News
Longform rantmaker John Oliver criticized the payday lending industry on his HBO show, Last Week Tonight (warning: language not safe for work). Oliver's show has won praise recently for its ability to make complex issues accessible to large web-savvy audience. In the segment, Oliver lambasted slides from a payday lender's employee training manual which instructed employees to lure borrowers into a cycle of debt. Oliver also addressed states' efforts to stamp out the most predatory practices, likening efforts to restrict the industry to "legislative Whack-a-Mole." Oliver's sharpest criticism focused on a failed effort in Texas, where legislation was blocked by State Rep. Gary Elkins – himself an owner of a payday loan chain.
Banks are lending to companies and individuals at the fastest pace since the financial crisis, propelling profits to near-record levels. U.S. banks posted $40.24 billion in net income during the second quarter, the industry's second-highest profit total in at least 23 years. Banks set aside less money to cover soured loans, helping to boost profits. At the same time, overall loan growth increased at its fastest quarterly pace since the financial crisis, topping $8 trillion in total loans outstanding for the first time since SNL began tracking the data in 1991. Commercial lending rose at an annualized 12.6% rate in the second quarter. Growth in consumer lending also has picked up, to about 6% from 3% a year ago.
A new guide aimed at public health advocates commends CDFIs for their role in financing healthy food retail options in low and moderate income communities. According to the guide, CDFI financing is useful for food retailers because CDFIs offer flexible terms and the ability to retire debt at an affordable rate over a long period of time. That flexibility is helpful as retailers establish their businesses and can offset the higher cost of opening stores in underserved areas. The CDFI Fund's Healthy Food Financing Initiative has expanded the activity of CDFIs in food retail financing, funding more than 20 CDFI's food retailers financing programs since 2010. The guide also discusses the role advocates can play in attracting CDFI financing, including partnering with CDFIs to gather neighborhood data to forecast the impact of healthy foods projects.
The FTC and the White House have recently called for legislation that would inform users about the data social media companies collect and sell amid concerns about discriminatory data profiling. Seeta Peña Gangadharan of the New America Foundation echoes these concerns, arguing that big data can facilitate discriminatory practices in lending, hiring and marketing. Jake Rosenberg of Lendup counters that companies like his use big data to help lenders extend credit to the underbanked by creating new sources of credit behavior data for borrowers with scarce credit histories. Maurice Mitchell of the New York State Civic Engagement Table focuses on ways big data can expose and remedy cases of discrimination, including discriminatory housing patterns.
ActiveHours is a new Palo Alto startup which aims to divert business from payday lenders by eliminating the very concept of a payday. The startup, which recently raised $4.1 million, distributes an app that allows hourly workers to immediately access pay they’ve already earned, without having to wait for their employer’s standard pay cycle. Users can see how much money they have earned and transfer any percentage of it into their bank account, essentially giving the user a cash advance. When payday rolls around, ActiveHours withdraws the same amount from the user’s account. ActiveHours charges no fees for the service and makes money on tips, asking users to pay whatever they want. It remains to be seen whether the tip-based model will be sustainable in the long term.
The CDFI Fund has opened the 2014 round of the New Markets Tax Credit Program. The program's notice makes available up to $5 billion in tax credit allocation authority. The New Markets Tax Credit provides a tax credit to investors who make qualified equity investments in Community Development Entities (CDEs) which then invest the capital into projects in low-income communities. Since its inception, the NMTC Program has made 836 awards to CDEs totaling $40 billion in tax credit allocation authority. The deadline for CDE Certification applications is August 22. The deadline for the NMTC electronic application is October 1 and the deadline for prior allocatees' issuance of qualified equity investments is January 30, 2015.
Bank employees are giving customers misleading or inaccurate information about their overdraft protection options, according to mystery shoppers working with the Woodstock Institute. The Federal Reserve Board requires that bank customers must “opt in” to banks' overdraft products. But mystery shoppers’ conversations with bank representatives revealed persistent misinformation about overdraft coverage. Often, employees did not explain the opt-in requirement and led people to believe that overdraft coverage was an automatic account feature. Representatives frequently gave inconsistent, unclear or incorrect information regarding the mechanics of overdraft coverage and failed to clearly or correctly explain how fees are triggered.
The $30 billion banks collect in overdraft fees each year may shrink if the Consumer Financial Protection Bureau imposes new rules on the practice. The spectre of new rulemaking has arisen in the wake of a new CFPB report which found that overdraft and non-sufficient funds fees account for about 75 percent of opted-in consumers’ total checking account fees, averaging over $250 per year. “Despite recent regulatory and industry changes, overdrafts continue to impose heavy costs on consumers who have low account balances and no cushion for error,” Richard Cordray, the bureau’s director, said. Cordray compared the overdraft fees to short-term loans, saying that a person who overdrew a checking account by $24 and covered it with a deposit three days later would pay an overdraft fee of $34, the equivalent of loan with an annual rate of 17,000 percent.
The acquisition of First Tuskegee Bank in Alabama by CDFI bank Liberty Bank & Trust Co. of New Orleans should have been routine. The deal would combine two small minority-owned institutions in the Southeast, giving them additional heft to cope with new regulations. It would also help Liberty expand its originations of consumer, mortgage and commercial loans while adding more low-cost deposits. But federal and state regulators still have not approved the application they received nearly a year ago, marking an unusually long delay for an acquisition of this size. The companies have remained tight-lipped on the status of the deal, but they have not withdrawn the agreement. Kenneth Pickering, an attorney advising Liberty Bank on the acquisition, said the deal is still on and is awaiting regulatory approval.
United Bank of Atmore, Ark. has announced a pledge of $17,000 to help the Atmore YMCA alleviate recent shortfalls that threatened to close the organization. United Bank’s commitment of $1,000 per month through December 2015 will allow the YMCA to continue providing recreational services to children, families and senior citizens. In addition to its financial commitment, the bank is helping the YMCA draft a grant application from the Alabama Historical Commission for capital enhancements. “Our commitment today will meet an immediate need, but it’s also reflective of United Bank’s commitment to help the YMCA find a long-term solution to its funding issues,” said Robert Jones, President and CEO of United Bank.