Posts filed under ‘Economy’

When it comes to prepaid cards, if you can beat em join em

That is my most important takeaway from the FDIC’s biannual survey of unbanked and under-banked households that was released yesterday. If you are interested in getting these potential members into your branches-as credit unions  you have an ethical and legal obligation to try to do so-you better find a way of competing with the prepaid card.

“The survey results suggest that sizeable proportions of unbanked households and, to a lesser degree, under-banked households, relied on prepaid cards for many of the same purposes that households associate with checking accounts” Its authors conclude.

According to the report 7% of US households are unbanked   but a staggering 20 percent of households are under-banked meaning they have an account but have obtained services from nonbank alternative financial service providers in the last 12 months. The unbanked rate is down from 8.2%.

The survey reveals that  nearly 8% of all households use prepaid cards and 22.3% of unbanked households have used prepaid cards in the last year. Clearly this is a growing market and it’s going to get bigger but the report underscores just how difficult it is to break into this market. On the one hand almost half of unbanked prepaid card users plan to open up an account in the next year but here is the catch: Only 10% of all households obtained their prepaid cards from branches and among the unbanked, where distrust of banks is higher, only 4% do. It will be interesting to see how many of the unbanked really do open up accounts. I have my doubts because as prepaid cards offer more of the conveniences and consumer protections of traditional accounts many people won’t see the need to make that first visit to the bank or credit union.

I have always been squeamish about prepaid cards because people at the bottom rung of the financial climb need to open up accounts to climb to financial security. But prepaid cards are here to stay and if these survey results are accurate offering them may be a great way of exposing the unbanked to your credit union. Based on this survey if I was putting together a prepaid marketing plan here are the key points that I would want to get across to consumers looking for a Prepaid Card: Credit Unions are (1)Trusted partners that can (2) Offer you the convenience of prepaid cards and are (3) backed up with the safety and security that comes from belonging to  a financial institution protected by your friends and neighbors.

The report is a great resource. Here is a link.

https://www.fdic.gov/news/news/press/2014/pr14091.html

RIP Quantitative Easing

With the Fed’s announcement yesterday that it was no longer going to make additional purchases of long term treasury bonds and mortgage backed securities it means that the most aggressive long-term intervention by the Fed into the broader economy will be coming to an end almost. Remember that the Fed will still be rolling over its existing bond purchases so it will be continuing to exercise downward pressure on long-term interest rates. Yesterday’s FOMC statement also indicates that the fed is not concerned that the recent downturn in the global economy, which played such a big part in Wall Street’s recent gyrations, fundamentally alters the outlook for US economic growth. If the conventional wisdom is correct expect short-term rates to rise the middle of next year.

http://www.federalreserve.gov/newsevents/press/monetary/20141029a.htm

http://newyorksstateofmind.wordpress.com/2014/10/15/5-ways-the-international-economy-affects-your-credit-union/

They Might Be Giants

With their third world series win in five years the Giants must now be considered the most dominant team in baseball.  They can’t be considered one of baseball’s great flukes anymore. They win when it matters the most.

I like it when good teams consistently win championships because championships should be difficult to win. The Royals lost this year but their lose will make their eventual World Series victory that much sweeter. My only question is: Why is it that when the Yankees win four World Series in the 90’s with strong starters, dominant relievers and a solid lineup of great defensive players its considered bad for baseballs, but everyone celebrates the resurgence of the game when the Giants win with the same formula?

October 30, 2014 at 9:12 am Leave a comment

Are You On This List?

This week, Apple Pay went live.  You all should know about it by now, but Apple Pay permits consumers to pay for goods at participating retailers with the wave of an iPhone.  As readers of this blog will know, I am a big fan of Apple and its technology, but I am also concerned that if Apple Pay is successful it could exacerbate a financial system of haves and have nots.  Most notably, only a handful of the nations largest banks and its largest credit union were selected to unveil the technology.

So I was pleased this morning when I saw news that Visa is working with hundreds of financial institutions to enable them to accept the technology in the coming weeks.  I was especially pleased when I spotted a fair number of credit unions on the list.  I applaud them for this foresight and I certainly hope to see more and more credit unions joining in the coming months.  I understand that this is not a win-win situation.  Apple is taking a cut of transactions that members would probably have used debit cards for anyway.  But times change and pretty soon no one will be using plastic.  The technology makes it obsolete.

Could You Survive An Economic Doomsday?

The Fed released the scenarios it will use to stress test the ability of the nation’s largest banks to withstand economic Armageddon.  Specifically, bank holding companies with $50 billion or more in assets are required to test how they would withstand a multi-year contraction and state member banks with consolidated assets of $10 billion or more must also conduct stress test.

In this year’s “severely adverse scenario” (I love bureaucratese) U.S. corporations experience “increases in financial distresses that are even larger than would be expected in  a severe recession, together with a widening in corporate bond spreads and the decline in equity prices.”  But wait, there’s more.  The price of oil goes up to $110 per barrel and the unemployment rate increases by 4%.  Fortunately, these are not predictions, simply worst case scenarios intended to assess the resilience of our financial system.

On that cheery note, have a great weekend.

October 24, 2014 at 8:17 am Leave a comment

Why QRMs are Important to You

Yesterday, the FDIC became the first agency to finalize qualified residential mortgage regulations mandated by Section 941 of the Dodd-Frank Act.  To understand how big a deal this is, think of those ridiculous Hollywood disaster movies where Earth narrowly avoids a speeding meteor the size of the Empire State Building that will end life as we know it. Yesterday’s announcement will have no direct impact on credit unions.  In fact, the NCUA is the only financial regulator not required to join in issuing QRM regulations because credit unions don’t issue asset-backed securities.  Nevertheless, yesterday’s actions have important consequences for any institution providing mortgages.

Here is some background. The CFPB was responsible for regulations defining qualified mortgages (QM). These are the regulations that have already taken affect. This blog discusses Qualified Residential Mortgages (QRM).

One of the major causes of the mortgage meltdown was an explosion of mortgage-backed securities.  Banks and mortgage companies lowered lending standards in part because of the insatiable appetite of Wall Street for mortgages.  Investment banks would package mortgages into securities, which were sold with painful consequences for many investors including the failed Corporates.  Critics of the system argued that securitizers, generally the investment banks that created these bonds, needed to have a financial stake in the bonds that they were selling.

Section 941 of the Dodd-Frank Act responded to this concern by establishing minimum risk retention requirements for issuers of mortgage-backed securities.  Specifically, securitizers are required to retain at least 5% of any asset-back security they issue.  But an important exception was made. Joint regulations were to be issued by the federal banking agencies, HUD and the FHFA defining what constitutes a qualified residential mortgage within 270 days of Dodd-Frank’s enactment (so much for deadlines).  The definition is crucial because the 5% risk retention requirement does not apply to mortgage-backed securities comprised of QRMs. Congress also mandated that the QRM definition could be no broader than the CFPB’s definition of a qualified mortgage (QM).

Here comes the speeding meteorite part of today’s blog. The regulators responded to their mandate by proposing that QRM mortgages be required to have a maximum loan-to-value ratio of 80%. Imagine a world in which only mortgage applicants with at least 20% to put down on a home could qualify for a mortgage. Level-headed people responded to this suggestion by proclaiming “the death of the American Dream.”

Yesterday’s actions officially put an end to this game of chicken with the trade-off that the CFPB is even more powerful than ever before. Why? At the end of the day, the regulators decided that a QRM is any mortgage that meets the Bureau’s definition of a qualified mortgage. This means that if you want the ability to sell your mortgages to a secondary market participant, your mortgages must meet either the CFPB’s qualified mortgage standards or be eligible for sale to the GSEs. Remember that you don’t have to underwrite to QM standards so long as you can document why a member has the ability to repay her mortgage loan and you are willing to retain the mortgage.

One editorial comment. The regulators did the right thing yesterday, but yesterday’s announcement is another example of how Dodd-Frank does precious little to address the underlying causes of the Great Recession. If you want to avoid reckless underwriting in the future, then by definition that means imposing more stringent underwriting standards.

October 22, 2014 at 8:33 am Leave a comment

5 Ways the International Economy Affects Your Credit Union

My good friend Otto von Bismarck once said that “the nations of the world are on a stream, which they can neither create nor direct, but upon which they can steer with more or less greater skill and success.”  This quote came to mind this morning, not just because this is International Credit Union Week, but because the economic environment in which your credit union operates is increasingly impacted not just by the U.S. economy but by international events as well.  If you want to know why the stock market is more inconsistent than the Giants, all you have to do is look at what’s going on in the world.

  • The slow-down in the German economy is directly impacting the rates you get for your mortgages.  The German economy has been the one bright spot of the Euro Zone for the last several years.  It has used the pulpit given to it as a result of its economic performance to demand that other Euro Zone countries, most notably Greece, put fiscal discipline ahead of short term economic growth.  It has also made German bonds an attractive option for investors looking for safe but solid returns.  But recently, Germany’s run of economic good fortune seems to be coming to an end.  Its exports, which have been the key to its economic growth over the last decade, are declining.  What does all this mean for your credit union?  Don’t expect longer term bonds to rise any time soon.  A weakening German economy makes U.S. Treasuries that much more attractive.  Yesterday the yield on the benchmark 10-year treasury note fell to 2.206, the lowest closing level since 2013 and the 30-year bond’s yield dropped to 2.957, which, according to Dow Jones Business News, is its lowest closing level in 17 months.
  • China is still experiencing a rate of economic growth that would be the envy of any politician seeking re-election here next month, but its decline in GDP growth is already impacting countries like Germany and if its slow-down continues, China’s economic woes will take momentum from our tepid economic recovery.
  • Another country to keep an eye on is Brazil.  Along with India, China and Russia, it comprises the so-called Bric nations that exemplify the growth of emerging markets.  However, Brazil’s economy is now in recession.  Considering that, according to the Federal Reserve, 47% of total U.S. exports go to emerging markets, the slow down in these countries will impact America’s economic growth, the only question is by how much.
  • Finally, the world is a lot more interconnected than it was in 1976 when a young Belgian researcher discovered of a new virus.  This morning the CDC confirmed that a second health care worker contracted the Ebola virus.  If the virus continues to spread, don’t underestimate the potential economic impact.  For example, it is estimated that the SAR virus cost the world economy $50 billion in 2003.

Of course, it isn’t just bloggers that are paying attention to these trends.  In a speech before the IMF last weekend, Stanely Fisher, the Vice Chairman of the Federal Reserve, remarked that “if foreign growth is weaker than anticipated, the consequences for the U.S. economy should lead the Fed to remove accommodation more slowly than anticipated.”  In other words, the international climate is already impacting just how low short term interest rates are going to remain and for how long.

October 15, 2014 at 8:50 am Leave a comment

Are credit cards your sweet spot?

 

For financial industry junkies today is like a total eclipse of the sun. Third quarter earnings reports kickoff for the major banks and J.P. Morgan, Wells Fargo and CitiGroup are all announcing their earnings on the same day. (Incidentally, because of a computer glitch J.P. Morgan’s results slipped out earlier than their 7:00 AM release time and it reported  positive results. What a coincidence.)

One thing for you to keep an eye on is the extent to which credit cards boost the bottom lines of these behemoths. If the conventional wisdom is correct credit cards present both a growth opportunity and a challenge for your credit union. As the WSJ explains in an article yesterday:

“The U.S. credit-card industry has found its sweet spot: a combination of moderate economic growth, low-interest rates and consumers who have struck a balance between spending more and paying their bills on time”

Even for those of us who look at the U.S. economy and see a glass half empty the facts tell you that people are once again taking out the plastic and that there may be some low hanging fruit for credit unions with the right cross-sales pitch.

The bank making the most aggressive push is Wells Fargo. As explained in this recent article in the San Francisco Business Journal , its CEO John Stumpf has groused that the bank has the largest network of branches in the country but ranks seventh among card issuers “ Of our 25 million customer households, how many do you think have a credit card?” They all do, but only 35 percent have their credit card with us.” He is out to change this.

Then there is the fact that, even though the CARD Act outlawed some of the most unseemly consumer credit practices, the low-interest rate environment more than makes up for the lost fee income. In addition, some executives sheepishly admitted to the WSJ that the legislation might actually end up being good for business since it makes it easier for people to manage their existing debt.

How does all this help credit unions? Even though the explosion of vehicle loans is getting the lion’s share of the attention credit unions have also seen solid growth in the credit card business. CUNA Mutual reported in its July Credit Union Trends Report that “ Credit union credit card loan balances are expected to grow 7% in 2014 even though some consumers are still leery of debt after the Great Recession and others are hesitant to take on higher-interest rate debt. Better pricing, easier access to credit and lower fees have boosted credit unions’ market share of the consumer installment credit market.”

Of course continued growth is predicated on the assumption that the American Consumer has climbed out of the bunker and now is confident that the worst is over. Consumer confidence is still shaky and no doubt even shakier after the market gyrations of the last few days. Still, given how low-interest rates are and the fact that the unemployment rate is falling how well you cross sell your members on credit cards will be one of the keys to your growth in the year ahead. After all if you don’t close the deal one of the behemoths probably will.

October 14, 2014 at 9:24 am Leave a comment

4 Cases This Term That Will Impact Your Credit Union Operations

Well, it’s opening day for legal junkies.  The first Monday in October the Supreme Court starts hearing cases it will decide over the 2014-2015 term that ends in June.  With the caveat that there may be cases added in the coming weeks and months, here is a look at the cases on the Court’s docket that will have an impact on your operations.

Perez v. Mortgage Bankers Association, No. 13-1041, 134 S. Ct. 2820 (2014).

This case is important to credit unions for two reasons.  First, if you employ mortgage originators, then you have been caught in a whirlwind of conflicting administrative rulings in recent years regarding whether your mortgage originators are entitled to overtime pay under the Fair Labor Standards Act.  Under the FLSA, so-called non-exempt employees are entitled to overtime when they work more than 40 hours a week.  However, there are several exceptions to this requirement.  In 2006, the Department of Labor issued an opinion letter stating that mortgage loan originators were exempt from the overtime requirement.  In 2010, the DOL issued an “administrative interpretation” reversing that 2006 opinion letter and mandating that employers pay overtime to loan originators.

In this case, the Court will decide at what point an agency’s administrative interpretation has effective become a Rule that can only be changed through the regulatory process by issuing a new rule replete with a comment period.  As a result, the Court’s decision in this case will provide further guidance to those of you who employ mortgage originators.

For those of you who don’t employ mortgage originators, the case will provide important guidance about how legally binding those NCUA guidance letters are on your credit unions.

EEOC v. Abercrombie and Fitch Stores, 731 F. 3d 1106 (10th Circuit 2013).

Under Title 7, if you have 15 or more employees, you must agree to reasonable accommodations for employees’ religious beliefs, providing that doing so does not pose an undue hardship on your business.  This means, for example, that a teller at your credit union with a sincerely held religious belief is entitled to wear a head scarf even if doing so mandates an exception to your dress code.  However, does Title 7 apply where an applicant or employee never informs an employer that she needs a religious accommodation?  This is the question that the Court will grapple with in this case.  It deals with a Muslim applicant for a sales position who was denied employment because the head scarf she wished to wear for religious reasons conflicted with “the look” that the company wishes to project for its sales people.  What makes the case interesting is that the applicant never told the employer that she had to wear the scarf for religious reasons.  Your HR people are going to want to pay particular attention to this case since best practice currently dictates that employers not ask about the religious beliefs of applicants during an interview.

Jesinoski v. Countrywide Home Loans, 13-604.

We all know that the Truth in Lending Act grants homeowners a three-day right of rescission on mortgage transactions.  Where such a notice is not provided, a borrower has three years “after the date of consummation of the transaction” to bring a lawsuit cancelling the mortgage.  This case deals with a narrow but important question:  does a borrower exercise his right to rescind the transaction by notifying the creditor in writing within three years of the consummation of the transaction or must he file a lawsuit within three years of the transaction?  This may not seem like a big deal, but the Circuit courts have been all over the map on this one.

Young v. United Parcel Service, 12-1226.

Federal law prohibits discrimination against employees because they are pregnant.  But, are you discriminating against a pregnant employee by refusing to provide her an accommodation?  In this case, the Court will determine if UPS acted properly when it refused to accommodate a pregnant driver’s request that she not be made to lift heavier packages.  This case isn’t as clear cut as it sounds.  Whereas federal law requires companies to provide reasonable accommodations to disabled persons, the company argues that since pregnant women are not considered disabled, it is not allowed to provide accommodations for pregnancy that would result in pregnant women being treated differently than their non-pregnant peers.

I will, of course, be keeping an eye on this and other cases in the coming months.  In the meantime, for those of you who want additional information about the upcoming Court term, a great source of information is the SCOTUS blog.

October 6, 2014 at 8:49 am Leave a comment

NYS: Dot I’s and cross T’s when collecting Zombie Debt

I was surprise by how much attention  news that New York’s Office Of Court Administration has finalized new debt collection requirements got in yesterday’s papers. I was also kind of embarrassed that I missed all these articles, since I try to bring you the news and information most relevant to your work day. So with an embarrassed “My bad” here is what you need to know about New York’s new debt collection procedures.

Most importantly the new requirements only apply to a narrow but important part of debt collection process. Specifically it applies to creditors seeking default judgments on delinquent open-ended consumer loans pursuant to New York’s CPLR 3215. They do not apply to medical services, student loans, auto loans or retail installment contracts. The way this regulation is drafted it’s possible that courts will expand the type of debt excluded from the new  requirements as they begin to interpret the requirements

If a debtor simply refuses to pay a debt, can’t pay a debt or has gone AWOL and the credit union sues her the first step is filing a summons and complaint putting the debtor on notice that they are being sued for the money. Often debtors don’t respond and the next step in the process is to go to court and get a “default judgment”- basically a legal ruling that the debtor owes the credit union. These new requirements are in response to concerns that default judgments are being granted based on inaccurate or incomplete information.

Starting on October 1st,  “Original creditors”-that’s you- will have to submit two affidavits when seeking default judgments.  The first must be sworn to by someone with knowledge of the facts surrounding the delinquency-i.e. that an open-ended consumer loan was entered into for “X” amount and is now in default. Credit unions should use the “original debtor” affidavit included in the link to the regulations I am providing at the end of this analysis. You will also have to file an additional affidavit attesting to the fact that the statute of limitations has not run out for collecting the debt. These affidavits can’t be combined.

If you sell your debt to third parties, or put third-party collectors in charge of delinquencies headed for court these third parties are required to fill out different affidavits and the effective date for these requirements vary.  Give your debt collector a call and make sure he knows about these requirements  and how he plans to comply with them…

Here is a link to the regulation and a previous blog I did on the proposal

http://www.nycourts.gov/RULES/Consumer-Credit-Rules-Affs-Notice-091614.pdf

   http://newyorksstateofmind.wordpress.com/2014/05/01/beware-of-zombie-debts/

No news is good news from the Fed

No big news came at of the two day meeting of the Fed’s Open Market Committee and that means that the Grand Mufti’s of the economy have concluded that, since the economy is not going gangbusters, they don’t expect the  type of surprises that could cause a sudden spike in interest rates no matter what NCUA is saying.

The Fed is reducing to $5 billion its purchases of mortgage backed securities. At the same time it led its statement on the meeting with its assessment that “economic activity is expanding at a moderate pace. On balance, labor market conditions improved somewhat further; however, the unemployment rate is little changed and a range of labor market indicators suggests that there remains significant under utilization of labor resources.” This is Fed speak for holding the line against interest rate rises anytime soon. There are still lots of room for economic growth before inflation kicks in.

For those of you who like watching the inside baseball a fissure is officially out in the open. Recently installed Vice Chairman Stanley Fisher voted against the Board’s statement on future economic growth. He believes that “the continued strengthening of the real economy, improved outlook for labor utilization and for general price stability, and continued signs of financial market excess, will likely warrant an earlier reduction in monetary accommodation.”  

Here is the statement.

http://www.federalreserve.gov/newsevents/press/monetary/20140917a.htm

 

As Long Island goes so goes the state

Former Assemblyman and longtime state political observer Jerry Kramer has a nice analysis of the outsized part Long Islanders  will play in determining if Republicans maintain  a piece of control over the Legislature’s Senate Chamber this November or are relegated to the sidelines of state Government . All nine Long Island seats are controlled by Republicans but with two open seats and other competitive races Long Island is no longer a bastion of suburban Republicans.  it’s anyone’s  guess what the Long Island delegation is going to look like when the Senate shows up in January.

Here is the article.

http://www.cityandstateny.com/2/politics/new-york-state-articles/new-york-state-senate/long-island-will-determine-balance-of-power-in-senate.html#.VBefWy5dVXI

 

http://www.nycourts.gov/RULES/Consumer-Credit-Rules-Affs-Notice-091614.pdf

 

September 18, 2014 at 9:06 am Leave a comment

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Authored By:

Henry Meier, Esq., Associate General Counsel, Credit Union Association of New York

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