Posts filed under ‘Economy’
As I scoured this morning’s clips for news you could use to start your credit union day I settled on an article that reminded me of one of my favorite movie quotes courtesy of Prince Faisal: “virtues of war are the virtues of young men – courage and hope for the future. Then old men make the peace, and the vices of peace are the vices of old men – mistrust and caution.”
A bit overstated for a credit union blog? You bet but an analysis in this morning’s WSJ pinpoints yet another reason why the economy continues to underwhelm even as the jobs market continues to grow: Young people are a heck of a lot more optimistic about the economy than Baby Boomers. According to the WSJ: Americans 55 of years of age and older have pulled back on their spending over the last year while younger Americans have been spending more. As a result “All the growth is being driven by young people, and in fact the older people are dragging down growth,”
According to the paper, this divide, “helps explain why consumer spending decelerated in 2015 and early this year despite low-interest rates, cheap gasoline and falling unemployment.”
It seems to me that this is yet another great reason why your credit union should be trying extra hard to attract younger people into the fold.
Remember that about 70% of the economy is driven by consumer spending so a growing divide in economic perception could have a big impact on the economy. It’s great that not everyone is hording their cash but these young optimists simply don’t have the spending that the Baby Boomers do. Millennials are carrying record amounts of student debt, for example and this might be one reason why they are holding off from buying that first house.
Is it Time to Make More Private Student Loans?
Since we are on the subject of debt and young people, did you know that n the first quarter of this year the percentage of private student loans that were at least 30 days past due dropped to its lowest level since the Great Recession but that, lending growth remains flat according to the American Banker? Here is another factoid: Lenders have learned some lessons and are taking more precautions. During the 2015-2016 academic year, 89.7% of private student loans were co-signed, usually by a family member. During the 2008-2009 school year, only 74.6% of private student loans were co-signed.
I haven’t had many positive things to say about federal legislation over the last five years so I’m sure the sponsors of the “Senior Safe Act of 2016” will be overjoyed and relieved to that I actually think their proposal is a good one.
The legislation is a federal attempt to address elder financial abuse. Most states have already mandated reporting requirements in this area. New York’s DFS has issued a guidance on the issue. NY law protects any person who reports suspected financial abuse to the Department of the Aging, a local Social services department or a law enforcement agency based on a good faith belief that “appropriate action” will be taken. N.Y. Soc. Serv. Law § 473-b (McKinney). This protection isn’t quite as expansive as what would be protected under the House bill.
I’ve always been uneasy about legislation in this area because poorly drafted legislation could make credit unions liable for not recognizing financial abuse; SAR’s can already be used to report suspected criminal activity involving financial exploitation; and the issues raised are best handled by family and friends. But if there is going to be legislation in this area than the House bill provides a good framework.
The bill, which passed with overwhelming support on Tuesday, would authorize supervisors, compliance and BSA officers to report possible financial exploitation of a person 65 years of age or older to law enforcement and government agencies. The institutions and individuals making these reports would get legal immunity for doing so if they train employees on identifying and reporting elder financial abuse and they take “reasonable care” to avoid unnecessary disclosures.
There are three things I really like about this bill: First, it just authorizes a supervisor, a compliance officer and BSA officers to report suspected elder abuse but enables any employee to spot it. One of my concerns has always been that elder abuse is difficult to define and even though frontline employees are best positioned to spot elder abuse the ultimate call on reporting should be made by senior personnel.
Second it places no affirmative obligation on financial institutions to report suspected abuse. it simply protects them if they choose to do so provided they have appropriate training.
Finally, it provides a baseline of immunity for institutions that report suspected abuse.
A Most interesting Jobs Report
Any minute now we should be getting the jobs report for June. It’s more important than usual because May’s jobs report witnessed paltry growth of 38,000 jobs. In addition with fallout from the Brexit vote continuing, the report will either further the narrative of an economy slowing down or be used as proof that growth is still alive and well.
Some divorces are, of course, for the best. But others leave the divorcees in a temporary state of relief only to realize over time that the grass is not as green as they thought.
The remarkable decision by the citizens of the United Kingdom to file for divorce with the European Union may very well end up like this. Britain is the world’s fifth largest economy and by some measures the Capitol of International Finance. It’s hard to see how breaking away from a free trade zone with which it does a good chunk of its trading is in its long term best interest or that of its citizens.
Unfortunately for us, Britain’s decision is another in a series of body blows inflicted on the world economy, which help explain why economic growth in this country remains lackluster. In her prepared testimony before Congress earlier this week, Janet Yellen explained that “One development that could shift investor sentiment is the upcoming referendum in the United Kingdom. A U.K. vote to exit the European Union could have significant economic repercussions. For all of these reasons, the Committee is closely monitoring global economic and financial developments and their implications for domestic economic activity, labor markets, and inflation.”
Governor Signs Abandoned Property Measure
On June 23, Governor Cuomo signed S.8159, the abandoned property bill that I have been talking about in this week’s blog posts. The Governor’s action means that the law, imposing requirements on mortgage lenders to maintain abandoned property, takes effect in 180 days.
I’ve also already mentioned the trigger for the threshold for determining whether or not these new requirements apply to your credit union. You should also be aware that the bill applies prospectively for most impacted credit unions. Specifically, the bill providers that “for any state or federally chartered banks, savings banks, savings and loan associations, or credit unions which originate, own, service and maintain between three-tenths of one percent and five-tenths of one percent of the total loans in the state which they either originate, own, service, or maintain for the calendar year ending December thirty-first of the calendar year ending two years prior to the current calendar year, the application of this section shall be prospective only.”
The DFS has rule making authority under this law and the sooner it starts explaining what financial institutions are impacted by this bill and to what extent, the better.
On that note, have a good weekend. God save the Queen.
New York is on the verge of clarifying that a mortgage is consummated at closing. The Senate passed legislation (S.7183/Savino) A9746/Richardson) that would clarify that, for purposes of complying with the notice requirements of RESPA and TILA, a mortgage loan is consummated “when the applicant for the mortgage loan executes the promissory note.” This bill eliminates confusion about the timing of final mortgage disclosures that must be received at least three days before a loan is “consummated.”
We now have to wait for the bill to be sent to the Governor.
If Jamie Dimon is Right, Are CU’S Over Extended?
I took a couple of days off last week and one bit of news I wanted to bring to your attention was JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon’s prediction on Thursday that the auto lending industry is “a little stressed” and that “someone is going to get hurt.”
This prediction came the day before first quarter results released by NCUA reported that the industry has been buoyed by continued strong auto lending. New auto loans jumped 15.4% to $103.0 billion and that used auto loans rose 13.2% to $166.8 billion.
Fed Signals Caution on Rate Hikes
I write fewer and fewer blogs on Fed pronouncements because I’ve come to realize that the more Fed officials say, the less value it has for those of you whose livelihood is impacted by interest rates. Given the continued economic uncertainty, I can easily find speeches which suggest so many possible permutations on the state of the economy that it soon becomes clear that the Fed lacks a clear idea of what the economy is doing or where it is headed. I agree with President Truman who said: “Give me a one-handed economist! All my economics say, ”On the one hand? On the other.”
In a speech yesterday previewing her views on the economy heading into a meeting of the interest rate setting Open Market Committee, Chairman Yellen continued to be cautiously optimistic about the economy, but too uncertain over its future direction to be in favor of imminently raising rates.
In a slightly less sanguine speech on Friday, Fed Governor Lael Brainard explained: “Prudent risk-management would suggest the risks from waiting until the totality of the data provides greater confidence in a rebound in domestic activity, and there is greater certainty regarding the “Brexit” vote, seem lower than the risks associated with moving ahead of these developments”
Interestingly, both officials touched on an issue that has increasingly vexed economists and troubled policymakers: Why hasn’t productivity increased enough to put upward pressure on wages? Over the six years from the end of 2009 to the end of 2015, productivity grew only a little over 1/2 percent per year, compared with average growth of 2-1/4 percent over the 50 years prior to the Great Recession.
“The reasons for such a dramatic slowing in productivity growth are not clear. Possible explanations include the fading of a one-time boost to productivity from information technology in the late 1990s and early 2000s; the reduced movement of resources from the least productive to the most productive firms, including new businesses, perhaps due to greater financial constraints for new and small businesses; and a delay between the introduction of new technologies, such as robotics, genetic sequencing, and artificial intelligence, and their effect on new production processes and products.” Brainard said.
It’s a lot easier to support free speech when you only support the free speech you agree with. So I am sure that Google’s announcement that it will ban advertisements for payday loans starting on July 13 will win kneejerk plaudits from all the usual suspects and high praise for its “corporate responsibility.” That’s too bad. Here’s why.
First, defining a payday loan isn’t as easy as Google thinks it is. Just ask the CFPB which is still tinkering with its payday loan regulations. In its blog announcing the advertising ban, Google said it would apply to loans where repayment is due within 60 days of the date of issue or to loans with an APR of 36% or higher. Credit union payday alternative loans can require repayment within a month and, depending on how the APR is calculated, Google’s criteria could include loans provided by credit unions. As researchers at the New York Fed argued “36 percenters” may want to reconsider their position, unless of course their goal is to eliminate payday loans altogether.”
Personally, I can’t stand these products and I would love to live in a world where there wasn’t a demand for them. But, there has always been and there will always be people in desperate need of cash. With its usury cap, payday loans are ostensibly banned in New York; but, New Yorkers get them every day. One of the reasons why Municipal Credit Union in New York City is one of the oldest credit unions in the country is because loan sharking was so rampant in the early 1900’s that people demanded a safe alternative. And it isn’t just the poor anymore. Approximately half of American households live paycheck to paycheck. Banning payday loan advertisements isn’t going to change that. Payday loans are a symptom of economic disparity and finding a cure is much more challenging than pretending that there isn’t a need for these loans.
Finally, there are issues here that are much more important than payday loans. I don’t want Google using its power to determine which products are worthy of being in the marketplace and what products are not. There would be a justifiable uproar this morning if Google announced that it was banning ads for birth control pills, for example, or no longer accepting advertisements for marijuana stores in states where they are legal; but you won’t hear an uproar this morning because payday loans are politically incorrect. The problem is that Big Brother is just as dangerous to free speech as a private sector behemoth than as a Government censor.
But, increasingly, Americans are only supportive of the free exchange of ideas that they agree with. This is not just unfortunate, it’s dangerous.
I think it was Vince Lombardi who once said that a tie is as exciting as kissing your sister and George Brett who added that losing is like kissing your grandmother with her teeth out.
Vince Lombardi was wrong. Yesterday, the Supreme Court of the United States issued its first 4-4 decision since the death of Justice Scalia. Although the ruling basically resolves nothing, it underscores two important issues that credit unions should be paying attention to (Hawkins v. Community Bank of Raymore):
- Does the Equal Credit Opportunity Act apply to guarantors? This is an unresolved issue with real practical significance for your compliance. The ECOA bans discrimination against loan applicants. For the last 30 years, federal regulation has defined an applicant to include guarantors. See 12 CFR Section 202.2(e); 12 CFR 1002.2.
In the case in which the Court deadlocked yesterday, the wives of two businessmen claimed that the bank violated the Act’s prohibition against discriminating on the basis of marital status by requiring them to personally guarantee their husbands’ loans.
The bank denied the allegation and argued that notwithstanding federal regulation, Congress never intended the ECOA to extend to guarantors. The 4-4 tie means that two federal appeals courts have come to opposite conclusions on this narrow but important issue.
- It may not be one of the high profile issues that gets partisans riled up into a foamed-mouth frenzy, but one of the key questions that will be decided by the newest Supreme Court justice will be how much deference courts should have towards federal regulation interpreting federal law. This case is fascinating to me in part because it involves a 30 year-old regulation.
Bernanke Endorses Going Negative as a Last Resort
In a recent blog I talked about the increasing willingness of central bankers to impose negative interest rates – i.e. to charge banks for holding money in central bank accounts – as a means of spurring lending. In this recent blog, former Fed Chairman Ben Bernanke endorses its possible use if and when the economy goes South.
“Overall, as a tool of monetary policy, negative interest rates appear to have both modest benefits and manageable costs; and I assess the probability that this tool will be used in the U.S. as quite low for the foreseeable future. Nevertheless, it would probably be worthwhile for the Fed to conduct further analysis of this option. We can imagine a hypothetical future situation in which the Fed has cut the fed funds rate to zero and used forward guidance to try to talk down longer-term interest rates. Suppose some additional accommodation is desired, but not enough to justify a new round of quantitative easing, with all its difficulties of calibration and communication. In that scenario, a policy of modestly negative interest rates might be a reasonable compromise between no action and rolling out the big QE gun.”
CFPB Increases Scrutiny of Student Loan Auto-Default
The CFPB used this quarterly summary of examination findings to highlight what it considers to be the unfair and deceptive use of so called auto-default provisions in student loans. As many of you know, private student loan contracts often have a relative as a co-signor or guarantor on the loan with the student. Since at least 2014, the Bureau has been critical of loan provisions under which the bankruptcy or death of a co-signor puts even current student loans in default. Since default typically results in the entire amount of the loan being due, these provisions can be a big deal.
According to the CFPB, these default loan clauses are illegal where they are ambiguous because reasonable consumers would not likely interpret the promissory notes to allow their own default based on a co-debtors bankruptcy. This is an issue that the Bureau would be well advised to provide additional guidance on. Co-signed student loans provide a mechanism for millions of students to off-set educational expenses. If the CFPB takes too hard a line on this issue, it could make it more difficult for students to get these loans.
Other issues highlighted by the CFPB include illegal debt collection practices, violations of the Remittance Rule, and inaccuracies about deposit account information provided to credit reporting companies.
How Low Can They Go
Last night’s PBS Newshour highlighted the question of just how low interest rates can go. The European Central Bank further lowered its already negative interest rates in a further attempt to spur lending. The report also highlighted this hokey but entertaining interest rate ditty. It’s worth a listen.
Talk About Bad Succession Planning
Since 2012, the Denver Broncos have been grooming Brock Osweiler to take over for the aging legend, Peyton Manning. This year, they waffled on whether or not to hand the reigns over to Rock, who started seven games, or go one more round with Manning, whose tank was running below empty. They did the safe thing, went with Manning, but now find themselves without a quarterback. A clearly P.O.’d Brock has signed with the Houston Texans. Let’s hope that not many credit union boards are making the same mistake.