Richard's Rapid Fire - November 1, 2019
What is most important to younger consumers?
In a recent report conducted in Q1 by Caliber, integrity was considered most important by consumers in every generation except Gen. Z, where it still ranked third.
“What actually matters most to people when it comes to building trust in financial institutions,” the report states, “is that these institutions demonstrate a responsible behavior.”
Cajun Thoughts: BIGGEST OBSERVATION AT MONEY 20/20 The lack of bank presence - significantly less than previous years. I read it as banks are either developing their own technology or have all their partnerships secured. I also got to spend time with OCC Comptroller Otting, FDIC Chairman McWilliams and CFPB Director Kraninger. Update: Brian Schneider has started as the CFPB's Associate Director in the Supervision, Enforcement and Fair Lending Division ... MY CHAT WITH BMO'S ERNIE JOHANNSON CBA Board Member Ernie Johannson of BMO Harris called into Suite 550 this week to discuss being selected one of the Most Powerful WOmen in Banking and more. Catch our conversation here ... WARREN WHITE HOUSE If Democratic Sen. Elizabeth Warren wins the White House, the future of the stock market would be bleak, said billionaire Paul Tudor Jones, who joined hedge fund managers Rob Citrone and Jeff Vinik in forecasting dire financial consequences resulting from a Warren victory. Jones made the remarks during the Robin Hood Investors Conference and said the S&P 500 could face a 25% drop, mainly because of issues with Warren's proposed wealth tax ... THE MORTGAGE MONSTER The Federal Housing Administration will enforce False Claims Act violations after reaching an agreement with the Department of Justice, said Ben Carson, secretary of the Department of Housing and Urban Development. Carson called the False Claims Act a "monster" that had forced banks out of the mortgage business ... SMALL DOLLAR WARS Despite pressure from Congress, the CFPB has not indicated it will change its position on small dollar lending. The Bureau has proposed changes to a rule that removes a clause requiring lenders to consider the abilty to repay and officially delayed compliance iuntil November 2020. CBA has long advocated for a delay of the entire rule, noting the level of underwriting required for these loans is not effective or cost-efficient for small-dollar, short-term lending. Learn more about CBA's position here ... CRA IN D.C. We had CBA members in town this week to talk all things CRA with the OCC and the Fed. Looks like the CRA NPR is still set to drop soon, likely around Thanksgiving, and we certainly hope all three prudential regulators will move forward together on the proposal. However, both the OCC and FDIC are willing to go alone. Stay tuned and learn more about CBA's recommendations to successfully modernize CRA here.
Banking conferences offer a lot of blah.*
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- The State of Student Loan Debt: Student loan debt currently totals nearly $1.6 trillion with the federal government holding $1.44 trillion, or 92 percent, of total debt. With one in five student loan borrowers seriously delinquent or in default, it is clear the vast majority of struggling borrowers are in a federal student loan program. Private, bank-originated student loans account for just 8 percent of total debt and private student loans have a 98 percent repayment rate. The difference is due to strong underwriting standards, responsible terms, clear disclosures and responsible counseling.
- Federal Refinancing of Private Education Loans: The CAA calls for the refinancing of performing private loans into federal loans. This would put borrowers who are successfully repaying their loans into the failing federal program. This policy would divert taxpayer dollars to help individuals who do not need assistance while doing nothing to help largely federal borrowers experiencing trouble repaying their student loans.
- Responsible Borrowing Limits on Federal Parent and Graduate PLUS Loans: The Federal Reserve Bank of New York has linked the availability of federal dollars to increases in tuition. Placing a cap on PLUS loans at 150 percent of the national tuition and fees average would encourage colleges and universities to keep tuition rates in check by ending the current lending structure, which essentially lends borrowers as much as the school demands. The current lending structure on PLUS loans has driven up the cost of college and has set a debt-trap for many federal student loan borrowers.
- Know Before You Owe Disclosures for Federal Student Loans: All private loans, including student loans, carry plan-language Truth in Lending Act disclosures which include specific interest rates, fees, monthly payments, total cost of the loan and an annual percentage rate (APR). Federal loans do not contain this same easy to understand disclosure, instead opting for more than a dozen pages in small font. The CAA calls for better disclosures and CBA believes the bipartisan Student Loan Disclosure Modernization Act (H.R. 1161) introduced by Reps. Emanuel Cleaver (D-Mo.) and Jim Banks (R-Ind.), should serve as the template for these disclosures.
- Pell Grant Expansion: The federal government should help students with the most need. Rather than originating large loans to borrowers without the means for repayment, Congress should increase the availability and amounts of Pell Grants for those who need them.
- College Accountability: CBA supports measures to improve accountability of institutions of higher education by evaluating them based on the success of their students and requiring colleges to demonstrate accountability by sharing the risk of default with the federal taxpayer.
- Fair Value Accounting: Congress should require the cost of federal student loan programs to be calculated using fair value accounting methods, which take into account market risk. The Congressional Budget Office and other economists have stated fair value is a more accurate way to calculate the cost of federal student loan programs. The current Federal Credit Reform Act method of accounting understates the risk – and therefore the costs – of the federal program, reforms appear costly to the federal balance sheet.