Banks – Page 10 – ReportWire

The Federal Reserve sets the stage for a rate cut — here’s what that means for your money

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Customer shopping for school supplies with employee restocking shelves, Target store, Queens, New York.

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Now, as the central bank sets the stage to lower interest rates for the first time in years when it meets again in September, consumers may see their borrowing costs start come down as well — some are already.

The federal funds rate, which the U.S. central bank sets, is the rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

“The first cut will not make a meaningful difference to people’s pocketbooks but it will be the beginning of a series of rate cuts at the end the of this year and into next year that will,” House said.

That could bring the the Fed’s benchmark fed funds rate from the current range of 5.25% to 5.50% to below 4% by the end of next year, according to some experts.

From credit cards and mortgage rates to auto loans and student debt, here’s a look at where those monthly interest expenses stand as we move closer to that initial interest rate cut.

Credit cards

Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. In the wake of the rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to more than 20% today — nearing an all-time high.

At the same time, with households struggling to keep up with the high cost of living, credit card balances are also higher and more cardholders are carrying debt from month to month or falling behind on payments.

A recent report from the Philadelphia Federal Reserve showed credit card delinquencies at an all-time high, according to data going back to 2012. Revolving debt balances also reached a new high even as banks reported tightening credit standards and declining new card originations.

For those paying 20% interest — or more — on a revolving balance, annual percentage rates will start to come down when the Fed cuts rates. But even then they will only ease off extremely high levels, offering little in the way of relief, according to Greg McBride, chief financial analyst at Bankrate.com.

“Rates are not going to fall fast enough to bail you out of a bad situation,” McBride said.

The best move for those with credit card debt is to take matters into their own hands, advised Matt Schulz, chief credit analyst at LendingTree.

“They can do that by getting a 0% balance transfer credit card or a low-interest personal loan or by calling their card issuer and requesting a lower interest rate on a card,” he said. “That works more often that you might think.”

Mortgage rates

While 15- and 30-year mortgage rates are fixed and mostly tied to Treasury yields and the economy, they are partly influenced by the Fed’s policy. Home loan rates have already started to fall, largely due to the prospect of a Fed-induced economic slowdown.

The average rate for a 30-year, fixed-rate mortgage is now just below 7%, according to Bankrate.

“If we continue to get good news on things like inflation, [mortgage rates] could continue trending downward,” said Jacob Channel, senior economist at LendingTree. “We shouldn’t expect any gargantuan drops in the immediate future, but we might see rates trending back to their 2024 lows over the coming weeks and months,” he said.

“If all goes really well, we could even end the year with the average rate on a 30-year, fixed mortgage closer to 6% than 6.5% or 7%.”

At first glance, that might not seem significant, Channel added, but “in mortgage land,” a nearly 50 basis-point drop “is nothing to scoff at.”

Auto loans

Auto loans are fixed. However, payments have been getting bigger because the interest rates on new loans are higher, along with rising car prices, resulting in less affordable monthly payments.

The average rate on a five-year new car loan is now just shy of 8%, according to Bankrate.

However, here, “the financing is one variable, and it’s frankly one of the smaller variables,” McBride said. For example, a quarter percentage point reduction in rates on a $35,000, five-year loan is $4 a month, he calculated.

Consumers would benefit more from improving their credit scores, which could pave the way to even better loan terms, McBride said.

Student loans

Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But undergraduate students who took out direct federal student loans for the 2023-24 academic year are paying 5.50%, up from 4.99% in 2022-23 — and the interest rate on federal direct undergraduate loans for the 2024-2025 academic year is 6.53%, the highest rate in at least a decade.

Private student loans tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means those borrowers are already paying more in interest. How much more, however, varies with the benchmark.

Savings rates

While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.

As a result, top-yielding online savings account rates have made significant moves and are now paying as much as 5.5% — well above the rate of inflation, which is a rare win for anyone building up a cash cushion, according to Bankrate’s McBride.

But those rates will fall once the Fed lowers its benchmark, he added. “If you’ve been considering a certificate of deposit, now is the time to lock it in,” McBride said. “Those yields will not get better, so there is no advantage to waiting.”

Currently, a top-yielding one-year CD pays more than 5.3%, as good as a high-yield savings account.

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July 31, 2024

This AI-powered financial advisor has quickly gained $20 billion in assets

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AI-generated responses are becoming more common, whether travelers know or not.

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An automated financial advisor called PortfolioPilot has quickly gained $20 billion in assets in a possible preview of how disruptive artificial intelligence could be for the wealth management industry.

The service has added more than 22,000 users since its launch two years ago, according to Alexander Harmsen, co-founder of Global Predictions, which launched the product.

The San Francisco-based startup raised $2 million this month from investors including Morado Ventures and the NEA Angel Fund to fund its growth, CNBC has learned.

The world’s largest wealth management firms have rushed to implement generative AI after the arrival of OpenAI’s ChatGPT, rolling out services that augment human financial advisors with meeting assistants and chatbots. But the wealth management industry has long feared a future where human advisors are no longer necessary, and that possibility seems closer with generative AI, which uses large language models to create human-sounding responses to questions.

Still, the advisor-led wealth management space, with giants including Morgan Stanley and Bank of America, has grown over the past decade even amid the advent of robo-advisors like Betterment and Wealthfront. At Morgan Stanley, for instance, advisors manage $4.4 trillion in assets, far more than the $1.2 trillion managed in its self-directed channel.

Many providers, whether human or robo-advisor, end up putting clients into similar portfolios, said Harmsen, 32, who previously cofounded an autonomous drone software company called Iris Automation.

“People are fed up with cookie-cutter portfolios,” Harmsen told CNBC. “They really want opinionated insights; they want personalized recommendations. If we think about next-generation advice, I think it’s truly personalized, and you get to control how involved you are.”

AI-generated report cards

The startup uses generative AI models from OpenAI, Anthropic and Meta’s Llama, meshing it with machine learning algorithms and traditional finance models for more than a dozen purposes throughout the product, including for forecasting and assessing user portfolios, Harmsen said.

When it comes to evaluating portfolios, Global Predictions focuses on three main factors: whether investment risk levels match the user’s tolerance; risk-adjusted returns; and resilience against sharp declines, he said.

Users can get a report card-style grade of their portfolio by connecting their investment accounts or manually inputting their stakes into the service, which is free; a $29 per month “Gold” account adds personalized investment recommendations and an AI assistant.

“We will give you very specific financial advice, we will tell you to buy this stock, or ‘Here’s a mutual fund that you’re paying too much in fees for, replace it with this,’” Harmsen said.

“It could be simple stuff like that, or it could be much more complicated advice, like, ‘You’re overexposed to changing inflation conditions, maybe you should consider adding some commodities exposure,’” he added.

Global Predictions targets people with between $100,000 and $5 million in assets — in other words, people with enough money to begin worrying about diversification and portfolio management, Harmsen said.

The median PortfolioPilot user has a $450,000 net worth, he said.

The startup doesn’t yet take custody of user funds; instead it gives paying customers detailed directions on how to best tailor their portfolios. While that has lowered the hurdle for users to get involved with the software, a future version could give the company more control over client money, Harmsen said.

“It’s likely that over the next year or two, we will build more and more automation and deeper integrations into these institutions, and maybe even a Gen 2 robo-advisor system that allows you to custody funds with us, and we’ll just execute the trades for you.”

‘Massive shake up’

Harmsen said he created the first version of PortfolioPilot a few years ago to manage his own newfound wealth after selling his first company.

He’d grown frustrated after meeting more than a dozen financial advisors and realizing that they were “basically just salespeople trying to give access to this fairly standard” approach, he said.

“It felt like a very real problem for me, because the only alternative I saw on the market was, you know, basically becoming a day trader and becoming my own portfolio manager,” Harmsen said.

“I wanted hedge fund-quality tools and ways to think about risk and downside protection, and portfolio management across all of my different accounts and the buckets of money in crypto and real estate,” he said.

So around the time he was starting a family and buying a home in San Francisco, he began coding a program that could manage his investments.

After realizing it could have a broader use, Harmsen began building a team for Global Predictions, including three former employees of Bridgewater Associates, the world’s largest hedge fund.

The company’s rise has attracted regulatory scrutiny; in March, the Securities and Exchange Commission accused Global Predictions of making misleading claims in 2023 on its website, including that it was the “first regulated AI financial advisor.” Global Predictions paid a $175,000 fine and changed its tagline as a result.

While today’s dominant providers have been rushing to implement AI, many will be left behind by the transition to fully automated advice, Harmsen predicted.

“The real key is you need to find a way to use AI and economic models and portfolio management models to generate advice automatically,” he said.

“I think that is such a huge jump for the traditional industry; it’s not incremental, it’s very black or white,” he said. “I don’t know what’s going to happen over the next 10 years, but I suspect there will be a massive shake up for traditional human financial advisors.”

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July 31, 2024

CaixaBank CEO says cross-border consolidation still has to prove its case

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Gonzalo Gortazar, CEO of Spain’s CaixaBank, discusses the firm’s second-quarter earnings and says cross-border consolidation “still has to prove its case in terms of value creation.”

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July 31, 2024

Consolidation with the smaller banks ‘appreciated regardless’ of election: Gabelli’s Macrae Sykes

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Macrae Sykes, Gabelli Investors portfolio manager & global research analyst, joins ‘Fast Money’ to talk the state of regional banks, the impact of the economy on the space, and more.

05:25

Tue, Jul 30 20246:26 PM EDT

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July 30, 2024

Lost in the market’s sharp rotation out of tech stocks is a really bullish call on major banks

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Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Market slides : The S & P 500 gave back earlier gains and fell throughout Tuesday afternoon, led lower by the mega-cap tech stocks. Ahead of the post-Fed meeting news conference Wednesday afternoon, when central bank chief Jerome Powell is expected to signal interest rate cuts are coming, the market continued to toss out stocks of companies that don’t need lower rates to beat and raise. Investors instead kept buying stocks of companies whose prospects get a lot better in a lower-rate environment. In an example of this dynamic, Club name Nvidia doesn’t need rate cuts to spur demand for its artificial intelligence GPUs, but lower rates could create a windfall for Stanley Black & Decker if lower mortgage rates reignite sales of older homes that need repairs and remodeling. Nvidia dropped 5% on Tuesday. Stanley Black & Decker, also a portfolio holding, rose more than 9% in an earnings-driven rally that extended last week’s surge. We don’t know how long this rotation will last, but that’s what playing out right now. Banks shining : Lost in the shuffle of all the earnings earlier and another tech selloff was a bullish note on large-cap banks from Morgan Stanley analyst Betsy Graseck. We read Graseck carefully because of her previous big calls. Back in January, Graseck and her team upgraded their view on the large-cap banks to “attractive” and upgraded Citi , Goldman Sachs , and Bank of America to a buy-equivalent overweight. At the time, Morgan Stanley already had overweight ratings on Club name Wells Fargo and JPMorgan . It was a good call. Now, Graseck is back again raising price targets on nearly every bank in her coverage after second-quarter earnings. In her review of the quarter, she found that the capital markets rebound is only in its second inning, excess capital supports higher buybacks next year, and net interest income is starting to inflect for a handful of banks. Longer term, Grasck thinks the banks are skewing towards her “bull case” on lower expected credit losses. Up next: It’s a big night of earnings with Club names Microsoft , Advanced Micro Devices , and Starbucks scheduled to report. Some other names to watch are Arista Networks, Pinterest, First Solar, Caesars Entertainment, and Electronics Arts. Before Wednesday’s open, we get earnings from Club stocks GE Healthcare and DuPont . Boeing, Norwegian Cruise Line, Mastercard, Humana, Trane Technologies, and Kraft Heinz are also set to report. Club stock Meta Platforms is out with earnings after Wednesday’s close. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street.

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July 30, 2024

Jim Cramer: Merck is a buy after the drugmaker’s post-earnings dip — here’s why

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July 30, 2024

Best reverse mortgage lenders of 2024

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A reverse mortgage can help retirees access cash while living on a fixed income.

Reverse mortgages allow you to borrow against your home’s value without the monthly payments that traditional mortgages or home equity loans require. The loan must only be repaid when you no longer use that home as your primary residence. The loan still accrues interest.

This type of loan typically doesn’t require applicants to have a minimum credit score. Instead, it focuses on how much equity you have in your home, depending on your age.

To help you choose the best reverse mortgage, CNBC Select rounded up the six best reverse mortgage lenders. To create this list, we considered dozens of lenders’ customer service, ease of applications, perks, affordability and details about their reverse mortgage options. (See our methodology for more on how we chose the best reverse mortgage lenders.)

Best reverse mortgage lenders

Compare offers to find the best mortgage

Best for a variety of loan options

Finance of America Reverse Mortgage

Annual Percentage Rate (APR)

Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Types of reverse mortgages

HECM, HomeSafe Standard, HomeSafe Second, Equity Avail, Jumbo
Minimum equity

No specific amount, but FAR says 50% is a good rule of thumb

Pros

Available nationwide
Variety of options available
High customer satisfaction ratings

Cons

No online application available
Not transparent about rates and fees

Who’s this for? Finance of America Reverse (FAR) is for someone who wants options from their lender. FAR provides HECM loans and three loans unique to the lender: HomeSafe Standard, HomeSafe Second, and EquityAvail, designed to help homeowners find the best type of loan for them.

Standout benefits: FAR offers several loan options, tailored customer service for each loan type and a customer concierge service. Borrowers can call or email for support at any time. FAR’s website also provides educational resources and a reverse mortgage calculator.

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Best brick-and-mortar

Mutual of Omaha Reverse Mortgage

Annual Percentage Rate (APR)

Apply for personalized rates
Types of reverse mortgages

HECM, HECM for purchase Jumbo, HomeSafe, reverse mortgage refinancing,
Minimum equity

Pros

Available in all states except New York and West Virginia
High customer satisfaction ratings
Provides an assortment of tools on its website

Cons

Not transparent about rates and fees

Who’s this for? Mutual of Omaha is for borrowers who want a big name backing their reverse mortgage and prefer to have in-person conversations with their lenders. Mutual of Omaha is a Fortune 500 company with dozens of retail locations nationwide.

Standout benefits: Mutual of Omaha doesn’t charge service fees when you take out one of their HECM options. It offers an online application and 24-hour customer service every day.

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Best streamlined experience

Guild Mortgage Reverse Mortgage

Annual Percentage Rate (APR)

Apply for personalized rates
Types of reverse mortgages

HECM reverse, reverse refinance loan, jumbo reverse loan, purchase reverse loan
Minimum equity

Pros

Available in 49 states
Provides detailed explanation of loan options on website

Cons

Doesn’t outline fees and rates on website
There is no online application option

Who’s this for? Guild Mortgage is for those who want to learn about the reverse mortgage process and apply in one place because Guild’s reverse mortgage website is easy to use and filled with information about reverse mortgages, along with an interactive step-by-step guide to applying.

Standout benefits: Guild has a range of options, including HECM for Purchase, which allows borrowers to buy a home in retirement without the monthly mortgage costs, and reverse refinance options for those looking to get more cash or more favorable terms.

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Best for those under age 62

Longbridge Financial Reverse Mortgage

Annual Percentage Rate (APR)

Apply for personalized rates
Types of reverse mortgages

HECM reverse, HECM for purchase, Platinum Mortgage (proprietary loan with larger limits and a low age requirement of over 55)
Minimum equity

No specific minimum equity listed, but generally 50%

Pros

Proprietary loan allows those as young as 55 to access a reverse mortgage, lower than the 62 that HECM reverse mortgages require.
Accredited by the BBB with an A+ rating
Available in all 50 states
Provides a “scenario calculator,” on website that can help estimate the cost of a reverse mortgage

Cons

Can’t complete full application online

Who’s this for? Longbridge is for those who retire early and may want to supplement their fixed income with a reverse mortgage. It offers options for people in their 50s, younger than the typical 62 needed to score a reverse mortgage.

Standout benefits: The Longbridge Platinum, a jumbo loan, accepts applicants as young as 55. It will provide homeowners with up to $4 million and guarantees that the borrowers will never owe more than the home is worth when sold.

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Best for speedy closing

Fairway Independent Mortgage Corporation

Annual Percentage Rate (APR)

Apply for personalized rates
Types of reverse mortgages

HECM, Reverse for purchase, Jumbo reverse mortgages
Minimum equity

No specific minimum equity listed, but generally, 50%

Pros

Available in every state except New York
Closes on some loans in as little as 17 days
Will connect you with a reverse mortgage planner
Website is easy to use, interactive and filled with tools and educational resources about the reverse mortgage process
Partners with financial advisors and real estate professionals

Cons

Information on rates and costs not transparent online

Who’s this for? Fairway Reverse Mortgage is for retired borrowers who need cash now. The lender boasts a speedy closing time — as little as 17 days in some cases, per Fairway’s website. That’s much quicker than the typical one- to two-month wait reverse mortgage closings typically take.

Standout benefits: Fairway‘s website is brimming with educational and informational tools and articles to help borrowers find the best reverse mortgage option. Customers can also fill out a form on the website to speak with a reverse mortgage planner.

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Best for customer satisfaction

American Advisors Group Reverse Mortgage

Annual Percentage Rate (APR)

Apply online for personalized rates
Types of loans

HECM for Purchase, reverse mortgage loans, refinancing
Fixed-rate Terms
Adjustable-rate Terms
Credit needed

No minimum credit score required

Pros

Excellent reputation
Multiple mortgage loan options geared toward seniors
Useful online resources, including a loan calculator and articles with retirement tips

Cons

Jumbo reverse mortgages are not available in every state

Who’s this for? American Advisors Group is for those who value customer satisfaction above all else. It’s BBB-accredited with an A+ rating and receives high marks from its customers, with an overall customer rating of 4.75 out of 5 stars on BBB’s website, a very high score relative to its competitors.

Standout benefits: Aside from its stellar ratings, AAG offers various resources to help retirees learn about their reverse mortgage options, including a magazine called Seniority, which publishes stories about wellness financial planning in retirement and home equity.

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More on our top reverse mortgage lenders

[ Return to summary ]

Types of reverse mortgages

The most common type of reverse mortgage — a home equity conversion mortgage (HECM) — is federally insured by the Federal Housing Administration and reserved for those 62 and older. While most reverse mortgage providers offer HECMs, these lenders typically offer also other types, from jumbo reverse mortgages to reverse mortgages for those as young as 55.

FAQs

Who is the largest reverse mortgage lender?

In 2023, Finance of America Reverse, also known as FAR, provided the most reverse mortgages nationwide.

How to select a reverse mortgage lender?

When selecting. reverse mortgage lender, always look at their customer satisfaction record and ensure they are an FHA-approved lender. To select a reverse mortgage lender right for you, consider the lender’s requirements for the applicant’s maximum home value and minimum age. Also consider what type of loan you will need and how much, and select a reverse mortgage lender that provides a loan specific to that.

What are the cons of a reverse mortgage?

A reverse mortgage tends to have higher fees than other types of home loans. It’s also a riskier type of loan than a traditional mortgage and could sometimes lead to foreclosure. It’s very important to consider your financial situation and find a credible lender before moving forward with a reverse mortgage.

Why trust CNBC Select?

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every mortgage review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of mortgage products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics. See our methodology for more information on how we choose the best reverse mortgage lenders.

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Our methodology

To determine which reverse mortgage lenders are best, CNBC Select analyzed dozens of U.S. mortgages offered by both online and brick-and-mortar banks, including large credit unions, that come with flexible loan amounts and terms to suit an array of financing needs.

When narrowing down and ranking the best mortgages, we focused on the following features:

Types of loans offered: The most common kinds of mortgage loans include conventional loans, FHA loans and VA loans. In addition to these loans, lenders may also offer USDA loans and jumbo loans. Having more options available means the lender is able to cater to a wider range of applicant needs. We also looked for lenders that offer loan and refinancing options that could work well for seniors, such as various types of reverse mortgages and cash-out refinancing loans.
Fees: Common fees associated with mortgage applications include origination fees, application fees, underwriting fees, processing fees and administrative fees. We evaluate these fees in addition to other features when determining the overall offer from each lender.
Flexible minimum and maximum loan amounts/terms: Each mortgage lender provides a variety of financing options that you can customize based on your monthly budget and how long you need to pay back your loan.
No early payoff penalties: The mortgage lenders on our list do not charge borrowers for paying off the loan early.
Streamlined application process: We considered whether lenders offered a convenient, fast online application process and/or an in-person procedure at local branches.
Customer support: Every mortgage lender on our list provides customer service available via telephone, email or secure online messaging. We also opted for lenders with an online resource hub or advice center to help you educate yourself about the personal loan process and your finances.
Minimum down payment: Although minimum down payment amounts depend on the type of loan a borrower applies for, we noted lenders that offer additional specialty loans that come with a lower minimum down payment amount.

We also considered CNBC Select audience data when available, such as general demographics and engagement with our content and tools.

Note that the rates and fee structures advertised for mortgages are subject to fluctuation in accordance with the Fed rate. However, once you accept your mortgage agreement, a fixed-rate APR will guarantee interest rate and monthly payment will remain consistent throughout the entire term of the loan, unless you choose to refinance your mortgage at a later date for a potentially lower APR. Your APR, monthly payment and loan amount depend on your credit history, creditworthiness, debt-to-income ratio and the desired loan term. To take out a mortgage, lenders will conduct a hard credit inquiry and request a full application, which could require proof of income, identity verification, proof of address and more.

Catch up on CNBC Select’s in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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July 29, 2024

SoFi mortgage review 2024

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SoFi has low interest rates and approves borrowers with scores as low as 600, making it an excellent option if your credit score is lower than the 620 required by most lenders.

We also love that this online lender allows first-time homebuyers to put as little as 3% down and that it guarantees your closing time with a $10,000 closing cost credit.

SoFi doesn’t have any physical branches, but it’s made sure its website is easy to use and that you can get prequalified online in minutes.

SoFi

Annual Percentage Rate (APR)

Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Types of loans

VA loan, FHA loan, conventional loan, fixed-rate loan, adjustable-rate loan, jumbo loan, HELOCS & Closed End Second Mortgages
Terms
Credit needed
Minimum down payment

Pros and cons of a SoFi mortgage

The benefits and drawbacks of a SoFi mortgage

Pros

More flexible credit score requirements
Lower mortgage rates than many competitors
$500 origination fee discount for existing customers
$10,000 closing timeline guarantee
Offers home equity lines of credit

Cons

No physical branches
Lower-than-average customer service scores
No USDA loans or home equity loans
Mortgage refinancing not available in New York or Hawaii

SoFi mortgage types

Sofi offers conventional, jumbo, FHA, VA, jumbo and Fannie Mae and Freddie Mac mortgages in all states except Hawaii. It does not issue USDA loans.

Fixed-rate: With a fixed-rate mortgage, borrowers have the same rate for the duration of the loan term. Sofi offers fixed-rate terms of 10-, 15-, 20- and 30-year.
Adjustable-rate: Adjustable-rate mortgages (ARMs) start with a fixed interest rate for a set period and then adjust at regular intervals. Sofi offers adjustable rate terms of 10/6, 7/6 and 5/6.
FHA: Backed by the Federal Housing Administration (FHA), these loans only require a 3.5% down payment for borrowers with a 580 FICO score or 10% for borrowers with a 500 credit score.
VA: Veterans and service members can apply for this lower-rate mortgage without a down payment or private mortgage insurance.
Jumbo loan: A jumbo loan exceeds the conforming limits of the Federal Housing Finance Agency. SoFi issues jumbo loans for up to $3 million.
HomeReady and Home Possible: Backed by Fannie Mae and Freddie Mac, these mortgages require just 3% down and have lower financing and PMI costs. You should earn 80% of the area median income, have a credit score of 620 and a debt-to-income ratio of 50%.

How to qualify for a SoFi mortgage

Minimum credit score: 600. The average score for successful borrowers is 750.
Minimum down payment: Conventional loans 3%, VA loan 0%
Debt-to-income ratio (DTI): The portion of your monthly income that goes toward paying off debts. SoFi requires a DTI ratio of 50% DTI or less.

SoFi mortgage fees

SoFi benefits and discounts

SoFi offers a variety of features that benefit homebuyers.

On-time closing guarantee

If your SoFi mortgage doesn’t close on time you may be eligible for a $10,000 credit toward closing costs.

HomeStory Rewards

If you work with HomeStory, SoFi’s partner real estate network, you may earn a rebate of up to $9,500 after you close on your new home.

Relationship discount

Existing SoFi customers with a personal or student loan, a SoFi Money account or a SoFi Invest account with at least $10,000 can qualify for a $500 origination fee discount.

SoFi mortgage refinancing

SoFi offers both cash-out and rate-and-term refinancing. It also offers closed-end second mortgages and home equity lines of credit — something not all lenders provide. Refinancing is unavailable in New York or Hawaii.

Credit score: 600
Debt-to-income ratio (DTI): SoFi prefers a DTI ratio of no more than 50%.
Home equity: You should own 20% of your home outright to refinance with SoFi
Home appraisal: A complete appraisal is necessary for most refinancing.

SoFi mortgage customer service

SoFi was not included in JD Power’s 2023 mortgage origination or servicer satisfaction surveys, but the online bank scored well below average in JD Power’s U.S. Direct Banking Satisfaction Study, which reviews banks on customer service, fees, level of trust, online account management and how they help customers move and grow their money.

The Better Business Bureau gave SoFi an A+, its highest score, based on corporate transparency, truthful advertising, response to consumer complaints and other factors.

SoFi doesn’t have customer service for mortgage applicants on the weekends but SoFi’s AI-powered virtual assistant is available 24/7 to answer questions or connect you with a live agent during working hours.

How does SoFi compare to other mortgage lenders?

Here’s how Sofi ranks next to two other online mortgage providers.

Sofi mortgage comparison chart

	SoFi	Rocket Mortgage	Better
Loan types	conventional, VA, FHA jumbo, HomeReady, Home Possible, HELOC, closed-end second mortgage	Conventional, jumbo, VA, FHA, Rocket ONE+, HomeReady, HomePossible	Conventional, jumbo, VA, FHA, HELOC, home equity, HomeReady
Minimum credit score	Conventional: 600 Jumbo:700	Conventional: 620 Jumbo: 700	Conventional: 620 Jumbo: 700
Terms	Fixed-rate: 10-, 15-, 20- and 30-year terms Adjustable-rate: 10/6, 7/6 and 5/6	Fixed-rate: 15-, 20- and 30-year Adjustable rate: 7/6, 10/6	Fixed-rate: 15-, 20-, and 30- year terms Adjustable-rate; 5/6, 7/6, and 10/6 terms
Average time to close	30 days with preapproval	22 days	32 days
Best for	Low rates	Customer service	No lender fees

SoFi vs. Rocket Mortgage

If cost is your main consideration, SoFi has lower rates than Rocket Mortgage. It also approves conventional loans for borrowers with a FICO Score of 600, lower than Rocket’s 620.

If you’re more concerned about the down payment, however, Rocket takes the lead: Qualified homebuyers can put as little as 1% down, while SoFi requires at least 3% on conventional mortgages.

Rocket Mortgage

Annual Percentage Rate (APR)

Apply online for personalized rates
Types of loans

Conventional loans, FHA loans, VA loans, jumbo loans, low down payment mortgages including HomeReady, Home Possible
Terms

15- and 30-year conventional loans, 30-year VA and FHA loans, custom mortgages with fixed-rate terms from 8 to 29 years.
Credit needed
Minimum down payment
Already have a mortgage through Rocket Mortgage or looking to start one? Check out the Rocket Visa Signature Card to learn how you can earn rewards

Pros

Largest home lender in the U.S.
Offers 1% down mortgage
High scores for customer satisfaction
Shorter-than-average closing time
Rebate of up to $10,000 for buying with Rocket Homes

Cons

No USDA mortgages, construction loans or HELOCs
Hard credit check required for customized rate
Higher origination fees than competition
No retail branches

Rocket also has several programs that benefit lower-income homebuyers, including a $7,500 closing cost credit and the ONE+ mortgage.

But while Rocket has emerged as a leader in the mortgage industry, it lacks a full roster of banking services. If you like having your loans, checking and savings, investments and other accounts all in one place, SoFi is the better choice.

SoFi vs. Better

Better and SoFi line up fairly closely in many regards: Both require a 3% down payment for a conventional mortgage and neither requires lender fees. In addition, they both max out at $3 million for jumbo loans.

Better has better average rates but SoFi has more lenient credit requirements.

Better Mortgage

Annual Percentage Rate (APR)

Apply online for personalized rates
Types of loans

Conventional, FHA, VA, jumbo
Terms
Credit needed
Minimum down payment

5% for conventional loans, 3.5% for FHA loans, 0% for VA loans, 10.01% for jumbo loan

Pros

No application fee or underwriting fee
Preapproval in as little as three minutes
$100 rate-match guarantee
24/7 customer support

Cons

Doesn’t offer USDA loans
HELOC requires draw of at least 75% of your home’s value
No physical branches

Neither Better nor SoFi were included in JD Power’s 2023 mortgage origination or servicer surveys, but SoFi received an A+ from the Better Business Bureau while Better was given an A-.

While both offer incentives for working with their partner real estate networks, SoFi’s is more generous: If you use HomeStory, you could earn up to $9,500 after you close. Finding your home through Better Real Estate, however, only gets you a $2,000 rebate on closing costs.

While SoFi has discounts for existing customers and a closing-time guarantee, it doesn’t have programs for lower-income homebuyers. Better offers a $5,000 closing cost grant to qualified homebuyers who make 80% of the area median income.

How do I apply for a mortgage with SoFi?

SoFi‘s mortgage application process is entirely online. Start by making an account on the SoFi website and applying for prequalification.

Next, you’ll move on to the preapproval process: You’ll need your Social Security number, a photo ID, pay stubs, tax returns, bank account records and other information,. You’ll also need to indicate how much money you intend to put down for a down payment.

SoFi will run your credit and verify your documents during the underwriting process. It doesn’t offer online closing, so you’ll have to meet with a representative to finalize your mortgage.

If you have questions, customer service support is available via chat and by phone at 844-763-4466, Monday to Friday, 9 a.m. to 9 PM ET.

Is a SoFi mortgage right for me?

If you’re worried about having good enough credit to get a mortgage, SoFi’s more lenient requirements could make it the right choice for you. With purchase mortgages available everywhere but Hawaii, It’s also great for great availability.

SoFi is a digital-only operation, however, so if you want in-person assistance in navigating the homebuying experience you should explore other options.

FAQ

What is the minimum down payment for a SoFi mortgage?

The minimum down payment for a first-time homebuyer is 3%, although VA loans don’t require any down payment. If you’ve purchased a house in the last three years, the minimum is 5%. For jumbo loans, you’ll have to put at least 10% down.

What type of mortgages does SoFi offer?

FHA loans, VA loans, conventional mortgages, jumbo loans, HomeReady loans, Home Possible loans, HELOC loans and closed-end second mortgages

Does SoFi offer a home equity line of credit (HELOC)?

SoFi ‘s HELOC allows homeowners to access up to 95% of their home equity and borrow up to $500,000.

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At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every mortgage review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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July 25, 2024

‘Very solid set of results’ in first half, Banco Sabadell CFO says

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Leopoldo Alvear, CFO at Banco Sabadell, discusses the Spanish lender's latest earnings report.

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July 25, 2024

Cross-selling between divisions is main driver of growth, BNP Paribas CFO says

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Lars Machenil, CFO at BNP Paribas, talks through the French bank's second quarter earnings.

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July 24, 2024

Santander ‘building a strong momentum,’ the bank’s CFO says

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Banco Santander CFO José García Cantera discusses the bank’s results, saying performance was “very positive” across global businesses.

03:31

Wed, Jul 24 20246:19 AM EDT

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July 24, 2024

Spain’s Santander posts 20% hike in net profit as retail business shines

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Banco Santander posted a 20% year-on-year hike in second-quarter net profit underpinned by growth in its retail, wealth and consumer activity, after firm revenues and margin management in Europe and Brazil.

The company’s net profit attributable to the parent group came in at 3.207 billion euros ($3.48 million), in line with a consensus from analysts polled by Reuters.

The bank’s ratios also firmed, with its fully-loaded CET1 ratio (a measure of a bank’s solvency) up from 12.3% in the March quarter to 12.5% in the three months to June.

Its return-on-tangible-equity ratio — a profit metric — rose to 16.8% in the June quarter, up from 14.9% in the first quarter, and to 15.9% in the first half, up from 14.5% in the same period of last year — prompting the bank to improve its RoTE guidance to above 16% for full-year 2024, from a forecast at 16% previously.

Santander now expects revenues will hit high-single digit growth, from a previously forecast mid-single digit expansion.

Other highlights included:

Pre-tax profit: 4.925 billion euros in the second quarter, versus 4.258 billion euros in the same period of last year.

Net interest income: 11.47 billion euros in the June quarter, compared with 10.52 billion euros in the same three-month stretch of last year — but below a 11.96% forecast for the second quarter of 2024 from analysts polled by Reuters.

Discussing income, the bank flagged a “negative impact from hyperinflation adjustment” in Argentina, where President Javier Milei has made a priority of attempting to tame price hikes.

“In the context of a volatile geopolitical environment, we are confident that we will deliver on the more ambitious targets set out today thanks to our diversification across businesses and markets, the strength of our model, and the quality of our team – to whom I am again extremely grateful,” Santander Executive Chair Ana Botin said in a statement.

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July 24, 2024

Deutsche Bank shares drop 8% after lender snaps 15-quarter profit streak

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Deutsche Bank on Wednesday snapped a 15-quarter profit streak with a narrower-than-expected loss, as it made a provision for an ongoing lawsuit over its Postbank division and confirmed it would not make a second share buyback this year.

Shares provisionally ended the session down more than 8%, despite analysts characterizing the results as broadly solid.

Deutsche Bank share price.

Net loss attributable to shareholders was 143 million euros ($155.1 million), against an LSEG poll of analysts which had predicted a loss of 145 million euros.

Germany’s biggest bank had previously flagged it would take a hit in the quarter on the back of the Postbank provision, which it confirmed Wednesday would amount to 1.3 billion euros. The long-running lawsuit by investors alleges Deutsche Bank underpaid to take over the retail banking giant in 2010.

The bank said it remained on track with its distribution commitment to shareholders, which it has previously stated is for a sum in excess of 8 billion euros in share buybacks across the 2021-2025 financial year period.

“On the share repurchase side…unfortunately, prudently we had to step back from the idea of a second repurchase this year, what our focus is now is building excess capital through the back of the year,” Chief Financial Officer James von Moltke told CNBC’s Caroline Roth in a Wednesday interview.

The lender reported net revenue was up 2% to 7.6 billion euros in the second quarter, while efficiency savings reached 1.5 billion euros.

Revenue reports varied across the business. At its investment bank division, a recent area of strength, they jumped 10% year-on-year to 2.6 billion euros — but fell 3% to 2.1 billion euros in fixed income and currencies. Revenue in corporate banking was nearly flat at 1.9 billion euros.

Other highlights included:

Profit before tax excluding the Postbank provision was 1.7 billion euros, up from 1.4 billion euros in the second quarter of 2023.
Provision for credit losses was 476 million euros, up from 401 million euros a year ago.
CET 1 capital ratio, a measure of bank solvency, nudged up to 13.5% from 13.4% in the first quarter of the year.

In a Wednesday note, Citi analysts called it a “solid quarter,” with some divisions above consensus, net interest margins fading at a slower pace than initially expected and a largely-unchanged outlook for 2024 and 2025.

RBC analysts labelled the results “good,” particularly in investment banking, but said loan losses were higher than expected.

Deutsche Bank’s Von Moltke told CNBC he saw several positive drivers for the second half, including in net interest income — which fell 2% in corporate banking the second quarter, according to the Wednesday earnings.

“We had called earlier this year on the net interest income side for a downdraft relative to [20]23, we actually think the banking book segments may be stable, essentially flat to last year, and that’s actually very encouraging, reflecting lower funding costs, better spreads on both the deposit and the loan side. Still more sluggish loan growth than we’d like to see, but overall an encouraging picture,” Von Moltke said.

“On the financial market and corporate finance side, we see the momentum there coming through that we’d hoped to see,” he added, pointing to revenue doubling in its origination and advisory business year-on-year.

The second-quarter result maintains a recent trend of earnings beats for the lender. Back in April, the bank posted 10% higher profit, logging its best quarterly result for the metric since 2013.

It also comes on a busy day for European bank earnings, with Italy’s UniCredit maintaining a 14-quarter profit streak as Spain’s Santander reported a 20% leap in net profit.

— CNBC’s Ganesh Rao contributed to this story.

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July 23, 2024

A Silicon Valley executive had $400,000 stolen by cybercriminals while buying a home. Here’s her warning

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Real estate, with its large transaction sizes and frequent use of bank wires, has proven to be an especially lucrative target for cybercriminals.

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July 23, 2024

Investment banking is back — and the recovery is just getting started

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Investment banking was the rock star of big bank earnings this season. Club holdings Morgan Stanley and Wells Fargo , along with JPMorgan Chase , Goldman Sachs , Bank of America and Citigroup , saw double-digit percentage growth in revenues for their investment banking businesses. Meanwhile, fees from the five largest U.S. investment banks, which include Morgan Stanley, Goldman, JPMorgan, Citi and Bank of America, came in at roughly $8.2 billion during the second-quarter, a 40% increase since the year prior. For Club stock Morgan Stanley, investment banking revenues surged 51% year over year with equity underwriting fees jumping over 56%, and advisory fees increasing over 30% from the year-ago period. Investment banking falls under Morgan Stanley’s institutional securities division. This was welcome news because Morgan Stanley’s IB business is a crucial part of our investment thesis. We’ve been betting on a rebound in the firm’s dealmaking segment after two lackluster years. Macroeconomic uncertainty, combined with higher borrowing costs, weighed on mergers and acquisition (M & A) business and initial public offerings (IPO) activity since the Federal Reserve began raising interest rates in 2022. We boosted our price target to $120 apiece from $98 after results, forecasting more upside for the stock into 2025. This implies a more 16% increase from Friday’s close. MS YTD mountain Morgan Stanley (MS) year-to-date performance Traditional lenders and money centers like Wells Fargo also benefitted from the pickup in deals. Wells Fargo’s investment banking revenues, which fall underneath its corporate and investment banking (CIB) division, jumped 38% year over year. Investment banking is still a small business at Wells, and well behind its financial peers. The firm brought in $430 million in IB revenues this quarter, compared to Morgan Stanley’s $1.6 billion and JPMorgan’s reported $2.5 billion. But the boost in IB revenues for Wells gives investors a hint of future potential as management continues to invest further into its dealmaking segment. A CNBC analysis in May found that Wells has made more than 17 senior hires in its CIB division since 2023. This helps to diversify Wells’ revenues further, and garner more durable income streams like fees from M & A advisory or underwriting. Plus, the firm will be able to grow its CIB division, generating even more revenues once regulators decide to take Wells Fargo’s $1.95 trillion cap off its assets. The timing on the removal, however, remains unclear. It wasn’t all smooth sailing for the big banks. The Federal Reserve’s strategy of keeping interest rates higher for longer left banks in a tricky spot as customers sought higher-yielding alternatives. This led to a miss in revenues for Morgan Stanley’s wealth management segment. Meanwhile, Wells Fargo stock plummeted on its July 12 earnings results after management maintained its full-year net interest income (NII) outlook to be a roughly 7% to 9% decline from 2023. NII is seen as a solid measure of profitability for a bank’s lending activities. High rates have impacted interest-based revenue streams because customers are taking their assets to higher-yielding products. However, management doesn’t have control over U.S. central bank policy, so we were pleased to see that growth in its fee-based, or non-interest income, was there. Non-interest income came in well ahead of analysts’ expectations for the second quarter, up nearly 19% year over year. We upgraded Wells Fargo’s stock to a buy-equivalent 1 rating on this growth. WFC YTD mountain Wells Fargo (WFC) year-to-date performance “We continued to see growth in our fee-based revenue offsetting an expected decline in net interest income,” Wells Fargo CEO Charlie Scharf said during the July 12 earnings call. “The investments we have been making allowed us to take advantage of the market activity in the quarter with strong performance in investment advisory, trading and investment banking fees.” And good news for investors, it doesn’t look like the rebound in investment banking is slowing anytime soon. In fact, Morgan Stanley CEO Ted Pick said “we’re in the early stages of a multiyear investment banking-led cycle,” he told analysts during the July 16 earnings call. “We are quite convicted on this call.” Meanwhile, Goldman Sachs CEO David Solomon said the financial behemoth is seeing “the early innings of a capital markets and M & A recovery.” Investors are betting that M & A recovery would get even more fuel under a second Donald Trump presidency, which is one reason why financial stocks were strong performers over the past week with politics front and center for Wall Street. An expectation that banks would see easier regulation also figured into the sector’s strength. (Jim Cramer’s Charitable Trust is long MS, WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A combination file photo shows Wells Fargo, Citibank, Morgan Stanley, JPMorgan Chase, Bank of America and Goldman Sachs.

Reuters

Investment banking was the rock star of big bank earnings this season.

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July 21, 2024

The death of the personal check: As retailers move toward ‘check zero,’ here’s what that means for you

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Nadya Lukic | E+ | Getty Images

Most Americans may not even remember the last time they wrote a check.

Only 15% of adults said they wrote a few checks a month in 2023, according to a recent report by GoBankingRates. At the time of the late November survey, 46% of the more than 1,000 respondents said they hadn’t written a single check in 2023.

These days, consumers are far more likely to “tap and go.”

In fact, in the years since the Covid pandemic, Americans have fully embraced contactless and digital payment methods, while check writing has steadily declined into near-oblivion.

Some retailers rule out paper checks

As of July 15, Target joined a growing list of retailers, including the Aldi supermarket chain, Whole Foods, Old Navy and Lululemon, that no longer accept personal checks as payment.

Even more businesses are likely to follow suit, according to Scott Anchin, vice president of operational risk and payments policy for the Independent Community Bankers of America. That’s in part because check fraud is a significant issue, he said.

“The check is inherently insecure,” Anchin said. “Handing over a check is akin to sharing a screenshot of bank details alongside a Venmo transfer — no one would consider this safe.”

With significant advancements in security, thanks to authentication, monitoring and data encryption, the shift by retailers and consumers to contactless and digital payment methods will only continue to grow, accelerating the move toward a “check zero” world, he said.

So, if personal checks are heading toward extinction, who, if anyone, is affected?

Who uses checks anyway?

In 2024, check writers skew older and are likely at the margins of the banking community, according to Anchin. Americans over the age of 55 are the most likely to write checks every month, GoBankingRates also found.

However, it wasn’t always that way.

Although checks, as we know them today, first originated in the 11th century, they didn’t become mainstream until the early 20th century, following the Federal Reserve Act of 1913, according to a historical survey by the Federal Reserve Bank of Atlanta.

But back then, “everyday people didn’t have checking accounts, that was for rich people,” said Stephen Quinn, professor of economics at Texas Christian University and co-author of the Atlanta Fed’s report. “It wasn’t until after World War II that checking accounts were a common thing.”

Postwar prosperity greatly expanded the use of checking accounts to middle-class households, making checks the most widely used noncash payment method in the U.S., the Atlanta Fed found.

Personal checks continued to gain steam until the mid-1990s, when credit and debit cards largely took over. Since 2000, check-writing has plummeted by nearly 75%.

Despite the rapid decline, “a form of payment with a thousand-year history is unlikely to vanish overnight,” the Atlanta Fed report said.

And yet, today’s young adults are increasingly eschewing the traditional banking and credit infrastructure altogether in favor of peer-to-peer payment apps.

Quinn said his students rely almost exclusively on digital wallet payments such as Apple Pay, Venmo and Zelle — hardly anyone carries cash, and it’s likely that few even know how to write a check.

In this way, mobile payment apps have become de facto bank accounts — even though, unlike banks or credit unions, these financial services are not FDIC-insured.

Still, there remains a place for personal checks, Quinn said.

“The paper check might linger where it began, at the high end — for large one-off payments,” he said, such as charitable donations or real estate transactions. “In this way, checks might hold on for some time.”

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July 19, 2024

The slowdown in consumer spending is spreading upward, says UBS’ Erika Najarian

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Erika Najarian, UBS head of U.S. banks and consumer finance equity research, joins ‘Squawk Box’ to break down American Express’ quarterly earnings results.

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July 19, 2024

CFPB cracks down on popular paycheck advance programs. Here’s what that means for workers

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Rohit Chopra, director of the Consumer Financial Protection Bureau, during a House Financial Services Committee hearing on June 13, 2024.

Tierney L. Cross/Bloomberg via Getty Images

The Consumer Financial Protection Bureau is cracking down on so-called paycheck advance programs, which have grown popular with workers in recent years.

Such programs, also known as earned wage access, allow workers to tap their paychecks before payday, often for a fee, according to the CFPB.

The CFPB proposed an interpretive rule on Thursday saying the programs — both those offered via employers and directly to users via fintech apps — are “consumer loans” subject to the Truth in Lending Act.

More than 7 million workers accessed about $22 billion in wages before payday in 2022, according to a CFPB analysis of employer-sponsored programs also published Thursday. The number of transactions jumped more than 90% from 2021 to 2022, the agency said.

Such services aren’t new: Fintech companies debuted them in their earliest form more than 15 years ago. But their use has accelerated recently amid household financial burdens imposed by the Covid-19 pandemic and high inflation, experts said.

Is it a loan or ‘utilizing an ATM’?

If finalized as written, the rule would require companies offering paycheck advances to make additional disclosures to users, helping borrowers make more informed decisions, the CFPB said.

Perhaps most important, costs or fees incurred by consumers to access their paychecks early would need to be expressed as an annual percentage rate, or APR, akin to credit card interest rates, according to legal experts.

The typical earned-wage-access user pays fees that amount to a 109.5% APR, despite the service often being marketed as a “free or low-cost solution,” according to the CFPB.

The California Department of Financial Protection and Innovation found such fees to be higher — more than 330% — for the average user, according to an analysis published in 2023.

Such data has led some consumer advocates to equate earned wage access to high-interest credit like payday loans. By comparison, the average credit card user with a balance paid a 23% APR as of May, a historic high, according to Federal Reserve data.

“The CFPB’s actions will help workers know what they are getting with these products and prevent race-to-the-bottom business practices,” CFPB Director Rohit Chopra said in a written statement.

However, the financial industry, which doesn’t consider such services to be a traditional loan, had been fighting such a label.

It’s inaccurate to call the service a “loan” or an “advance” since it grants workers access to money they’ve already earned, said Phil Goldfeder, CEO of the American Fintech Council, a trade group representing earned-wage-access providers.

“I would resemble it closer to utilizing an ATM machine and getting charged a fee,” Goldfeder said. “You can’t utilize a methodology like APR to determine the appropriate costs for a product like this.”

The CFPB is soliciting comments from the public until Aug. 30. It may revise its proposal based on that feedback.

Part of broader ‘junk fee’ crackdown

The proposal is the latest salvo in an array of CFPB actions aimed at lenders, like one seeking to rein in banks’ overdraft fees and popular buy now, pay later programs.

It’s also part of a broader Biden administration push to crack down on “junk fees.”

Consumers may encounter earned wage access under various names, like daily pay, instant pay, accrued wage access, same-day pay and on-demand pay.

Business-to-business models offered through an employer use payroll and time-sheet records to track users’ accrued earnings. When payday arrives, the employee receives the portion of pay that hasn’t been tapped early.

Third-party apps are similar but instead issue funds based on estimated or historical earnings and then automatically debit a user’s bank account on payday, experts said.

Branch, DailyPay, Payactiv, Dave, EarnIn and Brigit are examples of some of the largest providers in the B2B or third-party ecosystems.

Providers may offer various services for free, and some employers offer programs to employees free of charge.

The CFPB proposal’s requirements don’t apply in cases when the consumer doesn’t incur a fee, it said.

However, most users do pay fees, CFPB found in its analysis of employer-sponsored programs.

More than 90% of workers paid at least one fee in 2022 in instances when employers don’t cover the costs, the agency said. The vast majority were for “expedited” transfers of the funds; such fees range from $1 to $5.99, with an average fee of $3.18, the CFPB said.

Many are repeat users: Workers made 27 transactions a year and paid $106 in total fees, on average, said CFPB, which cautioned that consumers may “become financially overextended if they simultaneously use multiple earned wage products.”

CFPB rule wouldn’t prohibit fees

The CFPB’s proposal marks the first time the agency has said “explicitly” that early paycheck access amounts to a loan, said Mitria Spotser, vice president and federal policy director at the Center for Responsible Lending, a consumer advocacy group.

“It is a traditional loan: It’s borrowing money at a cost from the provider,” she said.

Goldfeder, of the American Fintech Council, disagrees.

“Unlike the provision of credit or a loan, EWA is non-recourse and does not require a credit check, underwriting, base fees on creditworthiness; charge a fee in installments, charge interest, late fees, or penalties; or impact a user’s credit score,” he said in a written statement.

Payments trends for 2024: 'Buy now, pay later' boom

The CFPB rule doesn’t prohibit providers from charging fees, Spotser said.

“It merely requires them to disclose it,” she added. “You have to ask yourself, why is the industry so afraid to disclose that they’re charging these fees?”

If finalized, the rule would allow the CFPB to bring enforcement actions against companies that don’t make the appropriate disclosures, for example, said Lauren Saunders, associate director of the National Consumer Law Center. States could also sue in court, as could consumers or via arbitration, she said.

Companies “ignore it at their peril, because it’s the CFPB’s interpretation of what the law is,” Saunders said of the interpretive rule. “They could try to argue to a court that the CFPB is wrong, but they’re on notice.”

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July 19, 2024

What bank earnings are telling us

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CNBC's Leslie Picker reports on the big themes around financial earnings.

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July 18, 2024

Watch: ECB President Christine Lagarde speaks after rate decision

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European Central Bank President Christine Lagarde is giving a press conference following the bank’s latest monetary policy decision. The central bank left interest rates unchanged on Thursday, after implementing a cut in June.

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July 18, 2024

Tag: Banks

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