Community Development Banking News
CDFI Banking: Industry, Policy, and Beyond.
Warren Buffett has released his latest annual letter to Berkshire Hathaway shareholders. Since 2012, Berkshire has not repurchased shares at a price higher than 1.2 times book value. According to former investment banker Harvard Winters, this implies that banks and thrifts with ROE far below that of Berkshire buying shares at that book value multiple or higher are acting recklessly. Winters finds three takeaways for banks from the Buffett letter: care deeply about the price of an investment, don’t be overly-optimistic about the future and never assume the bank has an “edge” without empirical evidence.
Illinois Attorney General Lisa Madigan has filed a new lawsuit against MoneyMutual, a lead generator familiar to daytime television viewers from ads pitched by TV personality Montel Williams. MoneyMutual is one of dozens of lead generators that drum up business for payday lenders by taking customer information, such as bank-account numbers and email addresses, and selling that information to payday lenders. The suit alleges that the company is operating as an unlicensed lender, arranging loans that violate Illinois's law limiting the fees that can be charged to borrowers. MoneyMutual was also one of 16 lead generators subpoenaed for marketing illegal payday loans by Benjamin Lawsky, superintendent of the New York Department of Financial Services.
The Consumer Financial Protection Bureau is in the late stages of formulating the first nationwide rules for payday lending and industry observers have begun speculating on what changes will be made. The CFPB is barred by the Dodd-Frank Act from setting a nationwide interest-rate cap, but the bureau is likely to set a regulatory floor below which the states may not fall. The CFPB has not signaled whether the new rules will include ability-to-pay standards or whether they will include restrictions on requesting access to customers' bank accounts. The rulemaking process will continue for at least several months as the CFPB convenes panels to assess the rules' potential impact, proposes a rule and accepts public comment before issuing a finalized rule.
Angela Martin, a senior enforcement attorney at the Consumer Financial Protection Bureau, told lawmakers at the House Financial Services Committee that she was discriminated against by managers. When she complained, she said, she was punished by being isolated from the workforce and stripped of responsibility. Martin also claimed that she had heard from dozens of other CFPB employees who felt similarly mistreated. Committee Ranking Member Rep. Maxine Waters (D-Calif.) has called for a full committee hearing on issues at the CFPB with appearances from top management, including Director Cordray.
Teri Williams, President & COO of OneUnited Bank stopped by Orlando Florida's Captain and Company Morning Radio Show to discuss the new Unity Visa Card, a program designed to help people build healthy credit: "That’s something important for people to not get upset or in the mindset that, you know, 'I have bad credit. I’m a bad person.' Absolutely not. What has happened, usually, is that something has happened in your life that in some cases you don’t even have control over. And so you have been doing fine, but you hit a bump in the road... [The Unity Visa] is a credit card, but more than that, it’s also information to help you figure out credit – to really get the skinny on how it works, so that you can better measure your credit going forward."
A new study from the St. Louis Fed concludes that there is a strong future for community banks and that those most likely to prosper will be those most committed to maintaining risk control standards and whose business plans are well-tailored to their communities. The study uses balance sheet and income statement ratios to identify features that are most associated with thriving community banks. The banks most likely to thrive were small (less than $100 million in assets), rural (agricultural loans have been unusually strong lately), had lower total loan-to-total assets ratios, had more concentration in consumer loans, and had less concentration in construction, land development, commercial real estate, commercial and industrial loans.
Big bank executives are opening experimental branches which use technology to provide more services in less space than a traditional branch. The pilot programs engineered by Bank of America and Citigroup resemble Apple stores, with employees holding tablets and tending to customers. JPMorgan found its customers headed to branches for advice rather than to simply go to the tellers. So their experimental branches focus on new express banking kiosks – A.T.M.s, with additional functionality and large flat screens – rather than the teller line. JPMorgan is also testing new ways of replacing debit card swipes at A.T.M.s, including technology that authenticates identity by scanning irises and palms.
The Minneapolis Fed profiled Sunrise Banks' investments in local arts and culture in a recent article. Since 2002, Sunrise Banks has worked with Free Arts Minnesota, an organization that uses arts-based mentorship to help at-risk youth express themselves. Sunrise Banks CEO David Reiling advocates a multifaceted approach to community development: “Banks can make loans, which is more straightforward. But they can also provide contributions or offer volunteer time.” Sunrise provides Free Arts a line of credit and operating accounts. The has bank also contributed through its corporate giving program and employees volunteer at the organization’s largest fundraiser.
Assertions that virtual payments and currencies are on the verge of displacing greenbacks may be premature. More greenbacks are now in circulation than at any time in recent history. Since January 2006, the amount of United States currency in circulation rose about 64 percent, to $1.2 trillion. But at the same time, cash transactions are declining as consumers rely more on debit and credit cards, suggesting that demand for dollars may be driven by hoarders rather than spenders. Americans are also writing half as many checks as they did a decade ago. The number of bank branches, however, has remained relatively stable.
Alternative lenders such as OnDeck and CAN Capital still rely on old-fashioned loan brokers to find their borrowers despite their high-tech packaging. These loan brokers are independent agents who funnel cash-strapped business owners to be sold high-cost loans. They charge sky-high commissions, usually hidden from merchants, which can double the cost of the loan. Some worry the brokers steer costly loans to small businesses that can’t afford them. “It’s a direct parallel to what happened in the subprime mortgage space,” says Mark Pinsky, CEO of CDFI advocacy group Opportunity Finance Network.