Courtesy of By Nick Timiraos, Wall Street Journal
Stubbornly high inflation and tight labor markets led Federal Reserve officials to signal they could raise interest rates at their next meeting despite a greater likelihood of a recession later this year.
The fallout from the failures of two midsize banks led Fed officials to consider skipping a rate increase at their meeting last month, but they concluded regulators had calmed stresses enough to justify a quarter-point rate rise, according to minutes of the March 21-22 gathering released Wednesday.
For the first time since officials began lifting rates a year ago, the Fed staff forecast presented at the meeting anticipated a recession would start later this year due to banking-sector turmoil, the minutes said. Previously, the staff had judged a recession was roughly as likely to occur as not this year.
Looking ahead, the minutes hinted at potential policy divisions, with some officials pointing to greater risks of a sharper-than-anticipated slowdown and others highlighting the prospect of firmer inflation this year.
Officials concluded that given the strength of price pressures and the demand for labor, “they anticipated that some additional policy firming may be appropriate” to bring inflation down to the central bank’s 2% goal, the minutes said. They also said they would pay close attention to bank lending conditions as they weigh their next move.
The latest rate rise brought the Fed’s benchmark federal-funds rate to a range between 4.75% and 5%. All 18 officials who participated in last month’s meeting supported the increase, the minutes said. New economic projections released then showed nearly all expected they would lift rates one more time this year. Most of them expected to hold rates steady after that, provided the economy grows little this year and labor demand cools.
Over the past year, the Fed has raised rates at its fastest pace since the early 1980s to combat inflation that jumped to a 40-year high last year. Until recently, officials had signaled that they were likely to keep raising lifting rates until they saw more conclusive evidence that economic activity and price increases were slowing.
The rate outlook became much more uncertain after banking-system stresses flared last month, beginning March 9 when panicked depositors pulled money from Silicon Valley Bank, which regulators closed the following day. Regulators closed a second institution that also faced a run, Signature Bank, on March 12 and intervened aggressively to shore up confidence in the banking system.
Many Fed officials anticipated “there would be some tightening of credit conditions, and that would really have the same effects as our policies do,” Fed Chair Jerome Powell said at a news conference March 22. “If that did not turn out to be the case, in principle, you would need more rate hikes.”
Inflation moderated somewhat last month, the Labor Department said Wednesday. The consumer-price index rose 0.1% in March and by 5% over the previous 12 months, the smallest annual increase in nearly two years. But core prices, which exclude volatile food and energy items and which central bankers see as a better gauge of underlying inflation, rose 0.4% in March and by 5.6% over the previous year, up from 5.5% in February.
The Fed fights inflation by slowing the economy through raising rates, which causes tighter financial conditions such as higher borrowing costs, lower stock prices and a stronger dollar, which curb demand.
“While the full impact of this policy tightening is still making its way through the system, the strength of the economy and the elevated readings on inflation suggest that there is more work to do,” San Francisco Fed President Mary Daly said in a speech Wednesday.
The question ahead of the Fed’s May 2-3 meeting is whether officials place more emphasis on anecdotes and surveys of credit conditions if they signal a pullback in lending, which could call for forgoing an increase or raising rates while signaling a pause, or whether they place more weight on economic data that might show less effect on credit availability but be more dated.
Philadelphia Fed President Patrick Harker said Tuesday he has long anticipated the central bank would need to raise the fed-funds rate above 5% “and then sit there for a while.”
Last year, supply-chain healing offered a compelling reason to think price growth would slow. This year, the case for inflation falling depends more squarely on declines in the demand for labor and consumer spending. “If you don’t see demand moving [down], it is hard to envision how you think inflation is going to” slow, Richmond Fed President Tom Barkin told reporters on March 30.
“You have to have a theory of why inflation’s going to come down if you think it is going to come down,” he said.
Courtesy of PYMNTS.com
The words “systemic” and “risk” have been on everyone’s lips in the past few weeks.
And for Big Tech, at least, the regulatory gaze will only widen, eyeing the payments ambitions of the biggest platforms, and whether new payment types — stablecoins among them — might scale enough on those platforms to be a cause for vigilance.
The Consumer Financial Protection Bureau (CFPB) efforts may get renewed vigor in the wake of the fact late last month federal appeals court ruled that the CFPB’s funding via the Federal Reserve is constitutional.
And this week, appearing on Yahoo Finance Live, CFPB Director Rohit Chopra gave some insight into the areas ripe for consideration and review — and perhaps some new regulations too.
He said the Financial Stability Oversight Council has the authority to “designate certain payment activities [including] payment clearing and settlement as either systemic or likely to become systemic.”
Among the payment methods that need to be examined, per Chopra’s commentary: stablecoins, which could conceivably start “riding the rails of a Big Tech platform or a card network.”
Who’s on the Platform and Who’s Not
“There are some questions we have,” he said of the platforms, “about how do some of these services decide to kick a merchant off or kick a user off? How are they actually using all the data that they’re collecting through our phones and through what we buy?”
He noted that beyond the ability to craft targeted ads, there may be a “move to a world with personalized pricing.”
The regulators, he said, have been looking, and will continue to look, at the cloud services offered by Big Tech players — with particular concern around the risks tied to outage or attacks by fraudsters and hackers, non-state and state actors alike. The risks extend to healthcare, energy and other sectors, he said.
“It’s hard to know what specific tools we’ll use,” he told the finance site, as to what guardrails, regulations and policies may be on the horizon.
As reported by PYMNTS in recent weeks, the drumbeat for stablecoin regulation is likely to grow louder after the stablecoin USDC briefly lost its dollar peg. USDC dipped to as low as 86 cents after the issuer of the stablecoin, Circle, said that some of the funds backing the stablecoin were held at Silicon Valley Bank.
Big Tech’s financial services roadmaps may be determined in part by open banking, where as banks share account data and other details (with consumer permission), they can offer a range of financial products. There’s also, of course, the ability for Big Tech to apply for banking licenses. Apple’s latest push into buy now, pay later (BNPL), with Apple Pay Later, is but one of the more recent examples of the lines blurring between payments, providers and platforms.
$3.5 Million Available; Credit Unions Should Review Eligibility Before Applying.
Credit unions eligible for Community Development Revolving Loan Fund grants in 2023 can apply between May 1 and June 30, the National Credit Union Administration announced today.
“This year, we have new opportunities for credit unions that are considering applying for a 2023 CDRLF grant,” NCUA Chairman Todd M. Harper said. “Congress more than doubled the CDRLF funding for 2023 and added minority depository credit unions as eligible institutions. So, both low-income credit unions and minority depository institutions can now use CDRLF grants to build capacity, invest in their communities, reach under-resourced populations, and provide their members with products and services to strengthen their economic security.”
The agency will administer approximately $3.5 million in CDRLF grants to the most-qualified applicants, subject to the availability of funds. Grants will be awarded in five categories:
- Underserved Outreach (maximum award of $50,000) — Helping credit unions expand safe, fair and affordable access to financial products and services to underserved communities and improve the financial well-being of their members;
- MDI Capacity Building (maximum award of $50,000) — Preserving MDI credit unions and increasing their ability to thrive and serve minority populations;
- Consumer Financial Protection (maximum award of $10,000) — Ensuring credit unions have the resources and expertise to protect credit union members, raise awareness of potential frauds, and facilitate access to fair and affordable financial services;
- Digital Services and Cybersecurity (maximum award of $10,000) — Providing assistance to credit unions to modernize information and security systems to better protect themselves and their members from cyberattacks; and
- Training (maximum award of $5,000) — Strengthening credit unions through succession planning, leadership development, staff education, and professional development.
During this year’s funding round, the NCUA is also piloting two new grant initiatives that eligible credit unions may apply for:
- Impact Through Innovation (maximum award of $100,000) — A pilot initiative addressing underserved communities by focusing on banking deserts, affordable housing, credit invisibles, and fintechs; and
- Small Credit Union Partnership (maximum award of $100,000) — A pilot initiative helping small credit unions pool their resources to help them achieve their growth objectives.
Interested credit unions are encouraged to read the Notice of Funding Opportunity(opens new window). Grant requirements, application instructions, and other important information are available on the grants program page of NCUA.gov. Grant applications must be submitted online through the NCUA’s CyberGrants portal(opens new window). Credit unions with other questions about CDRLF grants may contact the NCUA’s Office of Credit Union Resources and Expansion at [email protected].
Eligibility Requirements
The 2023 CDRLF grant round is open to credit unions with either a low-income designation or certification as a minority depository institution. A credit union applying for a CDRLF grant must have an active account with the System for Award Management, or SAM, and a unique entity identifier number they will receive when they register for a SAM account.
Credit unions with an existing registration with SAM must recertify and maintain an active status annually. There is no charge for the SAM registration and recertification process. SAM users can register or recertify their account by following the instructions for registration(opens new window).
Credit unions with additional questions about the low-income designation may contact the NCUA’s Office of Credit Union Resources and Expansion at [email protected]. Questions about the MDI designation or the NCUA’s MDI Preservation Program should be sent to [email protected].
PUBLISHED CFPB launches Small Business Lending (SBL) Help
The CFPB issued the small business lending rule. You can read the rule on the CFPB website. To help financial institutions implement and comply with the small business lending rule, the CFPB is launching a dedicated regulatory and technical support program called SBL Help. SBL Help can provide oral and written assistance to financial institutions about their data collection and reporting obligations under the final rule.
You can submit your questions to SBL Help here: https://sblhelp.consumerfinance.gov/.
SBL Help is the latest resource from the CFPB to help financial institutions implement and comply with the small business lending final rule. As announced last week, the CFPB published a small business lending implementation and guidance webpage, which contains several regulatory implementation resources about the final rule, and a small business lending data webpage, which contains several technical resources about submitting small business lending data to the CFPB.
The CFPB plans to publish additional resources to help financial institutions implement and comply with the small business lending final rule. The CFPB has published a video that introduces the types of implementation and compliance support it provides and the timeline these materials are typically released.
You can watch the Introduction to Regulatory Implementation and Guidance video here: https://www.youtube.com/watch?v=cKc_BBxqOwM.
The CFPB took action against James R. Carnes and Melissa C. Carnes, both individually and as co-trustees of the James R. Carnes Revocable Trust and the Melissa C. Carnes Revocable Trust for hiding money through a series of fraudulent transfers in order to avoid paying more than $40 million in restitution and penalties for illegal payday lending activities. James Carnes attempted to evade a CFPB order requiring him and his company, Integrity Advance, to make harmed consumers whole and pay penalties to the CFPB’s victims relief fund. The CFPB is seeking injunctive relief, as well as asking the court to award a money judgment for the value of the fraudulently transferred funds.
James Carnes was the chief executive officer of Delaware-based Integrity Advance, a short-term, online lender. James Carnes and Melissa Carnes reside in Mission Hills, Kansas, which is also the principal place of administration of their revocable trusts.
PUBLISHED CFPB Issues Guidance to Address Abusive Conduct in Consumer Financial Markets
Policy statement details post-financial crisis prohibition on illegal abusive conduct
The Consumer Financial Protection Bureau (CFPB) issued a policy statement that explains the legal prohibition on abusive conduct in consumer financial markets and summarizes over a decade of precedent. The CFPB leads enforcement and supervision efforts to identify and end abusive conduct against consumers. In 2010, in response to the financial crisis, Congress passed the Consumer Financial Protection Act, and created the prohibition on abusive conduct. The Act tasks the CFPB, federal banking regulators, and states with the responsibility to enforce the prohibition, and puts the CFPB in charge of administering it. The policy statement will assist consumer financial protection enforcers in identifying wrongdoing, and will help firms avoid committing abusive acts or practices.
More than 78,000 consumers harmed by College Financial Advisory and Student Financial Resource Center will receive checks in the mail this month.
Learn more about the case and redress payments
In 2015, the CFPB filed a complaint in federal court against College Financial Advisory and Student Financial Resource Center for illegally charging millions of dollars for sham financial services. Global Financial Support, Inc. is a California corporation owned by Armond Aria that operated under the names College Financial Advisory and Student Financial Resource Center. According to the CFPB complaint, Aria and his businesses sent millions of deceptive solicitation packets to students and their families claiming to apply for financial aid services and to match prospective students with targeted financial aid assistance programs for a fee, and mispresented that students would lose their opportunity to receive financial aid unless they paid the company and applied by a stated deadline. In reality, consumers did not receive what they paid for, while the company reaped millions of dollars from the scheme. Learn more about the enforcement action.
The total distribution amount is $4,737,472.17, and the money will come from the CFPB’s Civil Penalty Fund.
Housing was once the most common way most families-built wealth in America, but today, it is a primary driver of financial insecurity for millions of people.
The problem of housing affordability doesn’t affect only a few high-cost cities. It’s pervasive throughout the nation, in the priciest housing markets with the lowest vacancy rates like New York and San Francisco, and the least expensive markets with high vacancy rates, such as Cleveland and Memphis.
Learn about partnerships and programs that credit unions are involved in to provide innovative and collaborative solutions to this pervasive problem, how to help your members from falling into risky alternative financing, and what your credit union can do to help with actionable solutions for your community.
Late last month, the Filene Research Institute published a report on “The Path Forward for Crypto: What Credit Unions Need to Know“.
Cryptocurrencies offer innovative possibilities but also pose many risks.
Credit unions are anticipating greater clarity on crypto regulation while actively seeking opportunities for enhanced staff and leadership training, issuing new financial products, and establishing fintech partnerships in the fast moving landscape of today.
EXECUTIVE SUMMARY
Cryptocurrencies and blockchain technology (“crypto”) have proven more resilient than expected over the past decade and industry leaders are now exploring the opportunities they present for credit unions and their consumers. However, according to credit union leaders, lack of regulatory clarity and support is the greatest roadblock to offering crypto products to members. Additionally, credit unions require specialized knowledge and training to select the most appropriate crypto products and partners to meet the needs of their membership.
Despite encouraging signs and perceived need to offer crypto products, risks are still present. Even with these risks and challenges, credit unions cannot ignore the strong consumer demand for crypto products especially from Millennial and Gen Z members. In order for credit unions to build momentum in the crypto industry, fintech partnerships will be essential given the lack of expertise in these early stages.
CREDIT UNION IMPLICATIONS
In recent years, credit unions have begun exploring how to offer cryptocurrencies and crypto-based financial products to their members. While some credit unions expressed interest in offering their own custodial wallets, lending or investment products, and digital identities for account opening, most seemed to accept partnership as a low-risk, low-investment way to be an industry fast follower.
Crypto has the potential to create innovative products that attract and retain members and reduce back-office inefficiencies. However, despite encouraging signs and a perceived need to offer crypto products, risks still abound. Download this preliminary report for recommendations on how to move forward with crypto.
Click here to read more, sign-in required.
Letter to Credit Unions 22-CU-06: NCUA to Begin Phase 2 of Resuming Onsite Operations
April 2022
Based on new guidance from the Centers for Disease Control and Prevention (CDC) and the Safer Federal Workforce Task Force, the NCUA will enter the second phase (Phase 2) of resuming its onsite operations on April 11, 2022.
Letter to Credit Unions 22-FCU-02: Final Rule on Definition of Service Facility
March 2022
The final rule amending the definition of “service facility” for multiple common-bond FCUs became effective December 27, 2021. The final rule provides that shared locations are service facilities for purposes of multiple common-bond FCU additions of groups and/or underserved areas, regardless of whether the FCU has an ownership interest in the shared branching network providing the locations. Qualifying shared locations include electronic facilities offering required services such as video teller machines.
NCUA Risk Alert: 22-RISK-01 Heightened Risk of Social Engineering and Phishing Attack
March 2022
The on-going conflict in Ukraine has raised concerns about potential cyberattacks in the U.S., including those against the financial services sector. All credit unions and vendors, regardless of size, are potential targets for cyberattacks, like social engineering and phishing attacks, and must remain vigilant. Credit unions should report any cyber incidents to the NCUA, your local FBI field office or the Internet Crime Complaint Center, and the Cybersecurity and Infrastructure Security Agency (CISA).
Courtesy of Moebs $ervices, moebs.com
The result would be:
- 678.2 Million debit cards purchases of gas, groceries, dentist, etc., would be declined.
- 60 Million Americans’ ACH payments returned NSF for cell phones, auto loans, mortgages, etc.
- $33.4 Billion of overdraft revenue would not be charged to the consumer.
- 111,000 financial institution employees would lose their jobs.
This is what the Consumer Financial Protection Bureau, not Congress, is considering doing. The CFPB reports to the President of the United States, not Congress.
What follows is Moebs $ervices’ Study on The Evolution of Overdrafts done in two parts.
- This is Part I – the History of Overdrafts.
- Part II – the Overdraft Solution is subsequently provided in the next issue.
(If you would like a copy of the full study now, email [email protected]).
The Evolution of Overdrafts
Study by Moebs $ervices, Inc. ©2022
Consumers make financial mistakes. Most are just ordinary errors while some are intentional and even fraudulent. Checking accounts, or transaction accounts, as the rest of the world calls them, suffer the brunt of these errors. The leading cause of these mistakes, or 77.4% of all service charges on deposits, are overdrafts.
These facts come from an extensive Overdraft Study by Moebs $ervices, an economic research firm.
An overdraft is defined as a credit, but not a loan by the Federal Reserve and other regulators. An overdraft is when a transaction account has a debit balance, or withdrawals (debits) mainly debit cards, exceed deposits (credits) mainly direct deposits of payroll or ACH credits.
Click here to read the full article
Related reading: Summary in CUToday.info “One Forecast: ‘Half of CUs Could Close”