February 18, 2020

U.S. household debt tops $14 trillion and reaches new record

(Reuters) - American households added $193 billion of debt in the fourth quarter, driven by a surge in mortgage loans, and overall debt levels rose to a new record at $14.15 trillion, the Federal Reserve Bank of New York said on Tuesday.

Mortgage balances rose by $120 billion in the fourth quarter to $9.56 trillion, the New York Fed said in its quarterly report on household debt. Mortgage originations - pushed up by an increase in refinancing - also rose to $752 billion in the fourth quarter, reaching the highest volume since the fourth quarter of 2005, the report found.

Student loan balances grew by $10 billion in the fourth quarter, a slower pace when compared to five years ago. However, the total $1.51 trillion outstanding in student loan debt could be holding back young consumers trying to build up credit, the researchers found.

Credit card debt, which typically rises in the fourth quarter when consumers are doing their holiday shopping, rose by $46 billion last quarter, an amount economists said was larger than usual.
Read more at REUTERS

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Banks' Stress Tests to Focus on Leveraged Lending

The 2020 tests will give the Fed "increased information on how leveraged loans and collateralized loan obligations may respond to a recession."

The "global shock" portion of the Federal Reserve's stress tests for the largest U.S. banks has a new focus on leveraged lending this year, reflecting concerns over the rapid growth of the corporate debt market.

The Fed announced Thursday that in the 2020 stress tests, banks must evaluate how they would respond to a severe global recession that causes elevated stress in corporate debt markets and commercial real estate.

In the "severely adverse" scenario, a broad selloff in corporate bonds and leveraged loans hits an array of risky credit instruments and private-equity investments, sending shocks through a variety of markets.
Read more at CFO.COM

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Interest Rate Caps Harm Financial Inclusion; Bank Partnerships Spread Inclusion Around

The House Financial Services Committee held a hearing last week on small-dollar lending and proposed legislation that would limit the interest rates on such loans.

As explained in the committee's hearing memo, many lawmakers are concerned that "payday and car-title loans can be harmful to consumers" and that they "force people that are already struggling financially and underbanked into worse circumstances." To fix this supposed problem, some members of the committee expressed their support for the Veterans and Consumers Fair Credit Act (H.R. 5050), which would impose a national 36 percent annual percentage rate cap on interest and allow the Consumer Financial Protection Bureau to take punitive enforcement action against lenders that exceed this cap.

While it's always good to focus on improving the lives of financially strapped consumers, much of the hearing ignored basic economics and how the proposed interest rate caps would further harm poor consumers by likely shutting them out of access to legal credit entirely. As past CEI research and many academic studies have shown,
Read more at Competitive Enterprise Institute


Symposium: Justices to consider constitutionality of CFPB structure

The congressional commission that investigated the 2008 financial crisis concluded that the United States' consumer-protection system was "too fragmented to be effective." In response to that finding, in 2010 Congress created the Consumer Financial Protection Bureau as part of the Dodd-Frank Act. The CFPB - whose website describes the bureau as a "U.S. government agency that makes sure banks, lenders, and other financial companies treat you fairly" - is led by one director appointed by the president and confirmed by the Senate to serve a five-year term; once the director has been confirmed, the president can only remove her for "inefficiency, neglect of duty, or malfeasance in office." On March 3, the Supreme Court will hear oral argument in a challenge to the constitutionality of that leadership structure.
Read more at SCOTUSblog


Private Tax Debt Collection Getting Results but Remains Controversial, Says CRS

The latest iteration of a program in which private collection agencies, or PCAs, are used to attempt to collect on overdue tax debt has yielded about $170 million to the Treasury but controversy remains over such programs, the Congressional Research Service has said.

It said that the latest program, started in 2017, collected $302 million as of last September, of $132 million went to expenses including $54.6 million in commissions to the four participating collection firms and $11.5 million to an IRS fund for hiring and training special compliance agents.

The first of the two earlier programs ended up costing more to implement than it collected, while the second barely broke even, causing both to be canceled among questions about whether any form of tax debt collection should be considered an inherently governmental function.
Read more at FEDweek




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'A major, major initiative': California wants to create its own Consumer Financial Protection Bureau

Frustrated with federal inaction, California aims to build a "mini" version of a federal agency that is tasked with consumer protection.

Billing it as California's version of the Consumer Financial Protection Bureau (CFPB), Governor Gavin Newsom revealed in his proposed 2020-2021 state budget that the new entity - a Department of Financial Protection and Innovation - intends to "cement California's consumer protection leadership amidst a retreat on that front by federal agencies including the [CFPB]" and "provide consumers greater protection from predatory practices."

Richard Cordray, one of the architects of the proposal and the first director of the federal CFPB, told Yahoo Finance that the state's move is monumental.
Read more at YAHOO FINANCE


Democratic Witnesses Oppose Interest Rate Cap

American Banker ran a piece last week highlighting the growing tensions between House Financial Services Committee Chairwoman Maxine Waters (D-CA) and high-ranking committee Democrats over a proposed law that would impose an interest rate cap on small-dollar loans. Reporter Neil Haggerty discusses how previously closed-door grievances were aired during a recent hearing on the bill and how last year "Waters was unable to build enough support to schedule the legislation for a committee vote." Haggerty also details the opposition of Rep. Brad Sherman (D-CA), the influential Chairman of the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets.

In addition to Sherman, one can assume that Chairman of the Subcommittee on Consumer Protection and Financial Institutions Gregory Meeks (D-NY) would also be against the interest rate cap, given he cosigned legislation in 2017 that would have reinforced the "valid-when-made" legal doctrine, with respect to interest rates.

While the hearing revealed the inner-party conflict over the legislation, this divide was further demonstrated by Democratic witnesses who contradicted their written testimony in support of a rate cap by seeming to question the merits of such a measure.
Read more at Competitive Enterprise Institute


Trust Science
Trust Science Flexes New Bench Strength
Names Former Equifax Executive as Chief Data and Analytics Officer

Palo Alto, USA, Feb 6, 2020 - USA Inc., which offers the Credit Bureau 2.0™ service as a leading provider of AI-Powered Credit Scoring, announced today that Jeremy Mitchell has joined as Chief Data and Analytics Officer. Jeremy was formerly Vice President of Analytic Solutions Consulting, Equifax. There he supported over $340M in annual revenue and previously owned product development responsibilities for product portfolios in excess of $100M.

Jeremy will leverage his 20 years of industry experience to oversee two key pillars in Trust Science's SaaS platform, both alternative data and also analytics. Trust Science produces custom scores using not only a lender's historical records but also proprietary data and publicly-sourced data, all powered by machine learning and AI. Lenders benefit from automation at scale and previously unattainable decision support at the lower end of the credit spectrum.

"We're proud to have Jeremy join us to help define underwriting across the planet, for the 2020's," says Evan Chrapko, CEO and Founder, Trust Science. "Jeremy was a member of the original development team that created VantageScore, a credit score to compete with the traditional FICO score. We love compliant, powerful disruption."

Read more at Trust Science


CFPB, Citizens, and Credit Card Dispute Management: Too Little Too Late or Gotcha?

CFPB filed a lawsuit against Citizens Bank over the handling of credit card account disputes. While we are not close enough to the details to opine on the merits of the case or the defense, we note that disputes will represent 25 million items by 2022 as U.S. credit cards approach 70 billion transactions.

Growth is linear; it does not mean that disputes are running out of control. As cards continue to displace cash transactions, the industry will add high volume/low value transactions. This will add to the unit cost of dispute resolution.

Card issuers must have systemic controls to ensure their dispute processes work. With Mastercard and Visa's recent overhaul of credit card dispute management, the networks streamlined the resolution path, and card players must follow the rigid rules.


Charging into Adulthood: Credit Cards and Young Consumers

The New York Fed's Center for Microeconomic Data today released the Quarterly Report on Household Debt and Credit for the fourth quarter of 2019. Total household debt balances grew by $193 billion in the fourth quarter, marking a $601 billion increase in household debt balances in 2019, the largest annual gain since 2007. The main driver was a $433 billion annual upswing in mortgage balances, also the largest since 2007. Auto loan and credit card balances both increased by a brisk $57 billion last year, while student loan balances climbed by a more muted $51 billion, well below the $114 billion increase recorded in 2013-the fastest pace of growth for the series. The source for the Quarterly Report is the New York Fed's Consumer Credit Panel-a panel data set that now spans twenty-one years, 1999-2019. The unique panel design allows us to identify new entrants to the credit market: as young people age into having credit reports and using credit products, they are "born" into the panel, enabling us to observe the credit behavior of young borrowers.

Credit cards are the most commonly used type of consumer credit-more than 60 percent of people with a credit report have at least one credit card account. Generally speaking, all types of credit are less common among those in their 20s, since they are still working to build their credit histories. But credit cards are prevalent among younger borrowers as well, with over half of individuals in their 20s showing a credit card on their credit report.


New Report Finds Internet Users Overwhelmed by Identity Theft Worries

A new report from cyber security provider F-Secure finds a steady barrage of major data breaches have left a vast majority of consumers worried about the online crimes that lead to identity theft and account takeovers.

The report, Is ID theft the cyber crime we fear most? A look at consumer views on identity theft and cyber crime, includes findings from a consumer survey of nine countries, such as:*
  • Nearly nine in ten consumers are at least somewhat worried about their bank accounts being hacked to steal money (89%), online shopping fraud (87%), and someone committing a crime with their identity (87%)
  • Internet users in Brazil are by far the most likely to report they have been personally affected by cyber crime (76%) followed by the US (62%) and Sweden (52%), while just about one-third of Germans (34%) had dealt with cyber crime in their family
  • Women report more worries about identity theft and cyber crime, while men report they have experienced these scourges more

Read more at YAHOO FINANCE

Dreher Tomkies LLP

JPMorgan sets July deadline for fintechs to sign new data access deals: sources

WASHINGTON/NEW YORK (Reuters) - JPMorgan Chase & Co (JPM.N) has told financial technology companies they will be barred from accessing its customer information by July 30 unless they sign data access agreements with the bank and back a plan to stop using customer passwords to gather the data.

The largest U.S. bank by assets set the new deadline in a letter sent to the companies in late January, in which it said they must agree to a "concrete plan" to transition to a new method of collecting customer data, according to two people familiar with the matter.

Otherwise, JPMorgan will block all automated access to the data, including through so-called screenscraping, or the process of collecting data from one application to use it in another, the people said.

A JPMorgan spokesman confirmed the contents of the letter and said the company already had agreements covering more than 95% of data access requests.
Read more at REUTERS


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