Card issuers cut back on 0% offers; shift to mobile could speed branch divestment

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Consumer credit roundup

Zero percent credit card balance transfer offers have dropped sharply in recent months as “issuers try to limit their exposure to possible loan losses at an already challenging time,” the Wall Street Journal reports. “Consumers seeking new financing since the pandemic are being reviewed even closer than before March out of concern that applicants might have recently lost their jobs or incurred some other financial setback. The pandemic has also resulted in banks mailing out fewer offers than usual.”

“Balance transfers are also riskier now than before the pandemic. For lenders, taking on the debt consumers currently have with a separate card issuer while unemployment remains high could result in more loan losses at a time when they are already expecting charge-offs to rise.”

At the same time, however, U.S. banks “expect a significant number of borrowers to recommit to normal payment schedules once their forbearance deals expire later this month, adding that many clients had not been as hard hit by the pandemic as they feared,” the Financial Times said. “Between 4% and 22% of borrowers across various types of loans signed up for 90-day payment holidays designed to give households and businesses breathing room as the coronavirus pandemic threatened their livelihoods. Whether those borrowers are able to get back on track with normal payments is an early indicator of the level of defaults and loan losses banks are likely to face” from the crisis.

In the U.K., meanwhile, “banks are in talks with regulators about extending coronavirus relief measures for customers struggling to repay credit cards and other unsecured debts until the end of September,” the FT reports. “Last week the government said homeowners who were unable to pay their mortgages because of the pandemic could seek an additional three-month repayment holiday. Banks are now in discussions with the Financial Conduct Authority around the option of a similar extension to some of their more distressed credit card and personal loan borrowers.”

Wall Street Journal

Whither branches?

Branch traffic at banks “fell more than 30% in April and the first three weeks of May” while “teller transactions dropped 32% in March and April compared with the same periods last year. That could speed up some banks’ plans for shutting down” their branches.

“The forced shift toward mobile banking delivers an important win for traditional banks, which have been trying for years to steer people away from branches and toward apps and websites for routine transactions. If customers adapt without much complaint, that could give banks fresh reasoning to expedite planned closures and consider additional ones.”

PPP overhauled

President Trump Friday signed into law an overhaul of the Paycheck Protection Program, “giving companies more time and flexibility to spend funds from the federal aid program. The latest fixes allow businesses 24 weeks to spend the loans, up from eight weeks under the original rule, and ease a requirement to spend 75% of funds to pay workers to gain loan forgiveness. The new threshold is 60%.”

“While the June 30 deadline for new loan applications remains unchanged, borrowers now have until the end of the year to restore their payrolls to pre-crisis levels in order to have their loans forgiven. Borrowers are also given more time to repay the portions of funds that aren’t forgiven.”

The fixes “should make the forgiveness process more attractive for borrowers, but not much easier to navigate,” American Banker reports. “Bankers said they view the changes a way for them to reintroduce the program to small businesses that have been wary about participating.”

Inside knowledge

Financial technology companies are snapping up former government officials as they seek to navigate the still-developing patchwork of regulations governing cryptocurrency and other financial technology. Former top officials from the U.S. Treasury Department’s Office of Terrorism and Financial Intelligence—the department at the center of crafting regulations for domestic and international blockchain and other crypto-finance fields—have taken positions at fintech powerhouses in recent months. Those officials, including the former undersecretary who spearheaded new fintech rules at Treasury, are guiding product development as the government drafts overarching rules for a sector that promises to refashion global finance and commerce.”

Financial Times

Worse than the virus?

“Climate change poses a bigger threat to financial stability than the coronavirus pandemic and the rules on bank lending to fossil fuel [companies] must be tightened to address it,” according to a new report, which “has recommended increasing the risk weightings banks must apply to their oil, gas and coal exposures. This would make them treat fossil fuel lending in the same way as other risky investments, increasing their capital requirements to insulate them against possible losses.”

“The actions we are proposing today are far less radical or costly than those taken in response to the Covid-19 crisis but they target a far bigger threat,” said Benoît Lallemand, secretary-general of Finance Watch, an advocacy group that wrote the report.

Raided

Wirecard, the German payments company under investigation for alleged accounting irregularities, had its headquarters “searched by police on Friday after Munich prosecutors launched a criminal investigation against chief executive Markus Braun and the payment group’s three other executive board members. Munich prosecutors said that the search followed a criminal complaint submitted a few days earlier by BaFin, Germany’s financial watchdog. The complaint relates to potentially misleading statements made by Wirecard to investors ahead of the publication of a special audit by KPMG in late April.”

Quotable

“The way customers are interacting with banks is changing, and I think this pandemic has accelerated that behavioral change in a fairly substantial way.” — Andy Cecere, CEO of U.S. Bancorp, which is expediting plans to close more than 10% to 15% of its branches.

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Credit cards Paycheck Protection Program Branch banking Climate change
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