News
Lending startups such as ZestFinance and LendUp are putting a high-tech spin on credit scoring. ZestFinance collects as many as 10,000 pieces of data about the poor and unbanked, then lends them money at rates as high as 390 percent. In comparison, FICO scores use just a few dozen pieces of data. ZestFinance’s machines organize facts about a loan applicant into “metavariables.” Some metavariables can be expressed only as mathematical equations. Others rank applicants in categories. An applicant whose stated income exceeds that of peers flunks the veracity test. A person who moves residences too often is considered unstable. Since 2011, ZestFinance has attracted $62 million in venture financing.
The U.S. Department of the Treasury has invited public comment on proposed changes to the CDFI Certification Application. The CDFI Fund seeks comment on a number of topics, including the utility of the requested information, the expected burden of collecting the information, ways to improve the quality of information being collected, estimates of cost, and how use technology to simplify data collection. The deadline for comments is December 8th, 2014.
Thirty-five low income homeowners will get critical home repairs thanks to a $253,750 Affordable Housing Program grant from BankPlus and the Federal Home Loan Bank of Dallas. The grant will help fund Habitat for Humanity Mississippi Capital Area's Neighborhood Revitalization Initiative. This is the third grant the organization has received from FHLB Dallas and BankPlus. The organization received a $400,000 grant in 2011 and a $493,000 grant in 2012, funding a total of 65 new homes and 33 home repairs. “There is a great need in this community for projects such as this, and we simply could not accomplish our goal without the support of partners like BankPlus and FHLB Dallas,” says Cynthia P. Griffin, executive director of Habitat for Humanity Mississippi Capital Area.
Sunrise Banks' recent growth has created some major changes on the bank's strategic planning and interactions with regulators, CEO David Reiling says. As a smaller institution, the bank's talk with regulators was about how the numbers had changed since the last exam. But as the bank passed the $250 million threshold, “you were not just talking about the past, but forecasting the future,” Reiling says. The management group meets each week for 90 minutes, but instead of addressing details and specifics, the group concentrates on strategic matters, preparing for the next phase of growth. With the bank now past the $750 million mark, Reiling wonders: “what will the next jump by a factor of ten look like?”
The FDIC and CFPB have launched a Spanish-language version of their financial literacy training, Money Smart for Older Adults. The free tool is designed to help seniors and their caregivers identify, respond to and prevent financial exploitation, which affects millions of senior citizens each year. The instructor-led module is designed to be delivered by representatives of financial institutions, adult protective service agencies, senior advocacy organizations and law enforcement. "We know that senior citizens are increasingly targeted for financial exploitation," said FDIC Chairman Martin Gruenberg. "This tool adds a new resource to help Spanish-speaking seniors prevent, respond to, and report abuse."
Dominik Mjartan, the new CEO of Southern Bancorp Community Partners and executive vice president of Southern Bancorp, knows what it is like to crave a better life. He came to the U.S. from the former Czechoslovakia at the age of 16 with hopes of attaining the American Dream, a goal he now strives to make achievable for underbanked consumers. Mjartan emphasizes that the goals of serving the underbanked and running a profitable business are compatible. "Increasingly, the American Dream is out of reach for hardworking people," Mjartan said. CDFIs like his "are uniquely equipped to bring capital and financial development services into communities and ensure that capitalism works for everyone."
A study by the Pew Charitable Trusts reveals that online payday lenders are often more predatory than their storefront counterparts. The report, which surveyed over 700 borrowers, found average online interest rates of 650 percent, compared to 391 percent for storefronts. Forty-six percent of online borrowers report that lenders made withdrawals that overdrew their checking accounts, twice the rate of storefront borrowers. Thirty percent of internet borrowers received a threat from their lender. Online lenders were over twice as likely to threaten arrest or to contact an employer. Twenty-two percent of online borrowers have lost bank accounts because of payday loans. The highest volume of online payday loan web searches occurred around the holidays.
Urban Partnership Bank CEO Bill Farrow says his bank has revived Shorebank's mission of creating financial opportunity in Chicago and Detroit while turning around some of the troubled assets of the closed bank. For instance, Farrow estimates that Urban Partnership has saved 70 percent of the 300 failed church loans inherited from ShoreBank. Urban Partnership's lending has created or retained approximately 2,500 jobs over the past four years. It is also experimenting with new ways of reaching customers, including opening a branch in a Walmart store. The Walmart branch was a success, opening 100 new accounts in the first month alone.
Six years after the housing crisis, investors are snapping up a new crop of subprime bonds backed by auto loans. Ratings companies are awarding the bonds top grades and buyers have almost no way to determine the accuracy of the information those ratings use as criteria. Auto lenders also collect less information on borrowers than in mortgage lending because dealers want buyers to be able to drive off the lot that day. Subprime auto payments more than 60 days late climbed to 3.6 percent of the debt outstanding in July, from 3 percent the year before. But none of that has curbed demand for the bonds; Wall Street sold $17.7 billion of the bonds this year through Sept. 26, a pace that would make 2014 the busiest year since 2006.
In a new interview, Microsoft cofounder Bill Gates described how he hopes mobile payments can serve the unbanked, particularly in the developing world. Gates hopes his initiative will reduce overhead costs for small transactions between users, bringing down the barriers for secure transactions. Gates praised Apple Pay and said he hoped Microsoft would soon introduce a mobile payment solution of its own. Gates foresees mobile payments eliminating many bank transaction fees, forcing them to rethink their fee structures. "If it's a pure digital-to-digital transaction, then you should be paying less than a percent to move that money from you to a merchant -- or from you to a friend -- even while meeting all the regulatory requirements," he said.