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News Scan Sep 2014

Credit Card News, Economy News, Banking Industry News - Sep 2014
  • The U.S. economy is regaining traction as the year winds down, boosted by an accelerating business sector and a modest pickup among consumers.
  • Gross domestic product, the broadest measure of goods and services produced in the U.S., grew at an annual rate of 4.6% in the second quarter, the Commerce Department said Friday in its third estimate of the gauge. That replaced the agency's previous 4.2% reading and equaled the strongest quarter of the five-year-old recovery, matching the final three months of 2011.
  • The latest reading, along with other recent economic reports, make the first quarter's 2.1% contraction look increasingly like a weather-driven anomaly. Growth has exceeded 3.5% for three of the past four quarters. If expansion greater than 3% materializes for the third quarter, that would mark the strongest stretch of economic growth since 2004 to 2005, the height of the last decade's expansion.
  • Company sales have risen 20% this year compared with a year earlier because of an increase in home construction and manufacturing activity.
  • The company also is benefitting from loose credit conditions by banks, allowing more people to borrow to open franchises, he said. The company plans to open its 49th and 50th franchises in the U.S. by the end of this year.
  • The economy's performance for the rest of the year will hinge in large part on continued improvement in the labor market. Job growth has averaged more than 200,000 a month this year, a boost from last year's pace. But that pace slowed in August, with employers adding just 142,000 jobs. Wages are still only growing at about the same pace as consumer-price inflation, a sign of continued slack in the labor market.
  • The Bureau of Labor Statistics released a significantly weaker than expected August jobs.
  • Employers added just 142,000 jobs last month, sharply lower than the 225,000 economists were anticipating and the smallest monthly gain of 2014. The unemployment rate, which is drawn from a different survey of households, dropped from 6.2% to 6.1%.
  • The July payroll number was revised up from plus 209,000 jobs to plus 212,000 but June’s count was revised down from 298,000 jobs added to 267,000. Total employment gains those months were therefore 28,000 lower than what BLS — a division of the Department of Labor — previously reported. Job growth has averaged 212,000 for the last twelve months.
  • Immediately following the news the S&P 500, The Dow Jones Industrial Average and Nasdaq Composite sunk farther into the red following a downward trend seen leading up to the pre-bell release. The indices quickly reversed that momentum trend turning mixed. With economic data largely improving investors have questioned whether the Federal Reserve will raise interest rates sooner.
  • The labor force participation rate was down from 62.9% to 62.8%, which may account for the drop in unemployment rate and shows that number is declining for the wrong reasons. At 59% the employment-population ratio had remained unchanged for three months.
  • The sector with the most new jobs was business services with 47,000 jobs added. Healthcare, hospitality and construction added 34,000 jobs, 22,000 jobs and 20,000 jobs respectively. Employment was unchanged in manufacturing, logging, wholesale trade, transportation and warehousing, information, financial activities and government. Retail trade lost 8,000 jobs.
  • Sales of new U.S. single-family homes surged in August to their highest level in more than six years, a sign the housing recovery remains on course.
  • The recovery, however, will likely remain gradual against a backdrop of relatively high unemployment and sluggish wage growth, which are sidelining first-time buyers and keeping many young adults from seeking their own accommodation.
  • New home sales jumped 18.0 percent to a seasonally adjusted annual rate of 504,000 units, a second straight monthly gain that took them to the highest level since May 2008, the Commerce Department said.
  • Though new home sales account for only about 9 percent of the market, the increase helped allay fears of renewed weakness after a surprise decline in home resales last month.
  • At August's sales pace it would take 4.8 months to clear the supply of houses on the market, down from 5.6 months in July. A six months' supply is normally considered a healthy balance between supply and demand.

Banks Launch Fresh Drive Against Cyber Crime

Source: FT Category: Banking Industry News
  • The banking industry is teaming up with more than a dozen government and law enforcement agencies to establish a new platform that will warn institutions of the latest threats from financial criminals.
  • The Financial Crime Alerts Service is designed to allow banks and other financial groups to react faster to major incidents and to learn of the latest techniques being used by fraudsters, cyber criminals and terrorists.
  • Banks have pushed cyber security up their list of priorities as they encourage customers to do more of their banking via smartphone applications while criminals become more sophisticated in the ways they operate.
  • The new alerts system will pool intelligence from 12 government and law enforcement agencies, including the National Crime Agency, and share it with the teams working inside the banks to combat fraud, cybercrime, terrorism financing, money laundering and bribery.
  • The financial sector is a main target for cyber criminals, whether they are seeking to make a profit from customer data or confidential information about dealmaking, or are “hacktivists” or nation states wishing to make a political point. But the banks are also some of the best protected companies against cybercrime, with large numbers of security staff and customized software that many other companies cannot afford.
  • Almost two-thirds of young people between the ages of 18 and 29 don't have a single credit card, and the choice is deliberate.
  • This generation is extremely debt averse, and with good reason. They either grew up looking for a job in an economy that was not so hot, and they also have massive amounts of student loan debt, so they’re really reluctant to take on another bill that they have to pay off at the end of the month.
  • Also, regulations put in place a few years ago restrict how card companies can market themselves to young consumers.
  • Finally, millennials are the first age group to grow up with a plastic alternative, one that they seem to prefer, using their debit card.
  • Experts said while millennials are avoiding the pitfalls of credit cards, this seemingly responsible decision could cost them down the road. "It could be harder to get an auto loan. It could be harder to get a mortgage. And if you do get an auto loan, it's probably going to be not at the best rate. You're going to pay a little bit more on the interest rate.

Credit Cards Offer More Rewards than Ever

Source: MarketWatch Category: Credit Card News
  • Credit cards have become more and more generous when it comes to offering deals to consumers to entice them to sign on.
  • As the credit card landscape becomes more and more competitive, credit card issuers are giving better rates and more points with purchases to consumers.
  • The average miles or points earned through credit cards went from 1.04 for every dollar purchased in late 2010 to nearly 1.15 in the second-quarter in 2014.
  • The number of average initial bonus points earned when opening a credit card shot up from less than 7,500 miles towards the end of 2010 to nearly 13,500 miles in the second-quarter of 2014
  • Banks try to attract the lowest-risk consumer, create customer loyalty and for that reason have become increasingly more competitive, says the CEO of a finance company.
  • The net worth of Americans hit a record high in the second quarter as the stock market climbed, while household debt rose at its fastest pace since 2007 in a sign of growing confidence among U.S. consumers.
  • Net worth nudged up 1.7 percent to $81.5 trillion, according to the so-called 'Flow of Funds' report.
  • The S&P 500 set another intraday record, with the Fed continuing with a highly accommodative monetary policy for a recovering U.S. economy.
  • The index has risen 3.5 percent since the last flow of funds report in June. In addition to the market boost, Americans have mostly benefited from a strong real estate market throughout the year.
  • U.S. household debt increased at an annual rate of 3.6 percent in the second quarter, excluding charge-offs of home mortgages, compared to a 2.2 rate in the previous quarter.
  • U.S. housing starts and permits fell in August, but upward revisions to the prior month's data suggested the housing market continued to gradually improve.
  • Groundbreaking declined 14.4 percent to a seasonally adjusted annual 956,000-unit pace. July's starts were revised to show a 1.12-million unit rate, the highest level since November 2007, instead of the previously reported 1.09-million unit rate.
  • Housing is clawing back after suffering a setback following a spike in mortgage rates last year. It, however, remains constrained by a relatively high unemployment rate and stringent lending practices by financial institutions.
  • A survey on Wednesday showed homebuilder sentiment hit its highest level in nearly nine years in September and builders reported a sharp pick-up in buyer traffic since early summer.
  • Groundbreaking for single-family homes, the largest part of the market, fell 2.4 percent in August to a 643,000-unit pace. That followed a hefty 11.1 percent increase in July.
  • Permits for single-family homes fell 0.8 percent to a 626,000-unit pace in August. Permits in the U.S. South, where more than half of single-family construction occurs, hit their highest level since April 2008.
  • A strengthening American economy, combined with a gloomy outlook for growth elsewhere, is pushing the currency sharply higher.
  • The dollar is up 6.4 percent against a group of major currencies since the start of May and has risen in three of the past four months.
  • That was up 0.5 percentage points and 0.9 percentage points, respectively from the same period in 2013.
  • A stronger dollar starts with a healthier economy, and recent news on that front has been mostly good. Construction, manufacturing and autos sales have all posted solid numbers.
  • A stronger dollar also carries risks. It can hurt U.S. exporters in two ways. It makes their products more expensive and less competitive in foreign markets. It also delivers a blow to profits: Money earned in foreign currencies is worth less when converted back into dollars.
  • Apple unveiled Apple Pay that will enable MasterCard cardholders to use their iPhone 6, iPhone 6 Plus and Apple Watch for everyday purchases.
  • MasterCard built the foundation for secure mobile transactions, so consumers can use their cards when, where and how they want.
  • At a store, consumers can simply pay by just holding their iPhone near a contactless reader with their finger on Touch ID and their transaction will be authenticated.
  • For purchases within an app, consumers will simply touch to pay and authenticate with their fingerprint or passcode for a seamless experience without having to enter their card number or leave the app.
  • Apple Pay will be made available for U.S. consumers via a free update to iOS 8 this October.
  • MasterCard cardholders will be able to make simple and secure payments in the apps of top merchants, as well as contactless payments at some of the most frequented U.S. locations including major stores, restaurants, transit providers, fuel and convenience stores, and all Apple Store locations.

U.S. Banks Have Positive Image for First Time Since 2007

Source: Gallup Category: Banking Industry News
  • Americans' views of the banking industry are positive for the first time since 2007, at a net positive rating of 8. The public also has an improved view of the real estate industry (12), marking the first time Americans' image of this industry has been positive since 2006. Net positive views of banking increased 18 points from 2013, while opinions of real estate rose 11 points.
  • The average net positive rating across all 24 industries this year is 18, up significantly from previous years. The images of both the banking and real estate industries remain below the overall average, continuing a pattern seen since 2007.
  • Views of the banking industry did not worsen until 2008 and did not plunge deeply into negative territory until 2009.
  • Many banks suffered financially as a result of falling home prices as some were heavily involved in offering risky mortgage loans, and thus closed or faced significant hardship in 2008 and 2009. This may have been a key reason why Americans' image of the banking industry overall went downhill.
  • The positive images of most industries have returned to prerecession levels, including three business sectors that the recession most directly affected: banking, real estate, and the automobile industry.
  • The real estate and banking industry both have positive images for the first time since before the recession. Americans' views of the automobile industry reached positive territory in 2010 and have bounced back to prerecession levels. Although the images of banking and real estate remain below the average of 24 industries, their sharp recovery from their previous extreme low points suggests they are heading in the right direction.
  • A record number of U.S. consumers are taking out loans to buy cars, especially those purchasing used vehicles, according to data.
  • In the second quarter, 85 percent of new car purchases and 53.8 percent of used car purchases were financed.
  • That was up 0.5 percentage points and 0.9 percentage points, respectively from the same period in 2013.
  • Additionally, the size of auto loan amounts and monthly payments continued to rise, especially for used cars. Since the second quarter of 2013, the average used vehicle loan rose 1.9 percent to $18,258 and the average monthly payment on such vehicles rose 1.1 percent to $355, both all-time highs.
  • Regulators have become more concerned with banks' willingness to lengthen terms on car loans, lend to borrowers with lower credit scores and give out loans that are larger than vehicles are worth.
  • But, at least in the second quarter, the share of both new car and used car loans that went to borrowers with subprime credit scores declined.
  • Major U.S. credit-card issuers aren't properly informing consumers about the hidden risks of popular promotions, a federal regulator said, ramping up its scrutiny of card industry practices.
  • The Consumer Financial Protection Bureau directed credit-card companies to do a better job of disclosing the fine print on such offers as zero-interest balance transfers, so-called convenience checks and cards offered through retailers that don't charge interest.
  • The CFPB, created under the 2010 Dodd-Frank financial law, has the power to pursue legal cases against financial companies found to abuse or deceive consumers and already has made credit-card offers a prime target for a set period.
  • Most large credit-card issuers offer customers the ability to transfer their balance from another card to a new one, seeking to lure consumers with an offer of zero interest for six to 18 months.
  • But CFPB officials are concerned that credit-card companies aren't fully disclosing that transferring an outstanding balance can boost interest-rate charges for new purchases.
  • Consumer advocates have criticized those cards, which allow customers to pay for purchases interest-free for a set period, but charge high interest to borrowers who fail to pay off their initial purchases in full by the end of the promotional period.

Banks’ Fee Bonanza Dries Up

Source: The Wall Street Journal Category: Banking Industry News
  • Banks are making less of their money from customer-account fees than at any time in the past seven decades as strict government rules and changing consumer behavior squeeze a major source of revenue.
  • After peaking in 2009, the annual account fees collected at U.S. commercial banks have declined markedly, even as the volume of bank deposits has swelled.
  • The fees have dropped nearly 21% to $32.5 billion last year from $41.1 billion in 2009. The total fees had climbed every year since 1942, when the FDIC started collecting the data.
  • Banks are having to adjust to declines in the account fees with new strategies.
  • Rather than relying on the account fees, one bank is trying to persuade customers to buy stocks, mutual funds or other investment products that can be more lucrative than a simple checking account.