October 25, 2018
2018 edition: 85 / 104
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U.S. credit scores hit new high while household debt skyrockets

Almost a decade after the average FICO score hit a low of 686 in the aftermath of the Great Recession, the number is at its highest point ever, 704. The new record marks an eight-year streak of increases, trailing America's recovery from its financial near-death experience.

Fueling the rise is the fact that fewer consumers have truly horrible scores (those would be scores lower than 550) that could drag the average down. In the last year, the percentage of Americans with one or more collection accounts on their file has fallen to 23%, from 25.8%. Since payment history makes up 35% of a FICO score, the drop in delinquencies has more people moving up into the 650-to-699 range.

At the other end of the spectrum, more Americans have ascended to the "super-prime" club. Consumers with FICO scores of 800 or more are almost 22% of the FICO score population, up from 20.6% a year ago. That same reading was closer to 18% during the worst of the financial crisis, said Ethan Dornhelm, vice president of scores and analytics at FICO.

A good credit score can save a consumer a lot of money, earning him or her lower interest rates on loans. The range for FICO, and for rival product VantageScore, is 350 to 850. Dornhelm said the key thresholds are about 680 and 620 - minimum scores required to get a good rate by the mortgage industry and government-sponsored lenders (Fannie Mae and Freddie Mac), respectively.

'Unbanked' in U.S. hits lowest level since financial crisis - survey

WASHINGTON (Reuters) - A new government survey released Tuesday showed the percentage of Americans who did not have a checking or savings account fell to the lowest level since the 2007-2009 financial crisis.

In 2017, just 6.5 percent of 129.3 million U.S. households were considered "unbanked," according to new data from the Federal Deposit Insurance Corporation (FDIC). That rate, which represents about 8.4 million U.S. households, is half a percentage point lower than when the survey was last conducted in 2015, and the lowest level recorded since the survey began in 2009.

The FDIC attributed the decline to socioeconomic gains across U.S. households, given that unbanked and underbanked rates are higher among lower-income households. Thirty-four percent of respondents without bank accounts said their main reason was they did not have enough money to keep in a bank. Another 12.6 percent said their lack of accounts was due to a distrust of banks, while 8.6 percent said account fees were too high.

Another 18.7 percent of households were considered "underbanked" in 2017, meaning they had traditional accounts at banks but also relied on alternative financial products like payday loans or money orders in the last 12 months. That rate is 1.2 percent lower than the 2015 survey.
Read more at REUTERS

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New Operation Chokepoint Docs Show FDIC Pushed Banks to Drop Payday Lenders

Newly-released documents confirm allegations that the Obama administration used its regulatory powers to pressure banks into dropping clients involved in businesses of which it didn't approve, such as payday lenders. Hundreds of pages of testimony and emails released as part of a lawsuit filed by Advance America and several other payday lending companies show that, as part of "Operation Chokepoint," upper level directors at the Federal Deposit Insurance Corporation (FDIC) during the Obama years used their regulatory authority to pressure banks into dropping payday lenders as clients.

Operation Chokepoint, which officially ended in August, 2017, targeted certain banks for investigation by the Department of Justice on the basis of the types of customers they served. The FDIC warned banks of the "reputational risks" they faced by doing business with certain types of clients, including payday lenders. Banks that offered financial services with these customers risked increased scrutiny from federal regulators.

The case shows the chilling impact that regulation alone can have on lawful businesses. Despite the fact that they had not engaged in any wrongdoing, banks were convinced to drop certain customers targeted by the Obama administration. Read more at INSIDESOURCES

Slice of South Florida population that lacks a bank account grows

The percentage of South Florida households without a bank account- the so-called unbanked - rose in 2017 even as the national percentage fell last year, a new government survey shows.

A full 8 percent of households in the Miami, Fort Lauderdale and West Palm Beach metropolitan area were unbanked, borrowing money or cashing checks outside the banking system, according to an every-other-year survey released Tuesday by the Federal Deposit Insurance Corporation, a major bank regulator.

The survey is done every two years, and on a national level the number of unbanked households fell to 6.5 percent, down from 7 percent in 2015 and 7.7 percent in 2013.

"The good news is that our nation's banking system is serving more American households than ever before. The bad news is that even as the overall number of people who are unbanked has declined, 8.4 million households continue to lack a banking relationship," FDIC Chairman Jelena McWilliams said in a statement marking the report's release. Read more at MCCLATCHY DC

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FDIC chair: Risk has shifted from banks to mortgage servicers

One of the nation's top bank regulators says the banking system is safe, but worries about risks at non-bank financial institutions, particularly mortgage servicers. The remarks from Federal Deposit Insurance Corp. Chair Jelena McWilliams come days after regulators freed the last "too big to fail" non-bank from extra regulation.

Jelena McWilliams, chair of the Federal Deposit Insurance Corporation, told a banking conference Tuesday that post-crisis regulatory reform helped make the banking system safer but could have pushed risky activity to non-bank lenders. Those lenders, McWilliams feared, are not regulated by the FDIC or the other two banking regulators: the Federal Reserve and the Office of the Comptroller of the Currency.

"The question is: If we have reduced systemic risk in the banking sector, where did it go? It did not just disappear, it is not ether now," McWilliams said.

'It's not Prudential that I'm concerned about'

McWilliams's comments come as she and the rest of the Financial Stability Oversight Council, a committee of financial regulators, unanimously voted to strip Prudential Financial (PRU) of its "systemically important financial institution" title. In its report, the council said the largest life insurer in the U.S. is no longer a risk to financial stability because it has more liquidity that it used to and lacks the exposure to be of concern. Read more at YAHOO FINANCE

Trump's Newest Federal Reserve Nominee Faces G.O.P. Opposition

WASHINGTON - President Trump's decision to nominate Nellie Liang, a seasoned financial regulator, to the Federal Reserve's board of governors is eliciting a rare show of public opposition from some Senate Republicans, who want the Fed to loosen its grip on large banks.

Those Republicans, including members of the Senate Banking Committee, have continued to express concerns about Ms. Liang's record on financial regulation despite continuing efforts by the White House and by the Fed's chairman, Jerome H. Powell, to make the case for Mr. Trump's pick.

Ms. Liang, 60, is a longtime Fed official who played a key role in the construction of stronger regulations after the 2008 financial crisis. In the years afterward, she led a new department focused on monitoring financial stability. She left the Fed last year to join the Brookings Institution, where she is a senior fellow in economic studies.

A spokesman for Senator Thom Tillis, Republican of North Carolina, said on Tuesday that he had "serious concerns about Nellie Liang due to several policy positions she laid out during her time" at the Brookings Institution. Read more at THE NEW YORK TIMES

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Short on Cash? Use Your Employer as a 'Payday Lender'

If you were in a financial bind, would you turn to your employer instead of a payday lender?

Coming up with cash quickly can be a costly endeavor for the 78% of working Americans who often live paycheck to paycheck. Many turn to payday loans because they're convenient. But they also carry high interest rates and allow rollovers, trapping many in a cycle of repeat borrowing and indebtedness.

In recent years, startups from Silicon Valley and beyond have stepped up to offer payday alternatives through the workplace. Some, including Earnin and PayActiv, have put a new twist on the two-week pay cycle to give people access to their wages as soon as they've earned them. Others, such as HoneyBee, SalaryFinance and TrueConnect, allow employers to offer low-cost emergency loans as an employee benefit.

These startups say that by providing solutions for the two main reasons people take payday loans - to manage cash flow or pay for unexpected expenses - they will eliminate the need for them.

Here's what you need to know about paycheck advances and emergency loans.

Paycheck advances in the modern workplace
The concept of a paycheck advance is not new - your workplace may already have an informal program that gives you access to money you've earned.

What technology companies like Earnin and PayActiv say they offer is a streamlined approach for employees that retains the employer's traditional two-week pay cycle. Read more at NERDWALLET


CFPB releases 'Complaint' snapshot: 50 State Report

Every day, people across the country submit complaints to the Bureau of Consumer Financial Protection. The complaints are about a wide variety of consumer financial products and services, from checking accounts to auto loans. Like the states they call home, each person's complaint is different.

Today, we released our Complaint snapshot: 50 state report, which illustrates both the unique-and shared-challenges reported by people in all 50 states and the District of Columbia. Here are some highlights from our latest report. Since Jan. 1, 2015:

We've received more complaints from consumers in California than any other state. Florida, Texas, New York, and Georgia took the next four spots.
In Florida, consumers complained to the Bureau most often about credit or consumer reporting, while the most common complaint we received from consumers in Texas was about debt collection.
People in Wyoming submitted the fewest complaints of any state.

Just as every state is different, every person has different questions and needs different resources for their financial lives. That's why we offer a wealth of useful financial information and Web tools to answer your questions and help you make more informed choices about your money. You can find answers to hundreds of questions about a wide range of financial topics, including auto loans, credit cards, debt collection, and mortgages. You can also call us toll-free at (855) 411-2372, where we can answer your questions about financial products and services in more than 180 languages.
Read more at CFPB


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Should more banks offer short-term, small-dollar loans?
Comptroller advises banks to expand their horizons with small-dollar loans. by Philip Burgess

Financial institutions - both big and small - have largely abandoned the small-dollar lending arena, believing it to be rife with risk, as warned by regulators. However, in what might best be described as an about-face, the federal government says it's time for banks to get back into small-dollar lending mode.

The reversal stems from the Office of the Comptroller of the Currency. Speaking to reporters during a press conference, Comptroller Joseph Otting noted that in today's lending environment, consumers should have an assortment of resources to help them finance the cost of living.

"It's my viewpoint that consumers should have more choices," Otting said, according to Reuters. "What we're really trying to do is encourage banks to look at this segment and think about how they can offer products in that market segment."

40 percent of Americans lack emergency savings
Even though the economy is firing on all cylinders - evidenced by a 20-year low unemployment rate at 3.9 percent, according to the most recent job figures available from the Labor Department - many Americans are struggling with their expenses. Indeed, based on a recent report on the financial well-being of Americans from the Federal Reserve, approximately 40 percent of respondents admitted they'd be in a tight spot if they had to come up with cash fast, having less than $400 to their name. Additionally, the report noted 20 percent of adults struggle to pay off their monthly bills.
Read more at MICROBILT

Survey finds optimism among small business owners highest since recession

Capital One's latest Small Business Growth Index revealed that optimism among small business owners is the highest since the recession.

The biannual survey of 500 small business owners found that 67 percent think business conditions in their area are good or excellent, up from 60 percent a year ago.

"We've seen small business optimism continue to rise as business owners benefit from a strong economy," Jenn Flynn, head of Small Business Bank at Capital One, said. "At the same time, small business owners still have concerns about taxes, tariffs and other areas of economic policy. As business leaders balance opportunity with risk, we remain committed to offering solutions designed to empower small businesses and fuel growth."

The survey also found that male business owners are more optimistic than female business owners. Specifically, 69 percent of male small business owners say current economic conditions are good or excellent, while 64 percent of women small business owners believe conditions are good or excellent.

Optimism is primarily driven by business growth (65 percent), national economic conditions (54 percent) and improved business operations (51 percent). Further, 59 percent said the change in presidential leadership has been positive for small businesses. Also, 49 percent say the cost of health care is a top policy concern, followed by tax policies (43 percent) and economic growth (36 percent). Additionally, 33 percent of small businesses are concerned that new tariffs will have a negative impact on their business. Read more at Financial Regulation News

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This Subprime Auto Lender Is Up 37% in 2018 -- Here's Why

Strong performance has driven this subprime lender higher, but will it continue?
Subprime auto lender Credit Acceptance Corporation (NASDAQ:CACC) has been a big beneficiary of the strong U.S. economy and rising auto prices, but what about when the credit cycle turns?

In this Industry Focus: Financials clip, host Shannon Jones and Motley Fool contributor Matt Frankel discuss why the stock is one of the best performers of 2018 so far and what investors need to know about the company.

Shannon Jones: Let's turn our attention to the second stock we've got here, which is Credit Acceptance Corporation, ticker CACC. This company basically functions in the subprime auto lending space. Matt, this is a pretty interesting stock for a number of reasons. One, obviously, the performance. It's a top performer. But I still think there's a lot left to be desired with this stock. What can you tell us about this company?

Matt Frankel: Any kind of subprime lending is a great business, one, in a booming economy like we're in right now; and two, if they get the numbers right. It's really tough to predict how many bad loans are going to pay, how many are going to default. But if you get it right, it can be a very profitable business.

Subprime auto has really exploded over the past few years. I read a statistic before we recorded that over more than one out of every four car loans right now are considered subprime or deep subprime. There's a big and growing market for this. Not only that people are spending a lot more in their cars these days, the average dollar amount of a Credit Acceptance loan has gone up 34% since 2015, and the average term is longer by seven months, which means more interest income when customers pay on time. It also increases the risk of non-payment, now that you're stretching loans out over a longer period of time, and you're loaning more money. But, so far, the results have been good. Read more at MOTLEY FOOL

Fall 2018 rulemaking agenda

The Bureau's general purpose, as specified in section 1021 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), is to implement and enforce Federal consumer financial law consistently for the purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive. Under the Regulatory Flexibility Act, Federal agencies must publish regulatory agendas twice a year. As an independent regulatory agency, the Bureau has been voluntarily participating in the Unified Agenda , which is led by the Office of Management and Budget (OMB).

The Bureau is under interim leadership pending the confirmation of a permanent director. The Bureau is also in the process of implementing various provisions in the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) , which was signed into law in May 2018, and of conducting its first assessments of the effectiveness of prior "significant" Bureau rulemakings as required by section 1022(d) of the Dodd-Frank Act. In addition, the Bureau is analyzing more than 86,000 comments received in response to its "Call for Evidence" initiative seeking feedback on Bureau operations and regulations. Following consideration of these various initiatives, the Bureau expects to refine its rulemaking priorities no later than the Spring 2019 Agenda and will publish an updated statement of priorities at that time. Read at CFPB

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