Tag: Consumer Credit

How bad access to credit keeps newcomers from getting ahead – MoneySense
[ad_1]
According to a 2025 TD survey, 92% of newcomers understood the importance of building credit before arriving in Canada. Yet 82% of those who applied for credit faced immediate barriers. For many, these challenges go beyond inconvenience. They directly affect immigrants’ ability to secure housing, buy a car, start a business, and simply build a life in Canada.

This isn’t just about money. It’s about inclusion. And if Canada sees immigration as important to its future, then removing systemic financial barriers must be part of the national conversation.

A cultural shift, and a credit wake-up call

Like many immigrants, I arrived in Canada financially stable. But the Canadian financial system didn’t recognize that.

I grew up in India and the Middle East with a simple rule: never buy what you can’t afford. Credit cards weren’t necessary, loans weren’t encouraged, and financial independence meant living within your means. That worldview shaped my early adult life—until I met my wife, who was born and raised in Ottawa.

I remember one of our early conversations while we were still living abroad. She was confused about why I booked flights through a travel agent. The answer was simple: I didn’t have a credit card. And I didn’t feel like I needed one. To her, this was strange; in Canada, a credit card is a default tool for everything from booking travel to building rewards points. For me, it felt like a way to buy things I couldn’t afford. We weren’t arguing, just coming at the problem from different cultural angles.

Eventually, I applied for a credit card and, like many people who didn’t grow up using credit, I abused it at first. It felt like free money, but that illusion wore off quickly. Over time, I developed a healthy relationship with credit: using it for convenience, managing payments responsibly, and collecting points for purchases I would have made anyway. When we eventually moved to Canada, all of that learning felt like it didn’t matter anymore.

Earning, saving and spending in Canada: A guide for new immigrants

Credit history doesn’t travel

Here’s a truth most newcomers know, but few are prepared for: your financial history doesn’t follow you.

Despite arriving with a strong financial foundation, I couldn’t qualify for a meaningful credit limit. My first Canadian credit card had a limit of $200, barely enough for half a Costco run. It wasn’t that I had a bad credit score. I didn’t have one at all. And building one from scratch took years.

Article Continues Below Advertisement

This wasn’t just a minor inconvenience. It affected every part of our lives.

We couldn’t get a mortgage, not because of our income or how much we had saved for a down payment, but because of a lack of credit history. When we finally did qualify, we had been in the country for years and had done everything right: on-time payments, healthy credit utilization, excellent scores in the 800s. But still, I wasn’t seen the same way the system viewed my wife, who had been born and raised here.

Even now, after more than six years in Canada, my access to credit remains restricted. I don’t get offers for balance transfers, lines of credit, or automatic credit increases like she does. Why? Because she has decades of history, and I don’t. The system rewards longevity, not responsibility.

Harder than it should be

The TD survey confirms what I experienced. Among newcomers:
- 31% qualified only for credit limits too low to meet basic needs
- 27% struggled to secure housing
- 24% couldn’t save or invest for future goals
- 66% worried about their Canadian credit history
- 79% found it difficult to start building credit at all
That last stat is crucial. Building credit isn’t just hard, it’s systemically difficult for immigrants. And that’s the problem.

Even though 92% of newcomers say building credit is important, they’re often left without the tools to do it effectively.

Yes, the financial services industry is beginning to acknowledge the unique needs of newcomers, but acknowledgment isn’t enough. It’s like going to a doctor who finally understands your symptoms but doesn’t have a treatment. Empathy without action is still inaction.

If Canada wants newcomers to succeed, we need more than empathy. We need solutions.
[ad_2]

Vickram Agarwal

Source link
August 29, 2025
Why parents may want to start locking a child’s credit at a very young age

[ad_1]

Most parents would take herculean steps to protect their children. But many overlook a relatively simple way to help shore up a child’s financial security: freezing the minor’s credit.

This could be especially important in the wake of a major breach in which the Social Security numbers of myriad Americans might be for sale on the dark web. While locking their credit won’t solve all cybersecurity issues related to stolen Social Security numbers, it’s one extra layer of protection parents can implement.

The credit-locking process involves contacting each of the three major credit bureaus — Experian, Equifax and TransUnion — and providing required documentation including the child’s birth certificate, Social Security card, proof of address and parent identification. The bureau then creates a credit report for the child and then locks it, so loans or credit cards can’t be issued using the child’s personal information. The freeze remains in place until the parent, or in some cases, the child, requests that it be lifted, temporarily or permanently.

Parents can take these steps proactively even if there’s nothing to suggest a minor’s credit has been compromised such as unexpected credit card solicitations or bills received in the minor’s name.

It can take some time and effort to lock a child’s credit, but the outlay is minimal compared with what can be a lengthy and emotional credit restoration process. “As an adult, if our credit is stolen, it makes us angry, but we do what needs to be done and we move forward,” said Kim Cole, community engagement manager at Navicore Solutions, nonprofit credit and housing counseling agency. But for children, the emotional impact is much greater, she said. “It can take years to get wind of a problem, and meanwhile the damage can continue to grow.”

Identity theft against children — especially very young ones — often slips under the radar until they are older teens or young adults applying for their first credit card, trying to finance a car or seeking student loans, said Loretta Roney, president and chief executive of InCharge Debt Solutions, a nonprofit provider of credit counseling and other services.

Yet, identity theft for children under age 19 is a growing issue, with this demographic accounting for 3% of all identity theft reports for the first half of 2024, according to Federal Trade Commission data. By comparison, this demographic accounted for 2% of identity fraud reports each year between 2021 and 2023.

Thieves might use a child’s Social Security number, name and address, or date of birth to do things like apply for government benefits, like health care coverage or nutrition assistance, open a bank or credit card account, apply for a loan, sign up for a utility service or rent a place to live, according to the FTC. Locking a child’s credit won’t protect against all of these, but it’s a solid step in the right direction, financial professionals said.

It’s not just strangers committing fraud against children. Cole offers the example of a friend whose uncle had destroyed his credit and started using his niece’s name and Social Security number to open credit cards and max them out. He had the bills sent to his house, and the young woman only discovered the fraud about four years later, when she went to buy a small fixer-upper and realized she had nearly $50,000 of debt in her name and a credit score in the low 500s.

The niece filed a police report, a complaint with the FTC and disputed the items with the credit bureaus, but it took time to resolve. She applied for a secured credit card in the interim, since her score was too low to qualify for a traditional card, and the situation pushed back her home-buying by a few years, ultimately costing her more, Cole said.

Check to see if the child has a credit report

Before locking a child’s credit, it’s good practice to check with each of the three major credit bureaus to see if a report exists. Generally, this will only be the case if someone has fraudulently taken out credit in the minor’s name, or if the child has been named an authorized user on an adult’s credit card.

To check to see if their child has a credit report, parents can mail a letter with their request to each of the credit bureaus. They should be sure to include a copy of the child’s birth certificate, Social Security card or document from the Social Security Administration showing this number and a copy of the parent’s driver’s license or government-issued identification, with current address. Legal guardians may have to give the credit bureaus a copy of documents authenticating their status.

If something amiss pops up on the report, contact the companies where the fraud occurred as well as the three major credit bureaus. Also report the child identity theft to the FTC, including as many details as possible.

If the report comes back clean, the next step is to actually lock the child’s credit.

If needed, freeze a child’s credit

The process for initiating a credit freeze varies slightly depending on the credit bureau and the age of the minor child. Be sure to follow the precise instructions for each credit bureau. For Equifax, in addition to required documentation, parents need to fill out a form online and submit it via postal mail; minors who are 16 or 17 may request their own security freeze by phone or by mail. The websites for Experian and TransUnion provide further details on their respective processes, which includes document requirements and mailing addresses. It can take a few weeks for the bureaus to process these requests.

Keep good records for unlocking later in life

Parents need to keep safe the pin number they are provided when locking their child’s credit so it can be temporarily unlocked as needed, such as when the child turns 18 and wants to apply for a credit card, said Bruce McClary, senior vice president of membership and media relations at the nonprofit National Foundation for Credit Counseling.

The unlocking process isn’t necessarily seamless and can take time. Equifax, for instance, asks for these requests in writing, with required documentation for identity verification purposes. After age 18, Equifax allows for managing the security freeze online.

Educate children early on protection of personal information

Parents should talk to their children about best practices with respect to sharing personal information, McClary said. For instance, they should caution children to be careful about the kinds of information they provide to websites and apps and to keep their Social Security number close to the vest.

Parents may also want to consider credit or identity threat monitoring services or both. Certain providers may offer basic services for free, but family plans that include adults and children and offer a combination of credit and identity theft protection tend to be fee-based. These services — which can run around $24 or more per month — may offer more comprehensive protection, including identity theft insurance and fraud resolution services. Parents should weigh the options carefully to understand the choices and associated costs.

[ad_2]

Source link

August 23, 2024
CFPB cracks down on popular paycheck advance programs. Here’s what that means for workers

[ad_1]

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.

More from Personal Finance:
Biden may deliver sweeping student loan forgiveness weeks before election
Medical debt carries less weight on credit reports
Harvard fellow: CFPB’s ‘buy now, pay later’ regulation isn’t enough

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.

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.”

Don’t miss these insights from CNBC PRO

[ad_2]

Source link

July 19, 2024
Home equity is near a record high. Tapping it may be tricky due to high interest rate

[ad_1]

Cultura Rm Exclusive/twinpix | Image Source | Getty Images

Home equity is near all-time highs. But tapping it may be tough due to high interest rates, according to financial advisors.

Total home equity for U.S. mortgage holders rose to more than $17 trillion in Q1 2024, just shy of the record set in Q3 2023, according to new data from CoreLogic.

Average equity per borrower increased by $28,000 — to about $305,000 total — from a year earlier, according to CoreLogic. That’s up almost 70% from $182,000 before the Covid-19 pandemic, said chief economist Selma Hepp.

About 60% of homeowners have a mortgage. Their equity equals the home’s value minus outstanding debt. Total home equity for U.S. homeowners with and without a mortgage totals $34 trillion.

The jump in home equity is largely due to a runup in home prices, Hepp said.

Many people also refinanced their mortgage earlier in the pandemic when interest rates were “really, really low,” perhaps allowing them to pay down their debt faster, she said.

“For the people who owned their homes at least four or five years ago, on paper they’re feeling fat and happy,” said Lee Baker, founder, owner and president of Apex Financial Services in Atlanta.

Baker, a certified financial planner and a member of CNBC’s Advisor Council, and other financial advisors said accessing that wealth is complicated by high borrowing costs, however.

“Some options that may have been attractive two years ago are not attractive now because interest rates have increased so much,” said CFP Kamila Elliott, co-founder of Collective Wealth Partners and also a member of CNBC’s Advisor Council.

That said, there may be some instances in which it makes sense, advisors said. Here are a few options.

Home equity line of credit

Grace Cary | Moment | Getty Images

A home equity line of credit, or HELOC, is typically the most common way to tap housing wealth, Hepp said.

A HELOC lets homeowners borrow against their home equity, generally for a set term. Borrowers pay interest on the outstanding balance.

The average HELOC has a 9.2% interest rate, according to Bankrate data as of June 6. Rates are variable, meaning they can change unlike with fixed-rate debt. (Homeowners can also consider a home equity loan, which generally carry fixed rates.)

For comparison, rates on a 30-year fixed-rate mortgage are around 7%, according to Freddie Mac.

More from Personal Finance:
Buying a house of ‘Home Alone’ or John Lennon fame? Expect a premium
A 20% down payment is ‘definitely not required’ to buy a house
What to expect from the housing market this year

While HELOC rates are high compared to the typical mortgage, they are much lower than credit-card rates, Elliott said. Credit-card holders with an account balance have an average interest rate of about 23%, according to Federal Reserve data.

Borrowers can generally tap up to 85% of their home value (minus outstanding debt), according to Bank of America.

Homeowners can leverage a HELOC to pay off their outstanding high-interest credit-card debt, Elliott said. However, they must have a “very targeted plan” to pay off the HELOC as soon as possible, ideally within a year or two, she added.

For the people who owned their homes at least four or five years ago, on paper they’re feeling fat and happy.

Lee Baker

certified financial planner

In other words, don’t just make the minimum monthly debt payment — which might be tempting because those minimum payments would likely be lower than a credit card, she said.

Similarly, homeowners who need to make home repairs (or improvements) can tap a HELOC instead of using a credit card, Elliott explained. There may be an added benefit for doing so: Those who itemize their taxes may be able to deduct their loan interest on their tax returns, she added.

Reverse mortgage

A reverse mortgage is a way for older Americans to tap their home equity.

Like a HELOC, a reverse mortgage is a loan against your home equity. However, borrowers don’t pay down the loan each month: The balance grows over time with accrued interest and fees.

A reverse mortgage is likely best for people who have much of their wealth tied up in their home, advisors said.

“If you were late getting the ball rolling on retirement [savings], it’s another potential source of retirement income,” Baker said.

A home equity conversion mortgage (HECM) is the most common type of reverse mortgage, according to the Consumer Financial Protection Bureau. It’s available to homeowners who are 62 and older.

$Here's how to get an ultra low mortgage$

A reverse mortgage is available as a lump sum, line of credit or monthly installment. It’s a non-recourse loan: If you take steps like paying property taxes and maintenance expenses, and using the home as your primary residence, you can stay in the house as long as you like.

Borrowers can generally tap up to 60% of their home equity.

The homeowners or their heirs will eventually have to pay back the loan, usually by selling the home, according to the CFPB.

While reverse mortgages generally leave less of an inheritance for heirs, that shouldn’t necessarily be considered a financial loss for them: Absent a reverse mortgage, those heirs may have been paying out of pocket to help subsidize the borrower’s retirement income anyway, Elliott said.

Sell your home

Alexander Spatari | Moment | Getty Images

Historically, the biggest advantage of having home equity was amassing more money to put into a future home, Hepp said.

“That’s historically how people have been able to move up in the housing ladder,” she said.

But homeowners carrying a low fixed-rate mortgage may feel locked into their current home due to the relatively high rates that would accompany a new loan for a new house.

Moving and downsizing remains an option but “that math doesn’t really work in their favor,” Baker said.

“Not only has their home gone up in value, but so has everything else in the general vicinity,” he added. “If you’re trying to find something new, you can’t do a whole lot with it.”

Cash-out refi

A cash-out refinance is another option, though should be considered more of a last resort, Elliott said.

“I don’t know anyone right now who’s recommending a cash-out refi,” she said.

A cash-out refi replaces your existing mortgage with a new, larger one. The borrower would pocket the difference as a lump sum.

To give a simple example: let’s say a borrower has a home worth $500,000 and an outstanding $300,000 mortgage. They might refinance for a $400,000 mortgage and receive the $100,000 difference as cash.

Of course, they’d likely be refinancing at a higher interest rate, meaning their monthly payments would likely be much higher than their existing mortgage, Elliott said.

“Really crunch the numbers,” Baker said of homeowners’ options. “Because you’re encumbering the roof over your head. And that can be a precarious situation.”

[ad_2]

Source link

June 10, 2024
Cash discounts, while still rare, are up over 60% from 2015. Here’s how much you can save

[ad_1]

Ryanjlane | E+ | Getty Images

Sometimes, it pays to pay with cash.

More merchants are offering a lower price to customers who use cash rather than credit card for a purchase. That means opting for paper over plastic may save you money in some cases.

Just how much?

Typically, cash discounts run about 2% to 4% on purchases, though savings can be higher, experts said.

The share of cash payments with a discount is still low — in fact, only about 3% of all cash payments in 2022, according to data from the Federal Reserve Bank of Atlanta.

However, that share is up more than 60% from 2015, when 1.8% of all cash transactions had a discount, Atlanta Fed data shows. While not yet the norm, cash incentives are likely to become more widespread, experts said.

Meanwhile, other businesses add a surcharge when customers use credit cards for purchases. In such cases, paying with cash would also yield savings.

Nearly 7 in 10 cardholders said a business has charged them extra for paying with a credit card, according to a recent LendingTree survey.

The trend comes as consumers have steadily shifted away from using cash for purchases: Consumers made 18% of payments with cash in 2022, down from 31% in 2016, according to the Federal Reserve. Meanwhile, credit cards’ share grew to 31% from 18% during that period.

More from Personal Finance:
How many credit cards should you have?
People hate budgeting. Here’s how to reframe it
The myth about credit cards and credit scores that’s costing you

“Sometimes, it can make sense to just go ahead and pay cash,” said Matt Schulz, chief credit analyst at LendingTree.

That may be the case even after accounting for credit card rewards, Schulz said. The largest general cash-back return on most credit cards is 2%, for example — a percentage often exceeded by cash discounts, he said.

“If the merchant establishes a discount that’s high enough, even if you have the best rewards card in the world you may still end up paying less if you use cash,” said Adam Rust, director of financial services at the Consumer Federation of America, a consumer advocacy group.

Why businesses give cash incentives

Businesses that offer a break on cash purchases generally do so to reduce costs they incur for credit card transactions.

Credit card-processing companies like Visa and Mastercard generally charge merchants 2% to 4% for each transaction, according to the National Retail Federation. These swipe fees are the second-highest cost for most businesses, behind labor costs, the trade group said.

“The merchant is looking at your dollar and getting 98 cents in the end because you’ve chosen to use a card,” Rust said.

Businesses can take two routes to save money: offering a discount for cash purchases (thereby sidestepping those card fees), or putting a surcharge on credit card transactions to offset those fees.

Either way, such practices may yield lower prices for cash users.

Surcharges aren’t legal in all states, though.

As of May 2023, Connecticut and Massachusetts had outlawed surcharging, while Colorado and Oklahoma limited the maximum surcharge to 2%, according to the North Carolina Restaurant and Lodging Association.

Visa also capped surcharges at 3% in April 2023, down from 4%, the trade group said.

“It’s really important to understand what the cost of that surcharge is going to be, if there is one, before you go ahead and buy,” Schulz said.

When to pay with cash

Consumers are often swayed by cash incentives, even “significantly likely” to switch to cash payments “specifically because of cash discounts offered,” according to research by Joanna Stavins, a senior economist and policy advisor at the Federal Reserve Bank of Boston.

When a cash discount is offered, the odds increase by 19.2% that a consumer who prefers noncash payments will instead opt to pay with cash, Stavins wrote in a 2018 paper. This research controls for transaction value and merchant type.

In addition, small, independent businesses are more likely to offer cash discounts than big national chains, Consumer Federation of America’s Rust said.

Sometimes, it can make sense to just go ahead and pay cash.

Matt Schulz

chief credit analyst at LendingTree

Gas stations have long offered cash incentives to customers. But a rising number are now doing so, and “some major retailers are starting to implement the ability to do this in the future,” said Patrick De Haan, head of petroleum analysis at GasBuddy.

The average cash discount has been about 5 cents to 10 cents per gallon, De Haan said.

Meanwhile, more stations are also offering their own payment platform — like branded debit and credit cards — that yield even more savings than cash, he added.

Discounts are also “very prevalent” when paying for health care, said Carolyn McClanahan, a certified financial planner and physician based in Jacksonville, Florida.

McClanahan is also a member of the CNBC Financial Advisor Council.

Some big-ticket spending — like tax bills and college tuition — is also generally best accomplished with cash, said Schulz. The IRS and many universities pass on payment-processing costs to the consumer. (In these cases, that might mean writing a check.)

“There are certainly some bigger times when you should probably not use credit cards because of the fees involved,” he said.

Credit cards sometimes have advantages

There are times when credit cards have distinct advantages to cash, Rust said.

For example, unlike cash, credit cards carry certain protections related to fraud and product returns, Schulz said.

That’s why using a card may make more sense — even if there are fees involved — if consumers are first-time shoppers at a particular store, are buying something they may want to return in the future or if purchasing something fragile they’re having delivered, he added.

Additionally, a credit card may be better for those who want to more closely track their spending, or just generally prefer the ease and convenience of using a card, Schulz said.

However, consumers who have trouble paying off their credit card bills in full and on time each month may be better served via another payment method to avoid racking up interest charges, especially as those rates are near record highs.

There’s also a workaround to both cash and credit cards: debit cards. Merchants generally can’t add a surcharge to debit card transactions.

“By and large, debit cards can be a better and cheaper choice in instances where there’s a credit card surcharge,” Schulz said.

Don’t miss these exclusives from CNBC PRO

[ad_2]

Source link

May 26, 2024
Banks’ unsecured loans grow despite 30-100 bps capital risk weight hit
[ad_1]
About two months after the Reserve Bank of India rolled out higher risk weights for certain segments of consumer credit, private banks have reported a capital impact of 30-100 bps due to the higher capital allocation requirement for these loans. However, this has not slowed down retail credit growth, including unsecured retail, during the third quarter.

Among the large banks, HDFC Bank reported the highest capital impact of 97 bps in Q3 FY24, followed by ICICI Bank and Axis Bank which saw capital being hit by 70 bps. IDFC First Bank and RBL Bank, both with high shares of unsecured retail credit saw capital being impacted by 100 bps and around 70 bps, respectively.
- Also read: Credit cards, home loan quality deteriorates
Even so, robust overall capital ratios, and preference for higher yielding retail assets amid muted corporate credit growth and slower deposit accretion, has led to banks posting strong growth in the retail credit segment, including unsecured retail, during the reporting quarter.

In the Q3 earnings call, Kotak Bank CFO Jaimin Bhatt said the higher risk weights are not seen “putting the brakes” on unsecured loan growth, whereas Federal Bank said that it has reviewed its pricing on personal loans and made a few changes.

Personal loans of private banks grew 10-86 per cent on year, with growth for lenders such as ICICI Bank, Kotak and Axis Bank at 28-37 per cent and for small players like IndusInd and Federal at 57-86 per cent.
- Also read: How Bank of Maharashtra charted its comeback
Risk weights

The central bank, in November 2023, increased the risk weights on consumer credit of banks and NBFCs by 25 per cent. This largely pertains to unsecured loans, and excludes housing, education, vehicle and gold loans.

Taking the capital hit in their stride, banks said growth during Q3 was supported by the fact that the circular was introduced halfway through the quarter. While retail credit could slow down to some extent going ahead, moderation will be limited aided by banks’ ability to increase lending rates by 15-30 bps, robust portfolio quality, and the strong demand for personal loans and credit cards.

HDFC Bank CFO Srinivasan Vaidyanathan said the bank has a strong pipeline of pre-approved and eligible and high credit quality customers. The bank will continue to focus on more margin accretive segments and the share of retail loans will continue to rise, he added.

ICICI Bank said it has reviewed its NBFC portfolio and is “comfortable with the quality of the book”. Group CFO Anindya Banerjee said the bank has taken some steps to refine credit parameters from some loan segments but remains to remain robust.
- Also read: Utkarsh Small Finance Bank Q3 profit jumps 24% to ₹116 cr
Good visibility

IndusInd Bank and RBL Bank said that while growth in retail and personal loans has been accelerated, unsecured loans comprise only a small portion of their overall portfolio and thus does not pose any significant risks. Most banks said that much of their unsecured lending is to exist and partner customers, which gives good visibility on portfolio quality. Thus, consumer credit is expected to continue to grow at around 25-30 per cent for FY24 and FY25, faster than overall loan growth of 18-20 per cent.

However, a recent RBI paper said personal loans grew at CAGR of 17 per cent in outstanding amount and 15 per cent in borrower accounts between 2015 and 2023. They constituted the single largest category of bank credit at 49 per cent of total borrower accounts and 30 per cent of outstanding non-food credit as of June 2023.

The full impact of the measures is likely to be felt over another two quarters as banks realign their unsecured lending strategies. Even so, any reduction in credit supply will be minimal owing to the strong capital adequacy ratios, healthy risk-adjusted returns and decadal low NPA levels, analysts said. They added that any slowdown will only be in small ticket loans – where banks don’t have a large exposure – as both demand and supply of large ticket personal loans continues to rise.
SHARE

Copy link

Email

Facebook

Twitter

Telegram

LinkedIn

WhatsApp

Reddit

Published on January 28, 2024
[ad_2]

Source link
January 28, 2024
Paying rent usually won't boost your credit score. Here's what renters need to know to make it count

[ad_1]

Luis Alvarez | Digitalvision | Getty Images

While rent payments do not traditionally affect your credit, a growing number of so-called rent-reporting services are trying to change that.

These services track users’ rent-paying habits and report them to one or more of the big credit bureaus — Equifax, Experian and TransUnion — with the aim of helping renters build credit and potentially boost their credit score.

But these services don’t all operate the same way, and some may have less value for renters. There’s one major detail you should consider before signing up, said Matt Schulz, chief credit analyst at LendingTree: Is your payment record going to all three bureaus?

“It’s important for people to understand that you don’t just have one credit score,” he said. “You just don’t know which bureau your lender is going to use to get your information.”

More from Personal Finance:
Many young unmarried couples don’t split costs equally
Here’s how Gen Zers can build credit before renting their own place
Gen Z, millennials are ‘house hacking’ to become homeowners

How rent-reporting programs work

This week, real estate site Zillow Group launched a new rent payment reporting feature. Renters who pay through the site can now opt in to have their on-time rent payments reported to Experian, one of the three major credit bureaus, at no charge to the renter or landlord.

In order for a renter to use the Zillow feature, their landlord must be a user of Zillow Rental Manager and have agreed to receive payments through the firm.

“It aligns with our goal of providing accessibility to building credit in the rental space. It’s a really positive step in that direction,” said Michael Sherman, the vice president of rentals at Zillow Group.

While Zillow is the first real estate marketplace to report rental payment data to a credit bureau, it joins a host of different rent-reporting services already available for consumers.

There are many services renters can look into, including some that are free, such as Piñata, and others that come with service or processing transaction fees, such as Rental Kharma, which charges $8.95 a month after an initial set-up fee of $75.

There are also services geared to landlords that offer rent reporting for tenants, including ClearNow, Esusu and PayYourRent. Landlords usually shoulder the cost of these programs, but there may be processing fees depending on how you make your rent payments.

Rent reporting can help the ‘credit invisibles’

Nearly 50 million Americans have no usable credit scores, according to a 2022 fact sheet from the Office of the Comptroller of the Currency’s Project REACh, or Roundtable for Economic Access and Change.

Being “credit invisible” can affect your ability to qualify for loans and affect the interest rates and terms you are given when you apply for credit.

When rent payments are included in credit reports, consumers see an average increase of nearly 60 points to their credit score, according to a 2021 TransUnion report.

Other payment reporting programs such as Experian Boost, StellarFi and UltraFICO have aims similar to those of rent-reporting services, but with different kinds of payments. They allow users to build credit based on alternative metrics such as banking activity and payments for streaming services, electric bills and mobile phone plans.

Talk to your landlord before you sign up for a rent-reporting service on your own. They may be open to signing up as a benefit to their tenants.

While “people are creatures of habit and don’t always embrace change,” a credit building feature can help a landlord stand out in a competitive rental market, said Schulz.

“It would be significant added value; building credit is a big deal and if you are somebody who can help people build credit, you may be a little more interesting to them,” he added.

‘Three credit reports are different reports’

Before you sign up to a rent-reporting service, it’s important to understand which bureau or bureaus the company sends reports to. It may not be worth using a service that sends rent payment reports only to a single bureau.

“If a rent-reporting service only gives your information to one of [the three big bureaus], and the lender that you are getting your auto loan from uses a different credit bureau, the benefits that could and should come with that tool may not end up panning out,” said Schulz.

The ideal is that the rent-reporting company gives the data to Equifax, Experian and TransUnion.

“People hear about three credit bureaus, but they don’t understand that your three credit reports are different reports, and different companies report to different bureaus,” said Schulz.

[ad_2]

Source link

January 20, 2024
Wells Fargo unveils 2024 target, warns of ‘really, really sloppy’ first half for stocks

[ad_1]

Wells Fargo Securities is officially out with its 2024 stock market forecast.

Chris Harvey, the firm’s head of equity strategy, sees a volatile path to his S&P 500 to 4,625 year-end target.

“It’s really hard to get excited. If we have better [economic] growth, then the Fed doesn’t do anything,” he told CNBC’s “Fast Money” on Monday. “If we have worse growth, then numbers are going to come down and then the Fed will eventually cut. The second half will be better, but the first half is going to be really, really sloppy.”

Harvey’s target is just 75 points above Monday’s S&P 500’s close.

“Can we go higher from here? Sure, we can go a little bit higher. But I just don’t think you can go a ton higher,” he said. “People have talked about 5,000. I don’t see how you get to that level.”

In his official 2024 outlook note, Harvey told clients to brace for a “trader’s market” instead of a “buy-and-hold situation.” His early year strategy: Start with a risk-averse stance.

“The VIX [CBOE Volatility Index] is up 13. Every time we’ve gone into a new year with the VIX at 13, we’ve seen spikes. We’ve seen the equity market pull back, and it’s just not a great setup into 2024,” Harvey added.

He warns the higher cost of capital is an additional market problem because it prevents multiples from going higher.

“As long as the cost of capital stays higher, it’s really hard for me to get to a much higher price target,” Harvey said.

Yet, he still sees opportunities for investors.

“What we want to do is we want to go to the places that are oversold. We just upgraded utilities today. We upgraded health care,” Harvey noted. “Those are areas that have good valuations, decent fundamentals and most people really aren’t there at this point.”

‘I hate to say that as being head of equity strategy’

Harvey also sees Treasurys as an option.

“If you look at the alternatives, there are things that are pretty attractive. And, I hate to say that as being head of equity strategy, but you can park money at the front of the curve and make a pretty good rate of return and not put on a whole lot of risk,” said Harvey.

His 2023 S&P target is 4,420 — which implies a three percent drop from Monday’s close.

Disclaimer

[ad_2]

Source link

November 27, 2023
Zombie firms are filing for bankruptcy as the Fed commits to higher rates

[ad_1]

In the U.S., 516 publicly listed firms have filed for bankruptcy from January through September 2023. Many of these firms have survived for several years with surging debt and lagging sales.

“The share of zombie firms has been increasing over time,” said Bruno Albuquerque, an economist at the International Monetary Fund. “This has detrimental effects on healthy firms who compete in the same sector.”

Zombie firms are unprofitable businesses that stay afloat by taking on new debt. Banks lend to these weak firms in hopes that they can turn their trend of sinking sales around.

“A really healthy, well-capitalized banking system and financial sector is one of the most important factors in ensuring that unhealthy firms are wound down in a timely way rather than being propped up,” said Kathryn Judge, a professor of law at Columbia University.

Economists say that zombie firms may become more prevalent when banks or governments bail out unviable firms. But the Federal Reserve says the share of firms that are zombies fell after the Covid-19 emergency stimulus measures were implemented. The Fed says banks are refusing to keep weak firms in business with favorable extensions of credit.

The Fed economists point to healthy balance sheets at U.S. firms, despite the increasing weight of interest rate hikes. The effective federal funds rate was 5.33% in October 2023, up from 0.08% in October 2021.

“The biggest implication of the rapid rise in interest rates that we’ve seen the last five or six quarters, actually, is that it reestablished cash,” said Lotfi Karoui, chief credit strategist at Goldman Sachs. “That actually puts some constraints on risk assets.”

The Fed says it thinks interest rates will remain higher for longer. “Given the fast pace of tightening, there may still be meaningful tightening in the pipeline,” Fed Chair Jerome Powell said at an Economic Club of New York speech Oct. 19.

Watch the video above to learn more about the Fed’s battle with unviable zombie firms in the U.S.

[ad_2]

Source link

October 31, 2023
How the Fed fights zombie firms

[ad_1]

Share

Some firms sustain their businesses by taking on more debt that they can repay. Economists call them zombie companies. When compared to their peers, zombies are smaller in size and deliver lower returns to investors. These companies distort markets, keeping resources from their fundamentally sound competitors. Banks and governments keep zombie firms alive with bailout loans. As the Federal Reserve resets the economy with higher interest rates, many zombie firms are filing for bankruptcy.

10:01

Tue, Oct 31 20236:00 AM EDT

[ad_2]

Source link

October 31, 2023
‘Bite of these higher rates is gaining traction almost every day,’ KBW CEO Thomas Michaud warns

[ad_1]

A major financial services CEO warns the economy hasn’t fully absorbed higher interest rates yet.

Thomas Michaud, who runs Stifel company KBW, notes there’s a delayed reaction in the marketplace from the last hike — calling a 25 basis point move at 5% a very different situation than off a half percent.

related investing news

“This is getting to be the real deal at the moment because of the level of rates,” he told CNBC’s “Fast Money” on Wednesday. “The bite of these higher rates is gaining traction almost every day.”

Michaud delivered the call hours after the Federal Reserve decided to leave interest rates unchanged. It comes after ten rate hikes in a row.

The Fed signaled on Wednesday two more hikes are ahead this year. Michaud expects one to happen in July. However, he questions whether policymakers will raise rates a second time.

“Trying to deliver a new message with these dots is not what I’m willing to hang my hat on from what I see happening in the economy,” he said. “The economy is slowing. So, I think we’re near the end of this rate increase cycle.”

He lists interest rate sensitive areas of the economy already in a recession: Office space in urban areas, residential mortgage originations and investment banking revenues. He sees the problems contributing to more pain in regional banks.

“Banks were already tightening in the fourth quarter of last year. It didn’t just start in March. Loan growth had been slowing,” added Michaud. “There are elements of like the global financial crisis that are in bank stocks right now.”

According to Michaud, the regional bank rally is a short-term bounce. The SPDR S&P Regional Banking ETF is up almost 18% over the past month.

“The overall industry rally for all participants probably doesn’t happen until we get some more stability in what we think the earnings are going to be,” said Michaud. “Earnings estimates haven’t settled. They haven’t stopped going down.”

He sees a shift from adjusting to the new interest rate environment to credit quality in the second half of this year.

“Before the first quarter we cut bank estimates by 11%. After the quarter, we cut them by 4%.” Michaud said. “My instincts are we are going to cut them again.”

Disclaimer

[ad_2]

Source link

June 14, 2023
Use of small-dollar loans is up as inflation, credit crunch stretch wallets

[ad_1]

While the inflation trend took a welcome turn in the latest data, many shoppers are still dealing with historically high prices and sticker shock across the economy.

The consumer price index, a key barometer of inflation, increased 4.9% in April compared to last year, marking the smallest annual reading in two years, according to the U.S. Bureau of Labor Statistics.

But with the CPI reading still up, and much higher than the Federal Reserve target inflation rate of 2%, many consumers won’t notice prices falling even as the rate at which they’re rising is nowhere near the increases seen last summer.

That is adding to the overall economic fragility that many Americans are dealing with: the prices of goods and services are still high and the cost of borrowing money is getting more expensive as the Fed raises interest rates the most in decades, which comes as pandemic-era savings are being depleted.

Those challenges are leading many consumers to turn to alternative ways to access needed capital, especially consumers that historically have been underserved by the traditional banking system.

Helping this underserved consumer segment was the impetus of SoLo Funds, which ranked No. 50 on the 2023 CNBC Disruptor 50 list. The fintech firm acts as a peer-to-peer lending platform, letting would-be borrowers create a loan request and the terms, and put it on a marketplace where other individuals can fund those loans directly.

More coverage of the 2023 CNBC Disruptor 50

“Getting access to capital is incredibly important, particularly in this macro environment,” SoLo Funds co-founder and CEO Travis Holoway told CNBC’s Frank Holland on “Worldwide Exchange” on Wednesday. “More people, with inflation and just the overall cost of living increases, aren’t able to afford financial shocks, and they’re looking for access to more equitable small-dollar loans.”

As credit and loan conditions continue to tighten, Holoway said that SoLo Funds is seeing more people come to its platform who may not have otherwise needed access to these sorts of services, which it also saw in the early periods of the pandemic.

The company has issued over $200 million in loans and run $400 million in transaction volume. The majority, or 82%, of its members are from underserved zip codes.

“We’ve seen over the life of our company, like when we had the government shutdowns, individuals would be using our platform who would normally not be in the market for a small-dollar loan,” he said. “What we’re seeing now is more people who need access to this emergency gap-filling capital.”

The tough market conditions are also pushing new lenders to SoLo Funds, investors who Holoway said are “chasing that yield-generating opportunity,” which the P2P platform is providing “in a very decentralized way.”

[ad_2]

Source link

May 10, 2023
50. SoLo Funds

[ad_1]

Founders: Travis Holoway (CEO), Rodney Williams
Launched: 2015
Headquarters: Los Angeles
Funding: $24 million
Valuation: $150 million
Key technologies: Decentralized finance (DeFi)
Industry: Fintech
Previous appearances on Disruptor 50 List: 0

The banking system leaves out a lot of people — cutting them off from access to capital, whether it’s for a new car, a house, or to start a business. Travis Holoway and Rodney Williams saw the negative impact this had on their friends and family who needed access to short-term loans but had to go without. The experiences spurred them to start SoLo Funds, a community finance platform where members borrow and lend to make a return or a social impact.

“We remembered being kids when our parents had bills due on Friday but didn’t get paid until Monday, so the lights would be shut off when we didn’t pay on time. That kind of experience is sadly very common for many Americans, so we wanted to create a solution that gave people a chance,” Williams said in an August 2022 interview.

SoLo is among the fintech firms trying to make the financial system more equitable so that more people want to be a part of it. It works by acting as a peer-to-peer lending platform. Would-be borrowers create a loan request and are matched with an investor, who can be an individual. The two parties agree on repayment terms though SoLo puts some guidelines around this.

More coverage of the 2023 CNBC Disruptor 50

Since its founding in 2018, the company has gained more than a million users, issued $150 million in loans and run $280 million in transaction volume. The majority, or 82%, of its members are from underserved zip codes. At a time when the number of Black-owned banks has declined sharply, SoLo is looking to fill the void. The company says it is the largest Black-founded and led fintech or neobank.

The company’s mission has garnered support from prominent or celebrity investors such as Kesha Cash, the founder of Impact America, which is the largest fund run by a Black woman, and Serena Williams, who runs Serena Ventures.

But its growth has not come without controversy in the highly regulated industry of financial services. Critics and state regulators have come after SoLo for a model in which consumers were asked to pay tips for the loans they received. Most notably, Connecticut regulators issued a temporary cease and desist order last year, alleging that 100% of the loans to Connecticut residents originated on the platform from June 2018 to August 2021 required some form of a tip being paid — and that resulted in actual interest rates on loans pitched as 0% APR to range from 43% to over 4280% — and that it lacked proper licenses in the state.

SoLo co-founder Williams told American Banker, in response to questions about legal issues, that the company is “working through that process.”

It’s staffing up for the fight, too. In February, the company made several executive hires with experience in bank compliance and government regulation: Collin Schwartz, who worked for multiple global banks, as general counsel; Kyle George, who worked in the Nevada Attorney General and Governor’s offices, to head government & regulatory affairs; and Manny Alvarez, former official at buy now, pay later company Affirm, and former banking commissioner for the state of California.

At the time of those hires, Williams stated, “Too many policymakers don’t understand the challenges and opportunities faced by everyday Americans affected by their decisions, which is a major problem we are working to change.”

Sign up for our weekly, original newsletter that goes beyond the annual Disruptor 50 list, offering a closer look at list-making companies and their innovative founders.

[ad_2]

Source link

May 9, 2023
Landmark Management Group Completes CEO Succession

[ad_1]

Press Release
–

updated: Jul 30, 2020

PLANO, Texas, July 30, 2020 (Newswire.com)
–
Landmark Management Group, a provider of consumer finance solutions, has completed a CEO transition. Joel Mussat, a longtime executive in the consumer finance industry, has been appointed CEO of the Company.

“Landmark plays a vital role in ensuring access to the proper consumer finance solutions available today,” said Mussat. “I am humbled and honored to join the Company’s leadership team.” As CEO of Landmark, Mussat will be tasked with the management and growth of the family of brands within Landmark.

“Joel is a strategic leader and experienced C-level executive with expertise in driving growth in the consumer finance industry,” said Company spokesman Craig Rodgers. “This experience has positioned him well to help lead the company into its next phase of growth. His experience building consumer-friendly solutions and leading customer-centric teams will help propel us to future levels of continuous growth.”

Mussat joins after a lengthy career which includes 10 years in management consulting (Accenture and IBM/PwC Consulting), and 11 years as an executive at Plano, Texas-based Rent-A-Center, Inc. He holds a BA degree from the University of Michigan and an MBA from Cornell University, where he was a recipient of the Park Foundation Fellowship Award.

About Landmark Management Group

Landmark Management Group is a Plano, Texas-based management firm focusing on consumer finance-related services. Its portfolio of companies was recognized as a “Top 100 Places to Work” and placed fifth by The Dallas Morning News in the Dallas/Fort Worth Metroplex in 2017, and also won the “Best at Communicating” award in 2017. For inquiries, contact craig.rodgers@landmarktx.com.

Source: Landmark Management Group

[ad_2]

Source link

July 30, 2020