Posts filed under ‘General’
Is the Bankruptcy Code to blame for difficulties students experience modifying their private student loan obligations? That is the implicit question posed by the CFPB in its annual report analyzing the student loan industry. According to the report, which summarizes data from complaints received by the CFPB over the previous year, students seeking repayment options for private student loans are facing many of the same obstacles homeowners face after falling behind on their mortgages.
According to the report, since the Bureau began accepting private student loan complaints in 2012, the most common complaint comes from borrowers seeking to avoid default when they face financial hardship. According to the Bureau, its findings suggest that lenders and servicers “have yet to address the need for loan workout in a fulsome manner.”
What would the CFPB do? In 2005, one of the changes made to the bankruptcy code was to make private student loans non-dischargeable in bankruptcy. At the time of this change, similar protections had already been granted to federally subsidized student loans. The CFPB is recommending that Congress revisit the PSL exemption “to determine whether the special bankruptcy protection afforded to lenders should be limited to those who offer certain loan modification options.” Remember, the CFPB has already put in place a regulatory framework mandating that lenders work in good faith with homeowners who are struggling to make their mortgage payments.
The nation’s rising level of student loan debt is a serious and growing problem. As I’ve pointed out in a previous blog, there is even growing evidence that student debt is holding back the housing recovery by making it more difficult for people to afford their first house. What concerns me about the CFPB’s recommendation is that it adds fodder to an increasingly ideological and divisive debate about the root causes of student debt.
Let’s look at issues surrounding education finance. But let’s not analyze the issue in isolation. College tuition has skyrocketed and shows no signs of letting up. Looking at the amount of debt being amassed in this country to get an education and focusing exclusively on lenders is tantamount to blaming the woes of the NY Jets on their quarterback, Geno Smith: it might be comforting, but there are some issues for which there are no easy solutions.
Well I’m off to enjoy my morning yogurt. It’s going to taste extra good now that Governor Cuomo has signed legislation naming it the official state snack.
In today’s blog I come not to criticize the CFPB, but to praise it.
Earlier this week, it proposed further amendments to its Integrated Disclosure requirements that take effect August 2015. These Dodd-Frank mandated amendments replace the erstwhile Good Faith Estimate with a Loan Estimate. The amendments proposed this week are not big deals. They are tweaks that won’t keep you from cursing Dodd- Frank; but the very fact that the amendments are being proposed speaks volumes about the good side of the CFPB.
Does the CFPB have too much power? You bet It does. Does the Bureau That Never Sleeps pay too little attention to the burdens it is imposing on industry? Absolutely. But a good regulator is like a good umpire: You might disagree with the dimensions of his strike zone but a good umpire like a good regulator approaches regulations and their enforcement in a consistent manner so that everyone knows when they have missed the strike zone. By this standard, the CFPB is doing a great job.
Under the integrated disclosure requirements that take effect in August 2015-remember, they combine the separate disclosures currently mandated under TILA and RESPA-lenders are permitted to redisclose Loan Estimates when a mortgage interest rate is locked. For the redisclosure to be valid, the regulation currently provides that it has to be made “on the day the interest rate is locked.”
When the integrated mortgage proposal was put forward the rate-lock provision did not get all that much attention; the Bureau assumed that requiring same day redisclosure was not a big deal for lenders because they knew the rate they were going to charge. The CFPB could have obstinately refused to reconsider the regulation after it issued them in final form. Instead, it continued to listen to affected industry participants, was convinced that the requirement would be more difficult for lenders to comply with than it originally assumed and is now proposing to amend the final regulation to authorize a revised Loan Estimate to be issued no later than the next business day after the rate is locked.
A second proposed revision announced this week is targeted towards new construction loans. It permits creditors who reasonably expect settlements to occur more than 60 calendar days after initial disclosures have been issued to state on Loan Estimates that they may issue new disclosures.
The political environment is so weighed down with justified cynicism that the CFPB often catches the institutions it regulates off guard by remaining true to its mission. Before it changes a regulation its primary question is: will the change benefit, or at least not diminish, consumer protections? For example, in the preamble to these proposed amendments the CFPB argues that giving lenders until the next business day to redisclose loan estimates will benefit consumers by giving them more time to accept loan offers.
Then there is the intangible benefit of dealing with a regulator that writes and explains regulations more clearly than any other. You may not agree with its mortgage regulations but it has provided material designed to help even the smallest lender comply with them.
I apologize but I am still thinking about the Kansas City Royals crashing into over and under walls to make catches and I can’t get baseball metaphors out of my head. The bottom line is that the CFPB has a consistent strike zone. Its overriding mission is to protect consumers. When commenting on one of its proposals, it is incumbent on industry participants to quantify regulatory burdens with concrete operational examples and to suggest alternatives that will not diminish consumer protections. I will continue to disagree with the parameters of the Bureau’s strike zone but also give it much-deserved credit for the consistency and diligence with which it is carrying out its mission. Here is a link to the proposal which also includes other technical changes..
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.
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.
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.
I’m sorry to start off the week with such downbeat news, but if it makes you feel any better as you’re reading this blog, I am getting poked and prodded by a dentist.
In case you missed it on Friday, the FFEIC, the joint body representing all financial regulators including the NCUA, issued a bulletin warning financial institutions to take steps to guard their computer systems against the “Shell shock” vulnerability. With the caveat that I am not an IT person, regulators and industry professionals are concerned that operating systems including UNIX, Linux, Mac OS 8 X and certain Windows servers are vulnerable to hackers being able to take over your computer system.
Just how big a deal is this? It appears that no one knows for sure yet, but according to the BBC, the bug could impact as many as 500 million machines. If what the experts are saying is correct, a hacker could easily use the vulnerability to compromise your banking operations.
Be sure to read the FFEIC memo, if you haven’t done so already. For those of you with a third-party vendor, make sure to reach out to them and assess your credit union’s vulnerability. Apparently, the bug can be squashed with an easy to install patch.
Since we’re on the subject of cybersecurity, those of you really interested in getting background on the subject should find time to watch a show about the science behind hacking defenses. You don’t need to be a computer genius to find it informative. Trust me.
Good luck and have a good day.
In July of 2005, Walmart filed an application to open an Industrial Loan Bank in Utah. The Utah bank regulator was flooded with 3,500 comment letters describing Walmart’s application as a sign of the Apocalypse. One commenter described a Walmart bank as a “dangerous and unprecedented concentration of economic power.” Others fretted that Walmart would drive independent financial institutions out of business by utilizing its network of stores as low cost bank branches.
Fast Forward to September 24, 2014. Walmart announced that it is teaming up with on-line GoBank started by the California-based tech company Green Dot. It will start offering off-the shelf, low-cost checking accounts by the end of October to anyone 18 years of age or older with an ID. The mobile account startup kit will be available at Walmart stores nationwide. Customers will have access to 42,000 ATMS. How is this going to impact your credit union? Let me count the ways.
- Say goodbye to even more non-interest income. With GoBank’s mobile banking platform, Walmart and its banking partner clearly feel they can attract enough customers to make up in volume what they lose in potential fee income. As Steve Streit, Green Dot’s CEO and founder explained yesterday: “Many so-called ‘free’ checking accounts aren’t really free because they have high overdraft fees. In fact, an independent study by Bretton Woods estimates that consumers pay approximately $218 – $314 per year for a basic checking account.” He further noted: “No other checking account makes it this easy and affordable to manage your everyday finances.” Of course, there is some fine print being glossed over here. There is an $8.95 monthly fee that is waived in any month with qualifying direct deposits totaling $500 or more. Other fees include a 3 percent foreign transaction fee and out-of-network ATM fees (typically $2.50 for an out-of-network ATM plus any fee the ATM owner may assess).
- Walmart has the potential to challenge traditional banking on two fronts. If you believe that people still want branches to do their banking then you have to fear Walmart. You don’t have to be Nostradamus to see that one day all those bank branches that Walmart has been gracious enough to lease space to in their stores are going to gradually become GoBank branches. If you believe, as I do, that banking is going virtual, then by teaming up with GreenDot, WalMart has a mobile platform than can compete with anyone’s as I explained in a previous blog.
- Just how are you going to attract those young people who are indifferent to walking into a credit union or the person of modest means who is intimidated about doing so? These are people who were increasingly relying on prepaid cards and mobile banking even before Walmart’s announcement. Now, they have the option of getting a full-fledged FDIC insured bank account by walking into a store. No one is intimidated by Walmart and the store has a reputation for great deals and fair prices. And, don’t fool yourself, Walmart is starting out just offering a basic banking account but it will be offering car loans and mortgages in the not too distant future.
- Walmart and Apple are now your two biggest competitors. How do you offer traditional banking services in an industry where the appeal of the new guys is that they are non-traditional bankers? I don’t know, but at the very least, if you still don’t have a mobile platform you better get one soon or merge with a credit union that does.
- Back in 2005 many smaller financial institutions correctly feared that a Walmart bank could put them out of business. Maybe I’m missing something, but, if anything, those fears are even more justified today. Only credit unions with a very unique niche or large institutions will have the economy of scale to compete against big volume consumer banking. So, it is Walmart’s entry into retail banking, coming on the heels of Apple Pay, that makes this one of the most transformative periods in retail banking credit unions have ever witnessed.
The IRS sent out an alert yesterday warning financial institutions against a scam that makes me think yet again that some compliance officers have gone over to the dark side. Fraudsters, posing as IRS employees, are calling up financial institutions complying with the Foreign Account Tax Compliance Act (FATCA) and requesting account information. As the IRS explains:
“The IRS does not require financial institutions to provide specific account holder identity information or financial account information over the phone or by fax or email. Further, the IRS does not solicit FATCA registration passwords or similar confidential account access information.”
Down So Long That It Looks Like Up To Me Category
In a press release “The U.S. Department of Education announced today that the official three-year federal student loan cohort default rate has declined to 13.7 percent for students who entered repayment in FY 2011. That drop was across all sectors of higher education – public, private and for-profit institutions – even though an additional 650,000 students entered repayment in FY 2011 compared to FY 2010.”
That default rate for 2010 was 14.7.
The Good News Is Good News Category
New home sales hit their highest level since August 2008.