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While FOMC holds down rates, CU 'lending boom' will roll on

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MADISON, Wis. (6/19/14)--In addition to thinning out its bond-purchasing program by another $10 billion, the Federal Open Market Committee (FOMC) also announced Wednesday it will continue to hold the federal funds rate at near-zero levels.

Further, once the stimulus purchasing program sunsets later this year, the Federal Reserve's monetary policy-making body said it likely will continue to pin interest rates down until the economy strengthens.

For credit unions, the ongoing low-interest rate environment should boost their bottom lines, according to Steve Rick, Credit Union National Association (CUNA) senior economist.

The FOMC's "dot-plot indicates the target Fed funds interest rate is expected to be 1.25% by the end of 2015; 2.5% by the end of 2016; and 3.75% by the end of 2017," Rick told News Now, adding, "This will allow credit unions to roll over and re-price their assets at a similar pace to the re-pricing of their liabilities, limiting their interest rate exposure.

"CUNA expects interest rates in 2018 will 'normalize' at levels below previous plateaus due to lower real interest rates and lower expected inflation."

Rick added that the low interest rates expected for the remainder of this year will "keep the lending boom rolling along" for credit unions.

Credit union loan balances are rising at a seasonally adjusted 10% annual rate, Rick said, which is the fastest it's climbed since the summer of 2005.

Strong job creation, improved consumer balance sheets, rising consumer confidence, faster membership growth, competitive loan pricing and post-great-recession pent up demand for durable goods are a few of the factors driving the recent surge in credit union lending, CUNA's senior economist added.

"Credit union lending appears to be firing on all cylinders as some loan categories that were previously declining are now posting positive growth rates," Rick said. "For example, home-equity loan balances declined over the last three years due to households paying down debt, debtors rolling their home equity loan balance into their first mortgage refinance and the reduction of available home equity as home prices fell. 

"But now home equity loan balances are rising at a seasonally adjusted annual rate of 8%.  Faster loan growth will have a positive effect on credit union earnings this year as asset yields head up, improving net interest margins and ultimately the bottom line, net income."

News of the Competition (06/19/2014)

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  • JACKSON, Miss. (6/19/14)--Mississippi Attorney General Jim Hood has sued credit report publisher Experian Information Solutions, accusing the company of violating consumer protection laws (American Banker June 17). The top state prosecutor claims that Experian knowingly included faulty data in its reports, which illegally hindered the creditworthiness of millions of Americans. The complaint also alleges that the company provides no meaningful process for consumers to ask the company to revise erroneous information. Hood's office accused the company of systematically ruling in favor of the bank or debt collector that reported the debt and attempting to sell consumers products when they call to protest. It also alleges that the company mistakenly cited consumers' inclusion on a federal terrorism watch list. The litigation, initially filed in a state courthouse in Biloxi, Miss., was last week transferred to a federal court in the state, with  allegations pertaining to the Fair Credit Reporting Act. American Banker described the case as the first significant legal action by a state against a credit bureau in years and said that it could encourage other states and federal agencies to also sue Experian. The company has claimed that, to the best of its knowledge, it complies with data protection requirements, but warned its investors earlier this year that the Consumer Financial Protection Bureau and its counterpart in Britain could have an effect on the company's business model ...
  • WILMINGTON, Del. (6/19/14)--Subscriber's to Suze Orman's prepaid debit card, Approved, have been informed that it will no longer work as of July 1, according to a letter from her business partner, Bancorp Bank (New York Times June 17). The company has encouraged cardholders to spend the money on their cards before the end of the month. Orman, a celebrity financial adviser, introduced Approved in 2012. Users paid a $3 monthly fee in order to use it. She had previously stated that she was proud of the fact that TransUnion, a major credit bureau, had agreed to examine data from her cards, claiming it was unfair that those who borrowed money on credit cards were rewarded under the current credit-scoring system. According to one Approved customer who spoke to the New York Times, a Bancorp representative said that Orman would address cardholders after the venture is wound-up in July. American Banker reported June 17 that the card might have failed because the monthly fee might not have been enough to cover costs of operation. Another recent high profile prepaid card to have failed recently was the Karadashian Card, which was shut down after consumers complained that they were charged up to a year's worth of monthly fees up front. Another celebrity prepaid card, Russell Simmons' Rush Card, has actually succeeded in the long run, and is now expanding into payroll services ...