News

Smaller Subprime Auto Lenders Are Starting to Fold - ABI

Growing numbers of small subprime auto lenders are closing or shutting down after loan losses and slim margins spur banks and private equity owners to cut off funding, Bloomberg News reported. Summit Financial Corp., a Plantation, Fla.-based subprime car finance company, filed for bankruptcy late last month after lenders including Bank of America Corp. said it had misreported losses from soured loans. And a creditor to Spring Tree Lending, an Atlanta-based subprime auto lender, filed to force the company into bankruptcy last week, after a separate group of investors accused the company of fraud. Private equity-backed Pelican Auto Finance, which specialized in “deep subprime” borrowers, finished winding down last month after seeing its profit margins shrink. The pain among smaller lenders has parallels with the subprime mortgage crisis last decade, when the demise of finance companies like Ownit Mortgage and Sebring Capital Partners were a harbinger that bigger losses for the financial system were coming. In both cases, rising interest rates helped trigger more loan losses. “There’s been a lot of generosity and not a lot of discretion on the part of lenders and investors,” said Chris Gillock, a banker at Colonnade Advisors, which advises companies on subprime auto investments. “There’s going to be more capitulation.”


Mulvaney Fires Back after Warren Questions CFPB Leadership - ABI

Mick Mulvaney, the acting director of the Consumer Financial Protection Bureau (CFPB), is firing back at Sen. Elizabeth Warren (D-Mass.) after she questioned his actions and leadership of the bureau, The Hill reported. Mulvaney told Warren in a letter the CFPB made public yesterday that he has a different take on what is actually happening at the bureau and suggested that her frustrations are a consequence of the Dodd-Frank Wall Street reform law, which she spearheaded. Mulvaney, a former Republican congressman who is also the director of the Office of Management and Budget, said he too was frustrated with what he perceived to be a lack of responsiveness, transparency and accountability at the bureau when he was a member of Congress and sat on the House Financial Services Committee.


New York Fed to Launch U.S. Libor Contender, Slow Adoption Seen - ABI

The New York Federal Reserve will launch a benchmark U.S. rate today to potentially replace Libor, and market participants hope it will prove more reliable after a long and complex switchover, Reuters reported. The New York Fed will begin publishing the Secured Overnight Financing Rate (SOFR), the first step in a multi-year plan to transition more derivatives away from the London interbank offered rate (LIBOR), which regulators say poses systemic risks if it ceases publication. Analysts have struggled to explain a recent jump in LIBOR, which has reached nine-year highs even as bank credit quality is seen as solid. Increased short-term Treasury issuance and declining demand for credit due to tax reforms are deemed the most likely factors. A decline in interbank lending has reduced the robustness of the rate, which is sometimes estimated rather than based on actual transactions. SOFR is based on the overnight Treasury repurchase agreement market, which trades around $800 billion in volume daily.


Emergency Credit: Coming Soon to a Bank Near You? - ABI

Consumers could find it easier to get small loans for emergency car repairs and other unplanned expenses under Trump administration plans to prod more banks to make short-term loans, the Wall Street Journal reported. “We have a big market, we have a market that is unfulfilled,” said Comptroller of the Currency Joseph Otting. “When you don’t have an alternative in that space, what happens is people have a tendency to fall to the lowest common denominator,” such as check-cashers, pawnshops and liquor stores, he said. The move signals a shift from the Obama administration, which earlier this decade pressured banks to scrap their short-term lending programs. Those regulators viewed small loans by banks with suspicion because of concern about high interest rates and perceived repayment risks. The Office of the Comptroller of the Currency, which oversees national banks, will “clarify” its position on installment loans that can help consumers with immediate cash needs such as buying “a piece of equipment [or] a family emergency,” Otting said.


Top Regulator Warns Against ‘Serious Policy Mistake’ in the Bipartisan Senate Banking Bill - ABI

A top bank regulator issued a criticism of the bipartisan Senate bank bill yesterday, saying that one contested provision would constitute a “serious policy mistake,” the Washington Examiner reported. Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig warned against a measure in the Senate-passed bank regulatory relief bill that would lessen capital requirements for big custody banks like State Street and the Bank of New York Mellon. “These trusted custodians must remain pillars of strength and should be retaining capital, not reducing it,” Hoenig said. Although he criticized that and other aspects of the pending bipartisan legislation, he favors it overall because it provides regulatory relief for regional and community banks. Hoenig, regarded as one of the most hawkish bank regulators while being respected by Republicans and Democrats, is set to leave office soon. In Wednesday's remarks, he warned Congress and regulators not to lower capital requirements for banks, which he argued are still too low. Instead, he stated that the problem of too-big-to-fail banks is even bigger today than it was before the 2008 crisis.


Arrival of Final Bank Regulator Could Speed Up Easing of Rules - ABI

Banks can expect to see significant further relief from post-crisis rules in 2018 after the final Trump-appointed leader is seated at the nation’s banking regulators later this spring, the Wall Street Journal reported. Jelena McWilliams, the top lawyer at Cincinnati-based Fifth Third Bancorp, is set to succeed Obama-appointee Martin Gruenberg as head of the Federal Deposit Insurance Corp. as early as April. When that happens, the FDIC, the Federal Reserve and Office of the Comptroller of the Currency will be able to move ahead on a number of the Trump administration’s policy priorities, such as adjusting capital and liquidity requirements, easing restrictions on short-term consumer loans and relaxing the 2010 Dodd-Frank financial law’s proprietary trading ban, the Volcker rule. McWilliams’s arrival likely will coincide with the completion of a bill in Congress aimed at easing crisis-era banking regulations, another catalyst for changes to the financial rule book.


U.S. Chamber of Commerce Calls for Restructuring CFPB - ABI

The U.S. Chamber of Commerce called for a range of changes to the Consumer Financial Protection Bureau on Thursday, including shifting it to a bipartisan commission and bringing its funding under Congress’ control, the Washington Examiner reported. The Chamber, the biggest business lobby, is set to release a report on Friday outlining 23 proposed changes to the bureau, which is responsible for regulating mortgages, credit cards and other consumer financial products. Thomas Quaadman, executive vice president of the group’s Center for Capital Markets Competitiveness, said the recommendations were made for the Trump administration’s acting director, Mick Mulvaney, and to prepare for the nomination of the next director. Most of the recommendations could be carried out by the director, such as overhauling the bureau’s public database of complaints against specific businesses and ending the practice of rulemaking by enforcement. But it would take Congress to change the bureau’s structure. The Chamber previously has called for turning it into a bipartisan commission such as the Securities and Exchange Commission, but on Thursday the center’s director, Kate Larson, said they were trying to make it clear that they are not advocating the elimination of the bureau.


Regulators Split Over How to Keep Banks Out of Trouble - ABI

Two federal banking regulators have opposite answers about whether bank examiners should work every day inside the offices of banks they oversee, the Wall Street Journal reported. Ten years after the 2008 bailouts, regulators are still trying to figure out the best way to stop bankers at Wells Fargo & Co. and other firms from causing trouble. The Federal Reserve Bank of New York recently finished moving examiners — who act like a tripwire to catch Wall Street misdeeds — to its headquarters on Maiden Lane in downtown Manhattan. They previously worked inside big banks’ offices, but the agency changed course after criticism that examiners had grown too close to the bankers they oversee, a phenomenon known as “regulatory capture.” The Office of the Comptroller of the Currency, another big-bank regulator, planned to move examiners in-house, too, before the election of President Donald Trump. Now Trump’s OCC chief, former bank CEO Joseph Otting, wants examiners to remain ensconced in banks’ offices.


Federal Reserve Hikes Interest Rate to Highest Level in a Decade - ABI

The Federal Reserve yesterday lifted its key interest rate from 1.5 percent to 1.75 percent, the highest level since 2008, the Washington Post reported. The move, the central bank's first major decision under new Chairman Jerome H. Powell, was widely expected as the U.S. economy continues to strengthen and stock markets remain near record highs. The Fed also significantly boosted its forecast for U.S. growth this year and next. The U.S. economy is on track to expand 2.7 percent this year and 2.4 percent in 2019, Fed officials now say, a jump from their previous projection done before the Republican tax cuts were finalized. The Fed anticipates hiking rates three times in total in 2018, part of an ongoing move away from the extraordinary measures it took to stimulate the economy during and after the Great Recession.


Medical Bankruptcies Are Not as Common as Previously Thought, Study Finds - TIME Magazine

Medical bills can push patients over the financial cliff, but a new study says this may not happen as often as previous research suggests.  Hospitalizations cause only about 4 percent of personal bankruptcies among non-elderly U.S. adults, according to an analysis published Wednesday in the New England Journal of Medicine.  This contrasts with previous research by former Harvard professor and current U.S. Sen. Elizabeth Warren and others that pointed to medical reasons as the trigger for more than 60 percent of U.S. bankruptcies.  In the new study, researchers tracked the credit reports of more than a half million adults under 65 in California who had a hospitalization between 2003 and 2007 that wasn’t tied to childbirth. They found that hospitalizations clearly forced some patients into bankruptcy in the years following their stay, said study co-author Matthew Notowidigdo, a Northwestern University economist.
It just may not happen as frequently as the other research indicates.  “What causes bankruptcies is still somewhat unknown, but it appears that medical expenses are responsible for a much smaller share of them than previously thought,” said co-author Raymond Kluender of the Massachusetts Institute of Technology.  Researchers also estimated that hospitalizations were responsible for only about 6 percent of bankruptcies among uninsured patients. They noted that hospitalization rates are lower in that patient group compared to the overall non-elderly population.
The new analysis included a broader range of people than earlier research, which focused on those who already had filed for bankruptcy protection.  Such a narrow focus makes it “impossible to infer the role of medical expenses in causing bankruptcy” without information on those who had big medical bills and didn’t sink financially, the authors of Wednesday’s report noted.  Their study also had limitations: It focused only on adult patients from one state who were hospitalized.  Kluender said hospital stays often are the first event that triggers a “chain of struggles with medical expenses and medical debt.”  The research looked at hospitalizations that occurred several years before the federal Affordable Care Act expanded insurance coverage to millions of Americans.