs is free for members. Send an email to [email protected] to subscribe.
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