CFPB Letter Makes an Appeal on Behalf of the Underbanked

by tom 5. February 2016 15:43

The Consumer Financial Protection Bureau (CFPB) made some new pronouncements this week as part of its efforts to protect consumers from predatory banking practices. The CFPB issued a letter to the top 25 financial institutions urging them to make checking and savings accounts more readily accessible to the millions of “underbanked” Americans, without burdening them with overdraft fees. The CFPB also issued a compliance bulletin warning that under CFPB Regulation V, banks and credit unions have an obligation to provide accurate information to credit reporting agencies, since inaccurate credit information can hinder lower-income customers from opening bank accounts.

This week’s appeal is the latest move by the CFPB to rein in overdraft fees short of actually imposing new regulations. Rather than insisting banks and credit unions change their current overdraft protection policies, which could jeopardize one of the most lucrative sources of bank fee revenue, the CFPB is calling on financial institutions to develop and promote their own simplified banking products to help customers avoid overdraft fees.

The CFPB also pointed a finger at the banking industry in its bulletin, noting that many of the 10 million “underbanked” are being denied a checking account because of inaccurate credit information. Banks and credit unions rely on third-party reports to qualify new customers, and a poor checking account history can make consumers ineligible for a checking account, forcing them to rely on more costly check cashing serviceimages and prepaid cards. Richard Corday, head of the CFPB, called on banks to improve the accuracy of customer reporting to credit bureaus:

"We are concerned that some people are being inappropriately sidelined by two things. The first is the lack of account options that fit their financial needs and situations. The second is inaccurate information used to screen some potential customers."

Corday added that providing low-risk accounts doesn’t have to mean just traditional checking:

"Many general-purpose reloadable prepaid cards are specifically designed to help consumers manage their spending while limiting their transactional costs and risks."

Although this is not a regulatory mandate, it is a strong recommendation and banks were quick to respond, noting that there are already a number of low-risk banking products available and the banking industry is anxious to develop more. American Banker quotes Virginia O'Neill, senior vice president for the American Bankers Association's Center for Regulatory Compliance, who explained:

"There are a wide variety of reasons why some people are not in the financial mainstream, and the thousands of banks across the country actively offer a multitude of deposit products to meet diverse customer needs. America's banks are continually working on innovative technologies and services to bring consumers without a bank account into the fold."

Richard Hunt, President and Chief Executive of the Consumer Bankers Association, added that the industry is committed to making sure all U.S. consumers have access to a checking account with clearly defined terms and fee disclosures. He also noted that the reason many consumers are denied a checking account is because of regulatory mandates, but that alternative banking products often are available.

Some banking institutions see this as a golden opportunity to develop new banking products or promote existing. For example, Fifth Third chose this week to promote its Express Banking product, which was introduced last year and was specifically created to meet the needs of the underbanked.

Clearly this isn’t the last we will hear from the CFPB about overdraft fees. However, the approach the agency is using invites more dialogue and is an invitation to present strategies to address the CFPB’s concerns without resorting to ne regulations. More banks should take the approach of Fifth Third and shine a light on those products they already have in place. Banks and credit unions also should consider being more aggressive in explaining fees and services, and be sure that everyone, especially the CFPB, understand that there are alternative checking and banking products for the underbanked.


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Overdraft | In The News | Consumer Confidence

Weekly Term Accounts APY Spread and Premium Index–Feb 2

by tom 2. February 2016 17:14

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices. APY Spread Index The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

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Premium Index Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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Deposit Rates Starting to Move with a New Market Climate

by tom 1. February 2016 12:20

Since the Federal Reserve began raising fed funds rates in Decembers, more banks have been slowly responding with higher deposit rates. Rates aren’t increasing quickly, but increases are sufficient to acknowledge the change in the market and in response to customer expectations; if consumers read about Fed rate increases they expect banks for follow suit.

This is the first rising rate environment we have seen in more than a decade, and financial institutions were quick to increase interest rates on loans, but have been slower to increase deposit rates. JP Morgan Chase and U.S. Bancorp have started boosting commercial deposit rates, and as American Banker reports, several banks in the New York metropolitan area have started introducing CDs with a higher than 1% yield.image

A lot has changed since the last time the Fed raised rates in 2004. Normally, higher rates are an indicator of funding needs, but after such a long hiatus many banks may start testing the market waters with rate changes. Most banks stull have plenty of liquidity, but 6% of banks have already announced increases on two-year CDs and money markets in excess of $100,000.

With all the new competition from direct banks and the boom in mobile banking, consumers have more ways to shop for better deposit rates than in the past. With new options emerging, banks are working to make services more appealing to customer with better bundles as well as deposit rate increases. For many banks, the goal isn’t necessarily to improve funding as it is to keep existing customers satisfied. Many banks are taking a wait-and-see approach, at the same time they are keeping a close eye on competitors to assess potential threats, while others are feeling the pressure and changing deposit rates to keep pace.

First Colonial Bankcorp, for example, increased rates in its two-year CDs by 75 basis points to 1.25% to address competitive pressures. It also has been reported that Valley National Bank also doubled the rates on its money market accounts into 0.45% over the last month.

Market Rates Insight understands the importance of keeping pace with competitive rates, which is why we offer Rate Move Alert, a free tool to our research customers that keeps them current with competitive rates. Any rate change from preselected competitors generates and email alert so bank executives stay in tune with competitive rates. Rate Move Alert lets you track rate changes by institution, product, and region and even can deliver alerts to your smartphone so you are never caught by surprise.

We have already started to see rates start to move and in the coming weeks more banks and credit unions will climb off the fence and start adjusting rates to stay competitive. If you want to stay current, let us know – we would love to show you how to use Rate Move Alert.

Weekly Term Accounts APY Spread and Premium Index–Jan 25

by tom 25. January 2016 16:42

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index

The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

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Premium Index

Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums

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National Pricing Indicator | CD rates | Deposit Products

Direct Banks Present Competition as Early Movers on Interest Rates

by tom 21. January 2016 16:51

Today we are living in interesting times. Financial institutions are struggling to find new sources of profits while deposit rates slowly rebound following the Fed’s decision to raise interest rates, at the same time they are facing new competition from direct banks. The changing landscape for deposit rates and fees is going to promote a shift in the banking industry, prompting many financial executives to reassess their revenue strategies in light of new competition.

First, let’s consider how bad things really are in the banking industry. According to a report in this week’s Financial Times, revenue growth for U.S. banks is “flat as a pancake.”  According to analysts at CLSA, the top six banks combined – JP Morgan Chase, Bank of America, Citigroup, Goldman Sachs, Morgan Stanley, and Wells Fargo – generated combined revenues of $413 billion in 2015; the same total revenue generated in 2014.

The FT reports that following the financial crisis and the collapse of Lehman Brothers, big lenders have been increasing their capital stocks and improving liquidity in the event of another financial crisis. At the same time, banks have been hoping that demand for mortgages, car loans, and related products will generate more income, producing more income through higher net interest margins, And with the increase in Fed rates banks have slowly started to increase lending rates. but are holding on deposit rates.Monthly account charges

Now let’s look beyond the big banks to see what’s happening in the mid-market. Chris Nichols of CenterState Bank has just published his observations on changes to deposit rates he identified using our FeeBuilder database and TrendSpotter reports and he sees a new trends with direct banks leading the way in deposit rate increases.

Many financial institutions continue to overlook direct or Internet banks as competitors, but in many ways the direct banks are more nimble and willing to take more risks than their brick-and-mortar competitors. The latest rate data shows that Discover Bank has already increased their retail money market rates up 5 basis points, and their 5-year CD is up 20 basis points to 2.20 percent. Discover is promoting aggressive rates on all their CDs but they aren’t the only ones. Capital One also raise the 18-month interest rates 10 basis points and their retail one-year rats 90 basis points to 1.30 percent.

Direct banks are proving to be real competitors with higher deposit interest rates and lower fees. Internet banks are leading the market with more aggressive rates and community banks are sure to follow in the pursuit of profits. The rest of the market is going to end up playing follow the leader unless they start reviewing their deposit rates and fee strategies before the competition.

Weekly Term Accounts APY Spread and Premium Index– Jan 19

by tom 19. January 2016 16:22

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index

The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

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Premium Index

Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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CD rates | National Pricing Indicator | Deposit Products

Finding the Overdraft Policies That Are “Just Right”

by tom 15. January 2016 19:00

How much is too much? That’s the question on the minds of credit union managers and bankers as they wait to see what the Consumer Financial Protection Bureau (CFPC) decides to do about overdraft fees. Financial institutions face the Goldilocks dilemma – they have to set overdraft fees so they are not too high to offend the CFPB, not too low so they lose revenue, but just right.The Three Bears - Project Gutenberg eText 17034.jpg

In anticipation of the pending CFPB ruling, some consumers are forging ahead with class action suits to make an example of those institutions with [perceived onerous overdraft rules. A dozen credit unions in nine states are already facing class action suits related to how they disclose overdraft fees. One attorney, Michael Bell of Howard & Howard in Royal Oak, Mich., believes this is “the tip of the iceberg” and more than 100 credit unions could be sued for overdraft policies before the smoke clears.

The nuances of the these class action suits demonstrate the diversity of policies in the market, and the grounds for consumer complains. For example, MidFlorida Credit Union has a case pending claiming the credit union changed overdraft fees on available balances rather than actual balances.

The pattern seems to be that the CFPB will identify a potential overdraft issue and banks and credit unions move to make a correction. Shortly after the CFPB identifies a questionable overdraft practice, law suits will start to pop up against large banks, and then against credit bunions. It’s also interesting to note that most of these class action suits since September have been initiated by two law firms, McCune Wright of Redlands, Calif., and The Kick Law Firm of Santa Monica, Calif.

Clearly these types of suits will continue for some time yet, and the larger the asset size of a bank or credit union, the greater the risk.

However, as reported in a recent article in American Banker, financial institutions are already rethinking their overdraft strategies and looking for ways to use overdraft fees as a way to help the underbanked and protect customers rather than gouge them. Granted, overdraft fees continue to be a major source of income for financial institutions. As Geoffrey Hesslink, chief executive of Merchants Bank in South Burlington, Vt., explains it, "Overdraft borrowings are well below our expectations… The revenue miss there has been significant and material, frankly, to our earnings." However, bankers are looking to head off both CFPB and customer criticism with new lower overdraft fees and new, more transparent overdraft policies.

No matter what action the CFPB takes, it’s clear that overdraft fees are here to stay, although they will change in the coming months. As Lynn David, president of Community Bank Consulting Services, noted in a recent BankThink article for American Banker, eliminating overdraft fees altogether would be disastrous. Not only would it affect bank revenue, but consumers would be left without much-needed protection. Rather than dealing with a a predetermined overdraft protection fee, they would have to deal with NSF charges from both the bank and merchants. No one really wins with NSF while reasonable overdraft fees offer real benefits to consumers and financial institutions.

So you do you determine if your overdraft fees are “just right?” You need a competitive benchmark that not only tells you what your competition is charging, but also gives you a metric to demonstrate to regulators that your fees are in line with the market. Fees vary based on institution size and geography, and with the saber-rattling of the CFPB more financial institutions are changing overdraft fee structures in anticipation of new CFPB rules.

To help banks identify changes in overdraft fees and offer a competitive benchmark, we now offer TrendSpotter, an analytical tool that quickly reveals trends in retail fees, including overdraft. TrendsSpotter assimilates data from our FeeBuilder database of national retail deposit fees and gives you a benchmark for fee trends to show you the impact fees have on volume and revenue. By overlaying your own fee data you can see exactly where your overdraft fees call in line with the market. It’s a great tool to help you see if your overdraft fees are too high, too low, or just right.

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Banking Trends | Overdraft | Fees

Weekly Term Accounts APY Spread and Premium Index–Jan 11, 2016

by tom 11. January 2016 16:32

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index

The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

image

Premium Index

Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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National Pricing Indicator | CD rates | Deposit Products

Weekly Term Accounts APY Spread and Premium Index–Jan 4

by tom 4. January 2016 16:39

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index

The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

image

Premium Index

Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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National Pricing Indicator | CD rates | APY

JP Morgan Chase First to Raise Deposit Rates Following Fed Increase

by tom 29. December 2015 14:28

Now that the Federal Reserve has finally decided to raise interest rates, the big banks are trying to determine their best strategy to win back customers. With deposit rates remaining flat for nearly a decade there now is a lot of reserve cash in bank accounts and customers are going to start shopping for banking products that deliver a better return for their money.

While many banks are starting to announce plans to raise the prime rate tied to various loans, rumor has it that JP Morgan Chase will be raising deposit interest rates. The Wall Street Journal reported that it would start raising deposit rates for its larger customers starting in January. Since net interest margins are stillimage compressed, the JP Morgan Chase deposit rate increase will only affect institutional clients, and the size of rate returns will vary. The deposit rate increase will primarily apply to “operating” deposits, which are less likely to be withdrawn.

Other financial institutions have indicated that they will raise rates on loan products, JP Morgan Chase is the first of the big banks to start raising deposit rates, and other big banks are sure to follow. With the Fed rate increase, bank and credit unions can expect to see a number of trends emerge:

  1. There is pent-up demand for better return on deposits and customers are going to move money in zero-interest or low-interest savings accounts.
  2. Depositors have access to more information than ever before and will use the Web for comparison shopping for the best returns. Those institutions that have more online visibility and are raising deposit rates first will get a head start.
  3. The ongoing credit crunch has cost banks any brand equity. It’s more of a level playing field and customers with little or no brand loyalty are likely to shop rates.
  4. There are new competitors, such as direct banks and financial technology startups that are wooing bank customers. The rise in interest rates will get customers to think about making a change and some of those transferred dollars will make their way to direct banks.
  5. The top banks, like JP Morgan Chase, are using sophisticated price optimization technology to prepare for the next interest rate cycle. Those banks with better tools and intelligence are likely to come out ahead in the race for deposit income.

Competition for deposit dollars is going to be stiff and the deposit rate landscape has changed quite a bit in the last decade. Some of the younger bankers are ill-equipped to address the coming deposit rate cycle, since it has been so long since we have seen deposit rates raise. And new tools and competitors are going to challenge even the most experienced financial executives. It’s a new ball game with new rules, and the savvy bank executives are going to be looking for new strategies and new tools to stay ahead of the competition.


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