Spotlight on Financial Services

"If you're not on the compliance side, you don't understand what goes into this. For financial institutions, this is a big deal."


Michael E. Staten		Robert W. Johnson

JANUARY 2005

Opt-Out Requirements May Hurt
Credit Card Competition

A new report from the Federal Reserve Board supports the claims of many critics of the Fair and Accurate Credit Transaction Act (FACT Act) provision that elevates the prominence of opt-out disclosures on credit card solicitations. Spotlight readers may recall that the 2003 FACT Act required the Federal Trade Commission to craft a regulation that will require financial institutions to more clearly disclose to consumers their rights to block direct mail credit solicitations.

Positive Trend in Credit Performance Continues

Moody's Investors Service's monthly credit card loan performance metrics continued their streak of improvement in October. The delinquency rate, which portends the future direction for chargeoffs, fell to 4.47 percent of receivables compared to 5.16 percent in October of 2003.

Mortgage Delinquencies Decline

The Mortgage Bankers Association's (MBA) third quarter 2004 National Delinquency Survey reported an improvement in the seasonally adjusted overall delinquency rate for one-to-four-unit residential mortgage loans.

Consumer Confidence Rises

In December, the University of Michigan's Index of Consumer Sentiment reached its highest level since the beginning of 2004. Not only did consumers report a more favorable assessment of current economic conditions, their outlook was also positive.

Bankruptcies End the Year Down 4%

The total number of personal bankruptcy petitions filed during 2004 was 3.9% lower than for 2003.

Citigroup to Issue American Express Cards

On the heels of a key Supreme Court ruling, a second major Visa and Mastercard member has agreed to issue American Express cards. Last fall the U.S. Supreme Court affirmed a lower court ruling that prevented Visa and MasterCard from prohibiting their members from issuing cards from competing networks such as Discover and American Express.

MBNA to Expand Its Home Equity Loan Business

MBNA has signaled analysts that it will ramp up its home equity business, either by originating more home equity loans or by acquiring a home equity loan portfolio.

More Banks Compete with Payday Lenders

Banks in many cities recognize an underserved market for small loans. Most banks have been reluctant to offer single loans as small as $200-$300 because such loans can cost as much to originate as a $3,000 loan and don't generate much finance charge income.... However a number of banks are attempting to compete directly for small consumer loans.

FACT Act Costs Passed on to Lenders

On December 1, 2004 the major U.S. credit bureaus began providing free annual credit reports to residents of the western states, as mandated by the Fair and Accurate Credit Transaction Act (FACT Act) passed in late 2003. Regulators agreed to allow the bureaus to roll out the new service in phases through the remainder of 2005, beginning with the west coast, in order to reduce "peak-load" problems associated with the anticipated flood of requests.

Noncash Payments No Longer Led by Checks

The 2004 Federal Reserve Payments Study reveals that check payments were used less frequently than electronic payments in the U.S. for the first time in 2003. This latest study is a follow up to the Fed's 2001 Retail Payments Research Project and identifies trends in U.S. noncash payments from 2000 to 2003.

Opt-Out Requirements May Hurt Credit Card Competition

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