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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.
Britain's new financial regulator, the Financial Conduct Authority (FCA), has taken action against online payday lender Wonga. Wonga positioned itself as a tech startup with ‘affordability algorithms’ that allowed it to make lending decisions in minutes. In fact, that speed relied on lax underwriting standards and insufficient credit checks which allowed borrowers to take out plainly unaffordable loans. The company has now agreed to entirely write off the debts of 330,000 customers, a total of £220 million ($356 million). Wonga previously paid £2.6 million ($4.2 million) in compensation after sending past-due customers fake letters from non-existent law firms. Amid its regulatory woes, the company announced a 53% fall in annual profits earlier this week.
Dominik Mjartan has been named CEO of Southern Bancorp Community Partners and Executive Vice President of Southern Bancorp, Inc. Mjartan previously served as Senior Vice President, charged with managing corporate strategy and other corporate functions. He will retain these responsibilities as Executive Vice President of Southern’s holding company. “Dominik’s financial acumen, strategic thinking and commitment to our mission as CDFIs are the right mix at the right time,” said Southern Bancorp CEO Darrin Williams. Southern Bancorp Community Partners’ current CEO, Tanya Wright will continue in a newly created executive role, responsible for managing the implementation of new products aimed at banking the unbanked and underbanked.
The U.S. Treasury marked the 20th anniversary of the CDFI Fund with speeches from Treasury Secretary Jacob Lew and former Treasury Secretary Robert Rubin. The event also included a panel featuring Brian Argrett, President & CEO of City First Bank of D.C. Secretary Lew’s comments focused on the Obama Administration’s commitment to expanding the community development goals of the CDFI fund. “By working together—government, private sector, nonprofits, faith institutions and community leaders—we can change the odds, we can overcome dim expectations and we can make America stronger,” said Lew.
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.