Receiving Wide Coverage ...
State of Banking, Continued: The regulatory push for banks to take fewer risks in mortgage lending has also meant that banks are issuing fewer mortgages to African-Americans and Hispanics. As part of the new regulatory scheme, banks have moved into making high-dollar mortgages because they carry less risk, the Wall Street Journal reports in its ongoing series on the state of banking. In the process, low-income and middle-income consumers are finding it more difficult to get a loan. Thus, the American Dream of owning your own home has been made more difficult to achieve.
But wait, banks are also legally required to serve a racially diverse group of customers. "It's one of those damned if you do, damned if you don't situations," said Stu Feldstein of the mortgage-research firm SMR Research.
The 10 largest banks increased their share of jumbo mortgages between 2007 and 2014. Bank of America increased its jumbo lending to 15.6% of all approved mortgages in 2014, from 8% in 2007. Jumbos carry higher loan balances, are made to borrowers with high credit scores, and require large downpayments. They also carry lower default rates.
Meanwhile, those banks issued fewer mortgages to minority applicants. Curiously, some federal agencies with oversight of fair lending practices say there is not necessarily a conflict at play here. However, prosecutors are working up lawsuits to be filed against banks for violating fair lending laws. Prosecutors accused Hudson City Bancorp of redlining last year and the bank agreed to pay $33 million without admitting wrongdoing.
The WSJ series also profiles PayPal, noting how the eBay spinoff looks and feels like a bank, even if it doesn't offer deposit insurance. Since PayPal can hold your money, allows you to withdraw it or pay people with it, and can offer you a loan, in many respects it's essentially the same as a bank, the WSJ concludes. That poses broad existential questions to real banks, such as whether they should start trying to act more like PayPal, serving as regulated money vaults.
Of course, plenty of banks already are acting like PayPal, as the WSJ notes, including JPMorgan Chase, BBVA Compass and SunTrust. Since PayPal does many of the same things as banks, regulators are starting to look at whether it needs to conduct some oversight of PayPal and its ilk.
Finally, the WSJ observes that many banking innovations are taking place in China, as online payment apps offer lending products and other services as the lines become increasingly blurred between banks and nonbanks.
Wall Street Journal
Payday lenders, auto-title lenders and other purveyors of installment loans will face significant new restrictions under the Consumer Financial Protection Bureau's new regulatory scheme. The CFPB will require lenders to assess a borrower's ability to repay loans, and it will make it difficult for lenders to roll over loans, or take fees out of a borrower's bank account.
Notably, the CFPB's regulatory plan will not allow banks to compete with payday lenders by offering their own version of small-dollar loans, according to American Banker's coverage. The CFPB's plan "effectively forces most banks to stay on the sidelines due to greater compliance burdens," said Richard Hunt, president of the Consumer Bankers Association.
The Treasury Department has taken steps to ban non-U.S. banks from processing financial transactions on behalf of North Korea, as the rogue nation has increased its nuclear weapons testing. The move could worsen U.S. relations with China, which is North Korea's largest trading partner. Treasury said North Korea has used its entire financial system to engage in money laundering and to buy nuclear weapons. Some U.S. officials say North Korea has been involved in trafficking drugs and counterfeit dollars and should be subject to the Patriot Act.
"North Korea has been probably the largest state sponsor of criminal activity and money laundering in the world," said a former State Department official in the George W. Bush administration.
A Congressional panel wants more information about what happened in the cybertheft of $101 million from the Bangladeshi central bank's account with the New York Fed. Rep. Lamar Smith, R-Texas, chairman of the House Committee on Science, Space and Technology, asked the Fed to brief his committee on how it handled the data breach. Smith also requested documents related to how the New York Fed conducts oversight of Swift.
Read American Banker's coverage of how banks have monitored their usage of Swift here. The verdict: Some banks may have been too complacent, coming to the conclusion the Bangladeshi heist was an isolated incident and that such breaches haven't been happening in the U.S.
Stress-test results will be delivered soon, and some banks may not get passing grades because of the harsher conditions the Fed used in its tests, said "Heard on the Street." Furthermore, banks may pass the tests, but the Fed may not approve plans to return some of the capital to shareholders.
The robo-adviser Wealthfront has partnered with the state of Nevada to introduce a 529 college-savings plan.
New York Times
"I'm cracking cards 'cause I'm a scammer. Watch the money do a back flip, early morning up at Saks Fifth, you see it, you want it, you have it." Those are lyrics from the song "For a Scammer" by Brooklyn rap group Pop Out Boyz. They're based on group members' alleged real-life experience running a credit card fraud ring; members of Pop Out Boyz were arrested in April and charged with grand larceny.
The rise of dark websites has made it easier to obtain fraudulent credit cards, according to the New York Police Department's financial crimes force. The sites sell card numbers taken from data breaches at retailers. "You don't need to be a criminal mastermind to pull this off; it's not that hard to get the numbers," said Gary Shiffman, an economist who specializes in illicit online markets.
Prosecutors say Pop Out Boyz members bought luxury shoes, jeans and handbags from places like Barneys and, of course, Saks. They stole about $258,000 worth of goods over 55 days.