Puerto Rico

Ranks of the "Unbanked" Decline, FDIC Survey Finds



Fewer Americans are going without bank accounts, according to a new government survey, a trend expected to support consumer spending and housing investment in the coming years, the Wall Street Journal reported today. Reflecting economic recovery, the percentage of Americans without access to banking services fell to 7 percent in 2015 from 7.7 percent in 2013 and a peak of 8.2 percent in 2011, according to the survey by the Federal Deposit Insurance Corp. Last year’s proportion of “unbanked” households was the lowest since the FDIC started the biennial survey in 2009. That year, the share was 7.6 percent. A household is considered unbanked if no one in the family has an account with a federally insured financial institution. The survey also looks at “underbanked” households, which have a bank account but also use services such as check cashing, money transfers, payday
loans and pawnshops. The percentage of the underbanked was 19.9 percent last year, little changed from 20 percent in 2013.

Analysis: Implosion of ITT Technical Institute Tough on Students, Taxpayers



The closure of ITT's 136 campuses threatens to throw nearly 29,000 indebted students off their educational tracks and to saddle taxpayers with nearly half a billion dollars in losses, according to a Bloomberg News analysis today. The collapse of ITT Tech, owned by ITT Educational Services Inc., wasn't unexpected: The Consumer Financial Protection Bureau had sued it in 2014, saying that it misled students into taking out loans with false promises about their career prospects; last year, the Securities and Exchange Commission sued, too, accusing it of defrauding investors. ITT has vigorously denied all allegations of wrongdoing. In June, the U.S. Department of Education demanded ITT stump up additional collateral, beyond the $94.4 million on file, to cover the costs of a potential failure. And last month, after the school's accreditor expressed concern about its operations, the agency
barred new students from using federal aid to enroll and ratcheted up its demand for collateral—a move experts warned would trigger the school's demise. ITT soon stopped accepting new students altogether. Since another big for-profit college chain, Corinthian Colleges Inc., went under last year, the government has as of June canceled at least $97.6 million in student loan balances on students' requests. That's less than half of the roughly $214 million owed by Corinthian students at the time it shut down. ITT's students carry a total of $478.8 million in federal debt. The Education Department is frantically trying to limit debt cancellations. Students who transfer even one ITT credit toward what the agency considers "comparable" programs at other schools and then complete their studies aren't eligible to have their loans wiped. But federal regulations don't clearly define
"comparable"—giving the department the authority to reject borrowers' pleas for forgiveness. The application borrowers must fill out is similarly vague.

BlackRock Says Bond Market Views Puerto Rico Board as Positive



The bond market is viewing a new federal control board charged with overseeing Puerto Rico’s finances as a positive for investors, according to BlackRock Inc.’s Sean Carney, Bloomberg News reported yesterday. "Some of the better-secured bonds had a bit of a relief rally after the board was named,” Carney, head of municipal strategy, said yesterday. BlackRock manages about $124 billion of municipal debt, including Puerto Rico bonds. President Barack Obama last week appointed seven members to the board from lists submitted by congressional leaders of both parties. The panel must curb the island’s recurring budget shortfalls, oversee any restructuring of its $70 billion of debt and address a $43 billion unfunded pension liability. “We don’t know what questions they’re going to have to answer or what hurdles they’ll have to clear," Carney said. "So there’s still a lot of
unknown, but I think the market appreciated a little bit of certainty in an uncertain environment.”





For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

 

Commentary: What’s Next if Payday Loans Go Away?



As the Consumer Financial Protection Bureau prepares to finalize proposed rules cracking down on payday lenders, critics and proponents alike are speculating on what would fill the need for short-term, small-dollar loans, according to a MorningConsult.com commentary yesterday. Payday lending has garnered criticism from progressive Democrats, such as Sens. Elizabeth Warren of Massachusetts and Sherrod Brown of Ohio, who argue that the practice preys on the poor, trapping low-income borrowers in a cycle of deepening debt. If payday lending were to become less profitable because of the rules, it could result in increased use of installment loans, advocates say. Stronger regulation of payday lending could increase the use of financial technology such as online marketplace lending, said William Michael Cunningham, founder of Creative Investment Research, which studies trends in banking in
black communities. Democratic lawmakers have also expressed hope that financial technology will fill credit access gaps in underbanked communities. The proposed CFPB regulation — with a comment period ending in October — would require lenders to confirm that borrowers are able to repay a loan, aiming to prevent borrowers from being stifled by high interest rates and monthly payments. It would also take aim at repeated short-term borrowing practices, require lenders to offer lower-risk loan options and crack down on fees against delinquent borrowers.

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Latest ABI Podcast Examines Puerto Rico's Financial Future Under PROMESA Oversight Board



ABI Executive Director Sam Gerdano talks with John E. Mudd, an attorney and respected legal commentator in Puerto Rico who has closely followed the territory's debt crisis. He provides insight on the Financial Control Board created by the “Puerto Rico Oversight, Management, and Economic Stability Act” (PROMESA). 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.

Analysis: How "Zombie" Oil Companies Stay Alive in Life-or-Death Debt Markets



Beneath the surge in corporate defaults lies a surge in distressed exchanges, and the trend is most apparent in the energy sector, where oil and gas companies have been deploying creative measures to stay afloat amid lower crude prices that have crimped profits and threatened their survival, Bloomberg News reported yesterday. Such measures have included swapping unsecured debt for secured, offering discounted buybacks of existing debt, or junior-lien debt that gets paid after other creditors. "While these [distressed exchanges] do result in some level of loss to bondholders, unlike missed payments and bankruptcy filings the bonds typically remain eligible for inclusion in the high-yield index," Kai Gilkes and Anneli Lefranc, analysts at CreditSights Inc., wrote in new research. They note that the 12-month default rate rose to 7.2 percent for U.S. junk-rated bonds in August. That's an
increase of 30 basis points compared to July's default rate of 6.9 percent, spurred on by six corporate defaults last month — including a trio of U.S. energy companies. "Distressed exchanges have contributed greatly to the rise in default rates," they add, with 38 of the 75 U.S. high-yield defaults over the last 12 months coming from such deals.

Get a better understanding of what happens when an oil, gas or other natural resources company goes bankrupt. Order your copy of ABI's revised and expanded When Gushers Go Dry: The Essentials of Oil & Gas Bankruptcy, Second Edition.

August Retail Sales Drop, As Do Experts' Hopes for Third-Quarter Rebound



Retail sales overall fell 0.3 percent in August from July, seasonally adjusted, representing the first outright drop in sales since March, the Wall Street Journal reported today. Excluding both autos and gas, sales were down 0.1 percent. From a year ago, sales were up 1.9 percent, down from July’s 2.4 percent pace. The numbers suggest, economist Steve Murphy at Capital Economics wrote, that third-quarter real consumption growth will probably be between 2.5 and 3 percent. “Overall, the August retail sales report confirms our suspicions that third-quarter GDP growth will probably come in softer than we initially expected,” he said. The firm still projects third-quarter GDP at 2.5 percent, but cautioned that “the balance of risks to that forecast now probably lie to the downside.”





Make sure to check out today's ABI Chart of the Day.

Sen. Warren Questions Whether Wells Fargo Heads Should Keep Jobs



Sen. Elizabeth Warren (D-Mass.) questioned whether Wells Fargo & Co. Chairman and Chief Executive Officer John Stumpf should keep his job amid allegations that the bank opened millions of accounts without customers’ knowledge, Bloomberg News reported today. “He needs to be held accountable, as does the rest of his senior management,” Warren said today. “You should not be able to keep your job and keep raking in millions of dollars in bonuses." Wells Fargo last week agreed to pay $185 million to the Consumer Financial Protection Bureau and other regulators to resolve claims that employees opened more than 2 million accounts that consumers may not have known about. U.S. attorneys in New York and San Francisco have opened criminal inquiries, a person familiar with the matter said, adding that under Justice Department guidelines, investigators will look into both potential
corporate and individual wrongdoing.





For a further analysis of commercial fraud, make sure to pick up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case.

 

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