Home»  Resources»  News Scan

News Scan Jul 2014

Credit Card News, Economy News, Banking Industry News - Jul 2014
  • Threats always seem more real when you can put a number on them, and that's just what's happening with banks and interest rates.
  • While Federal Reserve watchers sought to read the tea leaves about its monetary policy plans, banks are already preparing for the fallout large outflows of deposits next year as the Fed continues tapering and likely raises short-term rates.
  • Most executives at big and regional banks have told that they expect to see deposit runoff when rates rise and customers look for better returns on their cash holdings inside and outside the banking system.
  • Some have provided estimates of the outflows, and others are being pressured to do so.
  • The trend could mean banks lose a low-cost source of funding for loans as demand for them strengthens, but it could also help others drain excess liquidity. Either way it has bankers on edge.
  • Many banks would prefer to hold on to as much of their low-cost, core deposit base as possible.
  • That will help them take advantage of higher rates, when they can make more profit on the deposit-loan spread.
  • Activity in the U.S. services sector held at its highest level in 4-1/2 years in July, though readings for new business and employment growth.
  • Financial data firm Markit said its preliminary services Purchasing Managers Index was 61.0 in July, unchanged from June and above expectations for a reading of 59.8.
  • The services sector continued to add employees, though at a slower pace. The employment index fell from 56.1, the fastest rate on record, to 52.8 in July. The new subcomponent also fell from June's record level.
  • Nonetheless, service sector companies continue to perform strongly against post-recession trends, and overall the latest manufacturing and services PMI surveys suggest that the US economy has enjoyed a strong start to the second half of 2014.
  • Debit cards have raced ahead of credit cards as a way to get through a checkout line but when it comes to spending the big bucks, Americans still reach for credit over other forms of plastic.
  • The analysis paints a statistical big picture of the way we use cards and, increasingly, microchips and radio transponders to make payments.
  • Credit cards, held by both consumers and businesses, are the most common form of plastic, with 334 million general purpose cards in use, compared to 283 million debit cards and 159 million prepaid cards. Of the credit card total, 305 million were held by consumers and the rest by businesses.
  • Though credit cards outnumber debit cards, the latter are used to make more transactions.
  • For general purpose cards, debit transactions, at 47 billion, were almost double credit at 23.8 billion. Their positions have reversed since 2000, when debit transactions were a fraction of credit volume.
  • Credit cards are used for bigger purchases. The average value of general purpose credit card transactions was $93 in 2012, more than twice the $34 average for debit.
  • U.S. consumer prices rose in June as the cost of gasoline surged, but the underlying trend remained consistent with a gradual build-up of inflationary pressures.
  • Consumer Price Index increased 0.3 percent last month, with gasoline accounting for two-thirds of the gain, after May's 0.4 percent rise.
  • In the 12 months through June, the CPI increased 2.1 percent after a similar rise in May.
  • The steady increases have led some economists to predict that a separate inflation gauge watched by the Fed, currently running below the U.S. central bank's 2 percent target, could breach that target by year-end as acceleration in job growth lifts wages.
  • While the final details of the report remain unclear, several sources said the GAO was expected to say the funding advantage held by the largest banks has been reduced.
  • That may not be enough for big banks to declare victory, however, as the size of the subsidy could change over time, potentially increasing in the event of another crisis.
  • Sources added that the GAO was unlikely to offer its own concrete estimate of the exact amount of the advantage, instead presenting multiple methodologies that could be used to calculate a subsidy.
  • Big banks and the industry groups that represent them have pointed to their own studies as proof that any difference in funding is not necessarily attributable to a perceived government guarantee.
  • They have also noted an independent study by the International Monetary Fund released in March, which showed that the funding advantage for U.S. banks has dwindled to 15 basis points, significantly less than for their United Kingdom and European counterparts.
  • But observers remain unconvinced. They say any reduction in the subsidy may not be due to regulatory reform but by factors attributable to the economic cycle.
  • Some studies, including one recently done by the Federal Reserve Bank of New York, have been harshly criticized for failing to use current data available to track the impact of the regulatory reform law on any large bank funding advantage.
  • Other observers suggest that in order for the GAO's study to be robust, it will not only have to incorporate current post-Dodd-Frank conditions, but also normalized recent market developments and structural issues.
  • People with gripes about prepaid cards, pawnshops, title loans, debt settlement and credit repair firms can now seek help from the federal government's consumer financial watchdog.
  • The U.S. Consumer Financial Protection Bureau announced a major expansion of its complaint window, opening it for millions more U.S. consumers.
  • Meanwhile, alternative lenders, credit repair firms and debt settlement companies are frequently under fire for abusive practices.
  • By accepting the new categories of complaints, the agency "will be giving people a greater voice in these markets and a place to turn to when they encounter problems.
  • Consumers may complain about issues including unexpected charges or interest, loan application and disputes over the tracking of repayment, repossession of property or vehicles and difficulty contacting the lender.

Credit card fees are killing small businesses

Source: Freep Category: Credit Card News
  • One of the biggest problems for sales-oriented companies is the lack of competition and transparency on credit and debit card swipe fees.
  • Every time someone pays for a meal at a restaurant with a credit card, a percentage of the sale price comes right off the top in a fee that is split between the company that processes the payments, the credit card companies and the banks that issue the card.
  • The bulk of what we pay is set by the card companies on behalf of the banks and is non-negotiable. If restaurants want to accept credit cards, they have to accept their fees.
  • But there is no real competition in the market for credit and debit card swipe fees. Because Visa and MasterCard control 80% of the card market, they are able to dictate terms.
  • The system they set up is hopelessly opaque and confusing. We have no idea what the fee will be on any particular card when a customer pays with plastic. And there is no real way to reconcile these charges at the end of the month to make sure they are accurate.
  • To make matters worse, there isn’t any transparency around the small piece of the swipe fee that is open to negotiation — the amount tacked on by the processing company, which accounts for about 15% of the total swipe fee bill.
  • Most processors don’t itemize their statements, so we have no way of knowing their slice of the total pie. That makes it almost impossible to go back and ask for a lower rate or comparison shop for a better deal.
  • The best way out of the economic doldrums is to help small businesses succeed and grow.
  • There may not be a single solution, but reforming the credit and debit payment system is a good place to start. Create competition to bring prices in line with cost. Ensure transparency to help small businesses capture savings when they can.
  • U.S. industrial production edged higher in June, as production at mines increased, according to data released.
  • Industrial production rose 0.2 percent, compared to May's revised increase of 0.5 percent.
  • Manufacturing output rose 0.1 percent, with economists expecting a rise of 0.4 percent. Production at mines moved up 0.8 percent.
  • We’ve all heard commercials from debt settlement companies that use pitches like these, promising troubled borrowers that they can get out of debt by paying just a fraction of what they owe. 
  • But it may be in consumers’ best interest to keep debt settlement companies at bay.
  • A recent report by the Center for Responsible Lending confirms that debt settlement is often not worth the risk—and leaves many consumers even worse off.
  • Debt settlement seems like a viable alternative for families struggling to break free from excessive debt. Enlisting the services of a professional to negotiate down debts appears equivalent to hiring a lawyer to deal with complex legal proceedings.
  • But there’s a catch. In order to sign up for debt settlement, clients must first default on all of their debts.
  • The money they once spent on minimum credit card or other debt payments is then instead used to fund a special account that can eventually be used for settlements.
  • While consumers wait for settlements that may never come, their debts continue to grow due to late fees and other default charges. 
  • In some cases, creditors simply refuse to negotiate with debt settlement firms. Clients face the significant risk that creditors may instead sue them to collect on these defaulted debts.
  • Any state should think twice before offering a welcome mat to the industry—unless and until debt settlement companies can show that clients typically settle enough debt to actually benefit from these programs.
  • Applications for U.S. home mortgages rose last week as both purchase and refinancing applications increased
  • The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 1.9 percent.
  • The MBA's seasonally adjusted index of refinancing applications rose 0.4 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, increased 3.7 percent.
  • Fixed 30-year mortgage rates averaged 4.32 percent in the week, up 4 basis points from 4.28 percent the week before.
  • The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

Fed: Card balances extend growth

Source: Creditcards Category: Credit Card News
  • Balances on credit cards grew in May, extending a record-setting rise in April, the Federal Reserve said.
  • Revolving debt rose at a 2.5 percent annual pace in May, on top of a 12.3 percent gain in April.
  • Revolving debt is mainly made up of balances on credit cards. The April increase was the most robust growth rate since 2001. 
  • The average interest rate on credit card accounts was 11.83 percent in May, the Fed report said, the same reading as in February, the last time interest rates were examined in the consumer debt figures.
  • The average rate on accounts that were actually charged interest, because they carried a balance, was 12.73 percent, down from 13.14 percent in February. 
  • Total short-term consumer debt was up by 7.4 percent for May. The total figure includes car loans, student loans and revolving debt, but excludes mortgages.
  • In dollar terms, total consumer debt was $3.19 trillion, of which $872.2 billion was made up of revolving debt.
  • Consumer spending increased by $18.3 billion in May, or about 0.2 percent after a revised $2.3 billion increase in April.
  • May's total consumer credit increase of $19.6 billion was a bit less than analysts' consensus forecast of $20 billion.
  • The $1.8 billion addition to credit card balances was dwarfed by increases in student loans, car loans and other consumer debt, marking a return to the trend in most months since the end of the recession.

Small Banks Should Team Up to Fight Cyberattacks

Source: Americanbanker Category: Banking Industry News
  • While major cybersecurity breaches like the recent attack on Target tend to grab headlines, smaller banks are actually much more vulnerable to cyberattacks than their larger peers. Yet many community banks have failed to invest sufficiently in security.
  • Smaller banks would benefit from participating in information-sharing groups and should be privy to the same cybersecurity intelligence that large banks receive.
  • Smaller institutions also lag behind in cybersecurity technology: 57% of small institutions have invested in data loss-prevention tools, compared to 78% for their larger counterparts.
  • In addition, smaller institutions are less likely to use effective methods of authenticating their customers, such as smart cards and one-time passwords.
  • One major reason why smaller banks trail their larger counterparts in cybersecurity is that they lack the resources to make necessary but expensive investments.
  • This problem could be solved by adopting a model currently available to small law enforcement agencies. Because many of these agencies could not individually afford to maintain a computer forensics examiner, purchase digital forensics tools and train officers in digital forensics investigations.
  • Small banks might also look to utility companies for inspiration. Many small utility companies have cut costs by centralizing their IT departments into one main department.
  • Small financial organizations must learn to be better prepared for cyberattacks. Luckily, the vast majority of security breaches can be avoided at little or no cost. If small banks share information and resources with one another, they can protect both themselves and their customers from hackers and hefty losses.
  • Consumers are becoming more reliant on mobile devices in their daily routines, especially for financial matters.
  • Out of 1,000 U.S. adults, 47% admitted they would not last a day without their smartphone. About 85% of survey respondents check their mobile devices a few times a day, the report concluded.
  • Having access to a smartphone was so critical for most survey respondents that it trailed only the Internet and personal hygiene in terms of importance.
  • However, 96% of adults between 18 and 24 years old believe using a mobile phone is more imperative than using the Internet, putting on deodorant and brushing their teeth.
  • Meanwhile, the survey determined that almost two-thirds (62%) of consumers have tried mobile banking.
  • The most common banking activities people use their smartphones for include monitoring account balances and statements, transferring funds and paying bills, and depositing checks.
  • However, just one-quarter said they completed their banking transactions at a branch; about half of the consumers surveyed would prefer to do this either online or through a mobile device.
  • The U.S. trade deficit narrowed a bit more than expected in May as exports jumped to a record high, suggesting trade could be less of a drag on second quarter growth than earlier feared.
  • The trade gap fell 5.6 percent to $44.4 billion. April's trade deficit was revised slightly down to $47.0 billion.
  • When adjusted for inflation, the deficit narrowed to $51.96 billion from $53.88 billion in April.
  • Trade subtracted 1.5 percentage points from first-quarter gross domestic product. The economy contracted at a 2.9 percent annual pace in the first three months of the year.
  • In May, exports increased 1.0 percent to a record high of $195.5 billion. Exports were driven by a surge in automobiles, parts and engines, which rose to a record high. Exports of consumer goods were also the highest on record.
  • That points to acceleration in domestic demand, which cannot be satisfied with locally produced goods, and is consistent with expectations of a rebound in growth in the second quarter.
  • The politically sensitive trade gap with China rose to $28.8 billion from $27.3 billion in April.
  • Recent data breaches have made U.S. consumers wary of old-fashioned credit and debit cards with magnetic stripes, according to a survey of 1011 American adults conducted by Vision Critical 2014.
  • The survey found that 64 percent of the respondents are more likely to pay in cash than they were previously.
  • However, nearly the same percentage said they felt that a card with an EMV chip would make their transactions more secure.
  • Significantly, 37 percent of the respondents said they would prefer a chip and PIN card versus the chip and signature card that most card issuers in the United States are planning to give them.
  • Only about one-quarter of respondents said they'd prefer the signature card. The single highest area of concern for the respondents is theft of the card, which the signature-based cards don't protect against.
  • While both types of cards protect against fraud by making it impossible to create a counterfeit card, chip and signature cards do not protect against lost or stolen cards.
  • With a chip and PIN card, you enter a PIN in much the same way as you do now when using your debit card. A chip and signature card requires that you sign for your purchases just as you do now with a magnetic stripe card.