In a surprise announcement, e-commerce giant eBay said it would spin off digital payment service PayPal. The move, an apparent reaction to Apple’s entry into mobile payments, is meant to make PayPal more nimble. PayPal has more than 150 million regular users and generated $6.6 billion in revenue last year. A number of large retailers as well as payment startups Square and Stripe have already agreed to accept Apple Pay, which is expected to be available within a month. Apple says its service, which will allow iPhone users to pay with their phones and authenticate purchases with via fingerprint scanner, will be faster and safer than PayPal's current offerings. But PayPal could be an attractive alternative for merchants since it runs on both Apple and Android operating systems.
The CFPB has asserted its authority over “captive” finance companies that belong to the auto companies. Until now, finance companies that aren’t primarily banks, like Ford Motor Credit Co., were regulated by the states. First on the CFPB's agenda is reforming "dealer markups" on auto loans. The markups compensate dealerships for helping generate loans for the finance companies by tacking on a small amount of interest, which becomes part of the customer’s total interest rate. Most lenders impose caps of 2 or 3 percentage points on dealer markup, but dealerships have the discretion to charge more for certain classes of borrowers. The CFPB seeks to end that practice, encouraging lenders to eliminate dealer discretion by setting a fixed flat rate for every customer.
The CFPB has set a number of precedents with an enforcement action against Flagstar Bank. The action not only marks the first time the CFPB has enforced its new mortgage servicing rules, but also the first time it has banned a servicer from servicing new loans. The CFPB cited Flagstar for taking too long to process applications for foreclosure relief and permanent loan modifications—up to nine months per application. Flagstar also failed to inform borrowers when their application was incomplete and denied loan modifications to qualified borrowers. The CFPB estimates 6,500 borrowers were affected by Flagstar's faulty modification practices, of whom 2,000 were foreclosed upon. The CFPB has ordered Flagstar to pay $27.5 million to affected consumers and $10 million in fines.
Secret recordings made by New York Fed examiner Carmen Segarra offer an intimate study of the New York Fed's culture as it attempted to become a more forceful financial supervisor. The recordings, Segarra says, reveal the Fed had become too risk-averse and deferential to the banks it supervised. The recordings back up the image of Fed culture detailed in a 2009 Fed report which describes extensive regulatory capture, documenting lengthy meetings and discussions of systemic risk that rarely resulted in supervisory action. Segarra was fired form the New York Fed in 2012 after, she claims, superiors retaliated against her for refusing to back down from a negative finding about Goldman Sachs' weak conflict of interest policy.
Developers have been scrambling to patch a newly discovered vulnerability in Bash, a widely used piece of code that interprets user commands for a computer. Bash has existed for 25 years and is utilized by the hundreds of millions of computers worldwide running Unix, Linux and Mac OS X operating systems. The flaw allows hackers to access a device and slip in malicious code, taking over the computer. The hacker can make the device or server do just about anything from becoming part of a botnet to stealing customer account information. Banks' core systems and servers often run on Linux or Unix, as do certain closed-circuit cameras and ATMs. Banks' IT administrators will need to scan all systems and vendors for the vulnerability and install patches.
The Department of Defense has proposed an overhaul of rules regulating predatory lending to military personnel. The proposal would expand the 36% APR cap on payday, auto-title and tax refund anticipation loans to cover all closed- or open-end loans, ending the current practice of lenders evading the rate cap by offering slightly longer or more expensive loans. The new rules would also require creditors to provide military borrowers with additional disclosures, including a document encouraging the service member to seek options other than high-cost credit. Creditors would also be prohibited from requiring service members to submit to arbitration or waive their rights under the services members’ Civil Relief Act.
A new study finds that many homeowners neglected a chance to save money by refinancing their mortgages. After the recession, the Fed took action to boost the economy by pushing interest rates to record lows. In December 2010, 20 percent of American households with fixed-rate mortgages should have taken advantage of the low rates by refinancing—but didn’t. The median homeowner could have saved over $45,000 over the life of the loan. When lending non-profit Neighborhood Housing Services of Chicago organized a mailing campaign offering refinancing help, just 17 percent of recipients refinanced. 25 percent later said they never opened the letter. An additional 25 percent said they meant to follow up but never got around to it.
The imminent replacement of magstripes with EMV chips in credit and debit cards will end a golden age of identity theft brought on by flaws inherent in the decades-old infrastructure. Most card scams take advantage of the magstripe’s basic security flaw: that static characters encoded into the stripe hold all the authentication information needed to produce a flawless counterfeit card. In contrast, EMV transactions, which rely on single-use cryptograms, make eavesdropping with a simple card reader fruitless to criminals. Since the UK deployed EMV cards in 2004, card fraud has fallen 32 percent. In the United States, EMV readers are scheduled to replace magstripe readers by 2020.
Subprime auto lenders have adopted a dystopian method for extracting payments from their customers: installing remote GPS trackers and kill switches into borrowers' cars. The so-called starter interrupt devices allow lenders to remotely disable the ignition until borrowers return calls from debt collectors. The devices can also alert lenders to signs of trouble — for instance if the borrower is no longer traveling to their regular place of employment. Some borrowers say their cars were disabled when they were only a few days behind on their payments, leaving them stranded in unfamiliar neighborhoods or stuck in traffic at a stoplight. The volume of subprime auto loans is growing quickly and reached more than $145 billion in the first three months of this year.
Walmart is teaming up with Green Dot, known for its prepaid payment cards, to supply checking accounts available nationwide by the end of October. The new accounts, called GoBank, are intended as low-cost alternatives to traditional bank checking accounts, with no fees for overdrafts or bounced checks and no minimum account balance. The accounts will cost $8.95 a month for customers with direct deposits totaling less than $500 a month. To help attract customers, Walmart and Green Dot will forgo a screening system many banks use to vet potential customers and rely instead on a proprietary system. Walmart expects its new system to allow almost any consumer who passes an identification check to open an account in minutes.