NEWS: The Credit Invisible Won't Be Invisible for Long

ALTERNATIVE FINANCIAL SERVICE PROVIDERS ASSOCIATION

NEWS: July 6

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GOP lawmaker: Fed chair Janet Yellen wants Consumer Financial Protection Bureau funding changed

Federal Reserve chairwoman Janet Yellen weighed in on one of the more contentious financial policy debates in Congress in a private conversation, a lawmaker said Wednesday, and suggested that Congress should change the way that the Consumer Financial Protection Bureau is funded.

Currently, the consumer agency is funded by Yellen's agency, which earns income through its portfolio of government bonds. Republicans critical of the agency's mission have argued that the arrangement prevents them from exercising authority over the bureau by controlling its spending.

On Wednesday, however, Rep. Blaine Luetkemeyer of Missouri said that Yellen had questioned that arrangement during a recent conversation with him over breakfast.

Recounting the story for an audience at the offices of the Financial Services Roundtable in Washington, Luetkemeyer said that he asked Yellen if she was tired of the Fed being used as "an ATM for the CFPB."

"And she chuckled a little bit and she said, 'Well, you know, if you could do something about that, I'd sure appreciate it,'" Luetkemeyer said. Read more at WASHINGTON EXAMINER

The Credit Invisible Won't Be Invisible for Long. by Walt Wojciechowski

The credit market is shifting, and creditors who fail to change with the times will be left behind. In recent years, alternative credit data - culled from places like electricity and smartphone bills - has helped the credit invisible masses come out from the shadows and obtain credit products once beyond their grasp. To those creditors still only using traditional credit ratings, now is the time to consider the benefits of leveraging alternative credit data when assessing risk and assigning interest rates to prospective consumers.

The future is paved with alternative credit data

In brief, alternative credit data and related products make the most sense for the next generation of lendees. But if the naturally expanding population of credit invisible individuals isn't evidence enough that the current credit system fails far too many and needs replacement, other catalysts are at play, such as modern billing habits. According to a study conducted by ACI Worldwide and Aite Group, U.S. consumers paid 8.2 billion bills online in 2016. That's 56 percent of all billing activity in the country. Moreover, about one-third of those bill payments were recurring. It stands to reason that as more Americans leverage autopay features and more alternative credit products come to light, consumers will begin to connect the dots between the two. Autopaying bills can act as an engine for improving their credit score without fuss or oversight. Interestingly, that same study found that younger generations of bill payers were more likely to pay for bills with a debit card than with credit, further demonstrating how consumers are breaking with traditional models for building good credit scores.

Read more at MICROBILT

Debt collection is going digital. Here's what it means for debtors

The next time you speak to a debt collector, you might find yourself negotiating with a computer. And you might actually prefer that.

Consumers buy toothpaste and bread without talking to a person. They get boarding passes for flights with a few swipes of a credit card or mobile phone. Why not pay off debt with a click or a text? After all, many consumers expect self-service now, and would rather perform these kinds of transactions without ever interacting with another human being.

Debt collection is going digital

In April, Experian announced a self-service platform named eResolve, which it says will let consumers negotiate and resolve past-due obligations without ever talking to a debt collector.

"The eResolve platform negotiates with the consumer on the client's behalf and direction to resolve their obligation in a frictionless environment," Paul DeSaulniers, senior director for risk scoring and trended data solutions at Experian, said in an email. "eResolve is providing a way for the consumer to interact on their terms, at any time of the day or night using a digital channel that is more preferred over the traditional phone call and avoids aggressive collection tactics." Read more at EL PASO TIMES

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America is hooked on credit cards - and it's pretty clear why

Americans have racked up $1.01 trillion in revolving debt - primarily credit card debt - according to the Federal Reserve. That's the highest tally since the financial crisis in 2008.

The credit card is now the preferred method of payment among Americans, edging out debit cards and cash, according to the 2016 US Payment Study by payment processing company Total Systems Services, or TSYS.

It's the first time credit cards claimed the top spot in the six years TSYS has been conducting the study, which surveys 1,000 consumers who hold at least one debt card and one credit card (you can read more about their methodology on page four of the study).

Why have credit cards grown more popular? The study offers some insights as to why: Forty percent of respondents from the TSYS study picked credit cards as their favorite form of payment, followed by debit cards (35%), and cash (11%). Credit cards have been gaining on debit cards for several years now. Read more at BUSINESS INSIDER

Last week some of our team members put their heads together for the Music City Corporate Challenge Trivia Night. All event challenges are to raise money for the Tennessee Special Olympics.

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As bankruptcies disappear, US credit improves. by Walt Wojciechowski

In the wake of the 2008 recession, many American families and businesses filed for bankruptcy, leaving a black mark on their consumer credit reports. According to the Administrative Office of the U.S. Courts, the fallout peaked in 2010 when around 1.6 million bankruptcies were filed.

Since then, those who filed have had to live with low credit scores and the negative effects they have on securing affordable credit products or any at all. The severity of a bankruptcy may lead to deductions of as much as 220 points off a related credit score.

Thankfully, bankruptcy is not forever. Eventually these credit blemishes disappear, usually in about seven to 10 years. So for those 1.6 million who filed in 2010, as well as the millions of others who filed around the same time, the wait is almost over.

Better yet, the best years for credit scores in America may be close at hand.

Bankruptcy filings slow as the economy recovers

As the nation heals from the most painful economic downturn felt this generation, fewer people and businesses today are filing for bankruptcy than in years previous. A lot fewer.

Between 2012 and 2016, the number of business bankruptcy filings fell by more than 42 percent, while non-business filings dropped by more than 37 percent - again, according to analysis from the Office of U.S. Courts. In 2016, total bankruptcy filings capped at a little over 819,000, which is about half of the worst we saw post-recession. Read more at MICROBILT

PayPal invests in online lender LendUp

PayPal Holdings Inc has invested in LendUp, a San Francisco-based startup that offers loans online to consumers who have been traditionally overlooked by banks because they are considered too risky.

LendUp said it had secured a strategic investment from the payments company on Wednesday. It did not disclose terms of the deal. PayPal confirmed in a statement that it had made an investment.

LendUp also said that Carrie Dolan, the former chief financial officer of online lender LendingClub and treasurer of Charles Schwab Corp, has been appointed as an adviser to its board of directors.

Founded in 2012, LendUp is among the cohort of young tech-savvy companies that automate parts of the lending process to make it cheaper and faster to provide loans to consumers and small businesses online.

It seeks to differentiate itself by offering products that it believes can help consumers with low credit scores and volatile incomes achieve financial health.

LendUp's chief executive, Sasha Orloff, said in an interview that the company was planning to use new injection of cash to expand its customer base and was also exploring ways it could work with PayPal. Read more at REUTERS

The 10 best borrowing options when you need cash fast

What happens when your emergency fund isn't enough?

Long-term unemployment or a medical emergency can easily dry up a once-healthy rainy day fund, leaving consumers wondering where to turn next. According to a recent consumer expectations survey by the New York Federal Reserve, only one in three Americans say they wouldn't be able come up with $2,000 within a month to cover an unexpected expense.

It's during times of vulnerability like this that it's easy to jump at seemingly quick and easy sources of cash, like payday lenders, credit cards, or even your 401(k). Unfortunately, practically every potential source of cash that doesn't come from your own piggy bank is going to cost you in some way.

At this point, it's all about choosing the lesser of all evils - when all you have are crummy options, how do you decide which one is the best of the worst?

We've ranked common sources of emergency short-term cash from best to worst, which can help you sort through your borrowing options when your savings dry up. Read more at BUSINESS INSIDER

The people who would benefit most from free checking can't find it

A new study shows why many Americans don't use a bank account

"You ever get so broke that the bank starts charging you for not having enough money?" the comedian Louis C.K. asks in one of his stand-up acts. "They call me up because I don't have enough money. I'm like, 'I know.'"

He talks about one particularly low moment, when he only had $20 in his bank account, and his bank charged him $15 for "insufficient funds."

"That's like going to the movies, you buy your ticket, and they say 'Get the f*** out of here.'"

The audience at C.K.'s show laughed, but for many Americans, it's a harsh reality.

It turns out that in places where people could most benefit from free checking accounts, it is much harder to find them.

That's according to a new analysis out Tuesday of more than 3,800 large financial institutions, and more than 1 million consumers, from Moebs Services, a firm that researches financial services companies including banks and credit unions.

Moebs analyzed how many free checking accounts were available in areas where people are "fully banked," meaning they have bank accounts and do not use any alternative financial services such as check-cashing, and compared those findings to how many free checking accounts are available in areas where people are "underbanked" or "unbanked," meaning they do use alternative financial services. Those who are "unbanked" have no bank account at all. Read more at MARKETWATCH

57% OF UNDERBANKED HAVE LOW DEBT-TO-INCOME RATIOS

The Consumer Financial Protection Bureau (CFPB) recently issued a request for information (RFI) seeking information about the use or potential use of alternative data and modeling techniques in the credit process. FactorTrust is encouraged by the issuance of the RFI by the CFPB and the fact that the CFPB seeks to issue some specific guidance.

Underbanked consumers must be viewed differently than those who are traditionally scored by the three nationwide credit reporting agencies. Traditional credit reporting agencies rely principally upon a consumers' performance on extensions of traditional credit obligations such as mortgages and credit cards. But traditional credit payments represent only a portion of monthly budgets for the underbanked.

Recent research by FactorTrust indicates that 57 percent of underbanked consumers have a comprehensive debt to income (DTI) ratio of less than 50 percent. Comprehensive debt-to-income is calculated as the sum of traditional credit payment obligations captured at the Big 3 bureaus plus alternative credit payment obligations captured by FactorTrust, The Alternative Credit Bureau, divided by income. This quantity is multiplied by 100 for graphing along the X-axis. The cumulative volume of underbanked consumers is captured on the Y-axis. The consumers with low comprehensive debt-to-income are highlighted in orange.

For these consumers, less than half of their income is earmarked for loan payments. Lower DTI typically indicates a lower-risk consumer who is better positioned to responsibly take on new financial obligations.

Furthermore, the same research found that consumers with lower DTI, have a higher share of debt payments residing outside of the Big 3 bureaus, in alternative credit bureaus.