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New SGA White Paper Discusses Vehicle Franchise Legislation with Captive Effects
AFSA’s State Government Affairs Committee published a white paper on vehicle finance legislation seeking to regulate the relationship between vehicle manufactures, captive finance companies and auto dealers. The paper details vehicle franchise legislation from the 2011-2012 session with provisions that prohibit coercion, restrict dealer finance companies’ abilities to offer incentives, restrict the ability to modify floor plan payment obligations, and exclude dealers from responsibility for loan application inaccuracies. So far this session, 45 franchising bills with captive effects have been considered in 24 states and the U.S. Congress. Of these, 22 were enacted in 19 states.
AFSA is concerned with “franchise with captive effects” proposals that include provisions that: 1) compromise the ability of captive finance companies to compete fairly with other vehicle finance providers; 2) legislate captive finance companies out of the dealer finance business; and/or 3) decimate the floor plan financing system upon which dealers rely. This restrictive legislation could not only force captive finance to substantially restrict lending or exit markets altogether, but also could negatively impact consumers by raising the costs of vehicle finance.
CFPB Departure Triggers Concern by BanksAmerican Banker (11/13/12) Witkowski, Rachel
Raj Date, deputy director at the Consumer Financial Protection Bureau (CFPB), plans to leave his post by Jan. 31, after the Bureau finalizes several major mortgage regulations. As a former banker, Date was viewed by many in the financial services industry as a moderating influence who listened to their concerns and served as a key point of contact. Date previously worked at Capital One Financial and Deutsche Bank. Date’s experience “became the factor in laying aside certain fears,” said Isaac Boltansky, a policy analyst for Compass Point Trading & Research. “The question becomes: who will the Bureau use to effectively communicate its priorities in the future after he’s been such a mouthpiece for the Bureau?”
It was not immediately clear who might succeed Date in this crucial role. When Richard Cordray’s term as director of the Bureau expires at the end of 2013, the deputy director will serve as acting director until a successor is confirmed by the Senate. “The departure of Date brings a degree of uncertainty to the CFPB’s structure going forward,” Boltansky said. Reportedly, the CFPB is looking at outside candidates to succeed Date. Industry representatives are urging the CFPB to hire someone with industry expertise.
The “qualified mortgage” rule is one of the regulations to be finalized before Date’s departure. After the mortgage regulations become finalized, Boltansky expected Date to focus on non-bank rules, particularly on credit cards. “As the Bureau expands into its non-bank regulatory focus, it’s lost an important voice in communicating its priorities and efforts to Wall Street and the banking industry,” he said.
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CFPB to Collaborate with Startups BillGuard, Plastyc and SimpleAmerican Banker (11/14/12) Sposito, Sean
With a stated goal of fostering innovation, the Consumer Financial Protection Bureau (CFPB) has launched Project Catalyst, which will have a focus on data sharing and disclosure testing. Three financial services startups have agreed to be involved in the project. BillGuard flags fraudulent charges on its users’ credit cards. Plastyc provides prepaid cards, primarily to the underbanked. Simple is a branchless bank. The CFPB does not plan to limit its collaborations to startups.
"Simple and Plastyc will be providing data about when and how consumers seek to access their transaction data and whether goal-setting tools can encourage savings as well as how analytics-driven answers can decrease consumer confusion and call volume," said a CFPB spokeswoman. "We are also gathering data from BillGuard to help us understand trends around billing disputes."
"We clearly understand that innovators are often the first to notice" trends, said CFPB Director Richard Cordray, who stressed that any data the CFPB shares will not include personally identifiable information.
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Settlement Monitor Announces Outreach for ServicemembersDSNews.com (11/12/12) Cho, Esther
On Veteran’s Day, Joseph Smith, the monitor of the national mortgage settlement, launched a military outreach program, informing service members of their ability to report mortgage servicing complaints to the Office of Mortgage Settlement Oversight online. Online forms for submitting complaints are available for both service members and their advocates. “The national mortgage settlement has particular provisions specific to service members, and we want to make sure they’re aware of them. I also want to know if any of our nation’s veterans are experiencing wrongful treatment from their mortgage servicer, as it will help me better oversee the settlement and ensure they find appropriate counsel for their issue,” said Smith. The information from the complaints will be used to investigate trends and track how servicers are dealing with customers. “It is my responsibility to help make this settlement meaningful for borrowers,” Smith said. “That obligation is especially important for the men and women who serve in our military. I hope that this information will be helpful to them, and they will let me know if they do not see improvements.”
Credit-Fueled U.S. Car Sales May Need Help from IncomesBloomberg (11/13/12) Woellert, Lorraine
The return of easy lending has led to a rebound in auto sales, but some economists question whether these gains can be sustained without a rise in income and employment. The Federal Reserve’s low interest rates drove investors to pour money into securities backed by subprime car loans in search of higher returns, which boosted the auto industry and economic expansion. But according to Jacob Oubina, senior U.S. economist at RBC Capital Markets LCC, fundamental drivers of consumption such as income and employment must improve in order for sales to go to another level. Auto loans are the biggest class in the $200 billion asset-backed securities market, according to Harris Trifon, a debt analyst at Duetsche Bank AG. Investments in automotive subprime lending in particular are on the rise, as the average credit score of both new and used car drivers has fallen. The smart money is definitely investing heavily in automotive subprime, said Global Lending founder Douglas Duncan. “You’ve seen significant growth year-over-year in subprime. Obviously that’s helping to drive sales.”
However, while credit availability is boosting currently car sales, it may not be enough to maintain the momentum, said Ken Mayland, president of ClearView Economics LLC. “We’re not getting the income generation to propel those auto sales to the next, higher, level,” Mayland said. “With how weak the economy is and how weak income generation is, we’re really at a stumbling block.” The unemployment rate rose to 7.9 percent in October. John Silvia, chief economist at Wells Fargo Securities Inc., warned that too easy borrowing while wages remain stagnant is not necessarily a good thing. “Once this cycle gets going, we could be in deep trouble in two or three years, because everybody starts pushing the envelope and pushing the envelope,” said Silvia, a former chief economist of the Senate Banking Committee.
Foreclosure Notification Ordinance Passes City Council on Party Line VoteSan Diego Free Press (11/14/12) Porter, Doug
Lenders in San Diego now will be required to register foreclosed properties and provide contact information upon filing a notice of default. Similar ordinances exist in more than 70 California cities. On Nov. 13, the City Council passed the Property Value Protection ordinance, which was driven by a coalition of activists, including the Interfaith Committee for Worker Justice and Center on Policy Initiatives. The ordinance is one of three designed to hold banks accountable for properly maintaining foreclosures, according to the coalition. The other two ordinances were passed in September. The Abandoned Property ordinance requires owners to file notices with the police department and maintain properties and the Responsible Banking ordinance requires banks doing business with the city to disclose local plans and progress reports in areas like lending and foreclosures. The new rules go into effect in early 2013.
Major Retailers Start Selling Financial Products Challenging BanksThe New York Times (11/13/12) Clifford, Stephanie and Silver-Greenberg, Jessica
With tight lending at banks and more consumers without a bank relationship, major retailers are entering the financial services marketplace. Banking products are more of a business strategy for the retailers rather than huge profit centers.
Last month, Walmart unveiled a prepaid card that operates like a debit card but is not attached to a bank account. The card, created with American Express, has fairly low fees, but the account is not backed by the Federal Deposit Insurance Corporation. Walmart also began test-selling a one-year MetLife life insurance policy. Costco sells auto and homeowners’ insurance, offers credit card processing for small businesses and has been making mortgages for two years. The retailer does not make money on the mortgages, which are offered by small lenders. The hope is for customers to renew their store memberships, where Costco makes the bulk of its profit. Starting last year, Home Depot began offering loans up to $40,000, which do not require collateral. This year, the retailer extended its no-interest credit card payment terms. The 18 percent to 27 percent interest rate on Home Depot’s credit card is higher than that on a typical credit card. According to Dwaine Kimmet, Home Depot’s treasurer and vice president for financial services, the cards are offered to people with credit scores as low as 600, below what many lenders accept. Office Depot and Sam’s Club offer loans backed by the Small Business Administration, and feature one-page initial applications.
Consumer advocates remain cautious of these new offerings, which are not always subject to the same regulations as bank products. While consumers who may otherwise have trouble obtaining credit are qualifying for the products, they face higher costs. “These products can come with high fees and few real protections,” said Norma P. Garcia, a senior lawyer with Consumers Union. Asserting that prepaid cards are loosely regulated and can wipe out the money loaded on them, consumer advocates have pushed for greater disclosure of fees and more stringent regulations.
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@example.com 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.