FedFin Daily Alert: CFPB Report Continues Credit Card Attack
Buttressing its controversial credit-card late-fee proposal (see FSM Report CREDITCARD36), the CFPB today issued a report finding that the 25 largest credit card issuers charged interest rates eight to ten percentage points higher than small-and-medium-sized banks and credit unions. The report states that higher rates among large issuers persist across credit scores, with large issuers also more likely to charge annual fees. The report also identifies by name fifteen issuers who reported cards with interest rates above thirty percent. The data come from the first set of results from the updated Terms of Credit Card Plans survey. In a statement alongside the report, Director Chopra stated that the CFPB will be “accelerating its efforts to ensure that consumers can access better rates that can save families billions of dollars per year.” No specific initiatives are named.
Karen Petrou: How to Have Sound Bank-Merger Policy Reflecting Unique Bank Regulation
Chair Powell said a week ago that, thanks to commercial real estate risk, some banks will need to be “closed” or “merged out of existence,” hopefully adding that these will be “smaller banks for the most part.” That this may befall the banking system sooner than Mr. Powell suggested is all too apparent from NYCB’s travails. The OCC’s new merger proposal flies in the face of this hard reality, dooming mergers of size or maybe even small ones until it’s too late. A surprising source – a super-progressive analysis of bank merger policy – makes it clear why the OCC’s approach is not only high-risk, but also ill-conceived.
The paper comes from Saule T. Omarova, President Biden’s nominee to be Comptroller who was forced to withdraw, and the Administration’s most recent Assistant Secretary for Financial Institutions, Graham Steele. As befits their longstanding views, the paper presses for stringent bank-merger policy to combat what Justice Brandeis first called the “money trusts.” Ms. Omarova and Mr. Steele say that banks of all sizes are still “money trusts” despite the role of omnipotent private-equity and asset-management firms, but so goes much of their analysis. What’s more interesting in their report and a new petition filed by a like-minded academic is their ground-breaking, hard look at how much of bank regulation is actually intended to curtail undue market power. Taking this into account could lead to sound merger policy without the adverse consequences evident in the OCC’s drop-dead proposal.
There are in fact many safety-and-soundness standards that are also expressly designed to prevent problematic concentration and unfair market advantage. A short list of my own prompted by these papers includes limits on inter-affiliate transactions and anti-tying restraints intended to prevent holding companies from powering up their profits thanks to unique bank privileges and […]
FedFin on: Bank-Merger Policy
Although all of the banking agencies have for years promised a new bank-merger policy, none has proposed one until this OCC rulemaking. It is intended to add certainty and transparency to the manner in which the OCC reviews merger applications or others for charter combinations from national banks and federal savings associations resulting in a federally-chartered depository, but the OCC retains discretion to do as it chooses in this arena given the flexibility built into all the attributes now laid out that may augur OCC disapproval and/or expedited processing. The policy also appears to apply to…
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Karen Petrou: Why Lower Rates Won’t Lead to More Affordable Housing
As Politico rightly pointed out last week, the inability of anyone who doesn’t already own a home to get one is turning into a significant political problem for incumbents of all persuasions. It might also come to be one for the Federal Reserve based on a call I got from a senior senator a couple of weeks ago. This is not exactly what the Fed needs given how hot a political potato it’s already become.
Having read my economic-inequality book, the senator called to ask if I thought the Fed had any responsibility for the acute shortage of affordable housing. As in all too many other states, his has seen a migration of teachers, first responders, and the middle class as a whole from cities and resort areas, with these vital workers forced to live hours from their jobs and thus in a state of perpetual commuting which they fear puts their children at risk.
This isn’t news, but it’s worse than ever and thus not just a daily grind for many Americans, but also a serious political threat to this moderate Democrat. His state is deep purple and he believes it’s getting redder by the minute thanks to Donald Trump’s ability to mobilize voter anger on day-to-day economic challenges such as the critical one facing those who cannot find affordable, desirable housing within reasonable distance of their jobs.
As might be expected, the senator wasn’t calling to ask an academic question; he wanted to know not just if the Fed should be held accountable for unaffordable housing, but also if he should go public and do so. In very brief, I said that holding the Fed to account can and should be done as long as the role of other federal, state, and local policies is kept firmly in mind. […]
FedFin on: AI Regulation
Although FSOC’s latest annual report highlights AI risk, it does not request any express agency action, a hands-off approach that led to bipartisan legislation demanding a more forceful approach. Possibly leading the way as it did on climate risk, the CFTC now seeks comment on both the way it uses AI and how it affects not only financial markets under its jurisdiction, but also financial-system stability.
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FedFin on: Steady As They Go Scores
We have reviewed the 2024 scorecards FHFA released for Fannie and Freddie. Unlike prior years, it contains no new initiatives or aspirations, largely holding Fannie and Freddie to account for much of what they’ve been asked to do before. Fannie is given indirect encouragement to continue its title-insurance plans, but that’s only if it comports with added cost-efficiency under several longstanding FHFA goals….
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