Bankers Mislead, Cajole Customers on Overdraft Fees as Opt-In Deadline Nears

/PRNewswire/ -- As the August 15th deadline nears for bank and credit union customers to opt in to high-cost overdraft programs, a new CRL analysis finds these firms market most aggressively and often misleadingly to their most vulnerable customers. Banks target these customers because they likely live on the edge financially and therefore are most likely to repeatedly overdraw accounts. To induce these customers to accept overdraft coverage, many marketing campaigns use scare tactics or incomplete information. For example, they fail to emphasize customers can have debit card transactions declined at no cost rather than incur a $34 overdraft fee. [For the full report, go to http://www.responsiblelending.org/overdraft-loans/research-analysis/banks-targ et-mislead-consumers-as-overdraft-deadline-nears.html.]

CRL's report includes:

-- Bank consultant pitches on pinpointing customers who will overdraft
most.
-- Evidence these customers are likely to be low-income, single,
nonwhite.
-- A cost comparison of overdraft programs.


Under new federal rules, banks must obtain explicit consent from existing customers by the 15th before enrolling them in a costly overdraft program for debit cards. Banks have had to obtain consent from new customers since July 1. These opt-in rules provide a first-line defense against high-cost overdraft fees, but the Federal Reserve Board and, eventually, the new Consumer Financial Protection Bureau must end all unfair overdraft practices, especially those that disproportionately hurt the most vulnerable.

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Statement: Alan Essig, Executive Director, on October Revenue Decline and Worsening State Budget Deficit

The dismal October revenue numbers released today underscore the depth of Georgia's fiscal crisis. For these first four months of the new fiscal year, revenues are down by 15.1 percent.

The governor's preliminary analysis of the FY 2010 revenue projection estimates a 6.2 percent revenue decline, a decrease from the nearly 4.0 percent revenue decline the governor announced in July.

Although there has been no public announcement, this analysis is contained within the Official Statement for the State of Georgia General Obligation Bond Sale dated October 26, 2009.

The revised projection means Georgia likely is facing a $1.26 billion budget shortfall. This is an additional $320 million budget shortfall on top of the $940 million budget shortfall previously announced.

In response to the projections, the governor's budget office has a contingency plan that requires state agencies to cut their budgets again, this time by $320 million dollars (an additional three percent). This comes on top of the five percent budget cuts announced in July ($800 million dollars of cuts), and the double-digit percentage cuts ($500 million) already implemented when the FY 2010 budget was passed last April.

Also problematic are more than $2 billion in non-recurring revenues in the base of the FY 2010 budget. Unless lawmakers take a more balanced approach to solving this fiscal crisis, an approach that includes revenue options, Georgia will be facing further cuts to vital public services in FY 2011 and 2012, including those to healthcare, public safety, and education.

It is time for Governor Perdue and the General Assembly to bring a balanced approach and transparency to this fiscal crisis. The General Assembly should hold public hearings and learn about the state's revenue outlook from leading economists in the state.

The General Assembly also should hear from state agency staff and citizens about the impact of the budget cuts already in place and the potential impact of planned cuts.

In order for Georgia to prosper, lawmakers must not rely soley on cuts to public services. Georgia can not cut its way to prosperity. The governor and General Assembly must look to raise revenues, as a majority of states have done, including a majority of our conservative southern neighbors. They must take a balanced, informed, and thoughtful approach to solve the state fiscal crisis, and this must include strategic revenue options.

Alan Essig
The Georgia Budget & Policy Institute

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Subprime Mortgages Didn't Necessarily Lead to More Homeowners: St. Louis Fed Analysis

/PRNewswire/ -- Proponents of subprime mortgages argued that this type of financing could encourage homeownership for people who otherwise couldn't afford to buy a house, but a recent analysis from the Federal Reserve Bank of St. Louis suggests that the number of subprime mortgage loans terminated between 2001 and 2006 outweighed the number of estimated first-time homebuyers who sought subprime mortgages.

The analysis appears in the March/April issue of Review, the St. Louis Fed's bi-monthly journal of economic and business issues, and was conducted by Yuliya S. Demyanyk, a senior research economist with the Federal Reserve Bank of Cleveland. The data analysis for this article was conducted when she was an economist in the Banking Supervision and Regulation Division of the Federal Reserve Bank of St. Louis.

Demyanyk focused on whether borrowers intended to keep their subprime mortgages long enough to substantiate an increase in homeownership or planned a quick exit strategy at origination, using subprime loans as bridge financing to speculate on house prices -- in other words, quickly sell the house for profit after its value increased.

Her research showed that loans originated between 2001 and 2006 generally lasted less than three years. In fact, almost half the loans exited the market either through pre-payment or default within the first two years of origination and about 80 percent did so within three years of origination.

Demyanyk said her results are consistent with an earlier study that showed the unusually high default rates among loans originated in immediate pre-crisis years (2006 and 2007) did not occur only months from origination because those subprime mortgages were much worse than all loans that originated earlier. The quality of loans was deteriorating for at least six consecutive years before the crisis occurred.

"Subprime mortgages were very risky all along," she said. "The extent of their risk, however, was hidden by the rapid appreciation in house prices, allowing termination of the mortgage by refinancing or pre-payment. When pre-payment became costly -- with zero or negative equity in the house increasing the closing costs of refinancing -- defaults took their place."

The number of defaults in the limited sample of subprime purchase-money mortgages within two years of origination is almost equal to the number of first-time homebuyers who took a subprime mortgage. "If the data for the rest of the market were available," said Demyanyk, "the number of defaults would no doubt be even greater."

Demyanyk's paper is available online at the St. Louis Fed's web site: http://research.stlouisfed.org/publications/review.

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Almost 30% of Long-Term Care is Financed Out-of-Pocket, Report Finds

/PRNewswire/ -- A new analysis by Avalere Health found that nearly 30% of long-term care costs are paid out-of-pocket -- a full 10% higher than amounts reported in widely used previous estimates. These previous analyses do not include spending on assisted living, a key component of long-term care.

This analysis, which was funded by the California-based SCAN Foundation, found that individuals and their families contributed an estimated $64 billion of their own funds out-of-pocket towards long-term care services in 2006. In addition, families and communities played a central role in the nation's long-term care system by providing unpaid care valued at $350 billion. Private health and long-term care insurance played a much smaller role, contributing a little over $16 billion.

To finance these contributions, most seniors and their families rely on home equity, income from adult children, or retirement savings. All of these asset classes have lost considerable value over the past year, resulting in diminishing funding capacity in the face of a rapidly growing long-term care population. Avalere noted that the long-term care need among individuals 85 and older is nearly four times as high (36 percent) as the need in the age 65 to 84 population (10 percent). The proportion of those over age 85 is expected to be nearly one-fifth of the elderly population by 2050.

"As we enter serious health reform discussions, we must recognize the extent to which the system is held together by private financing and family contributions," said Anne Tumlinson, lead researcher of the analysis. "Reform efforts will need to take a comprehensive look at how care is currently financed and incorporate creative ways to support the growing needs of senior care."

"Long-Term Care --- an Essential Element of Healthcare Reform," was authored by Anne Tumlinson and Christine Aguiar, both of Avalere Health. The SCAN Foundation provided funding for the research. Avalere maintained editorial control and the conclusions expressed in its research are solely those of the authors.

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Polk Predicts the Impact of U.S. Government Incentives on Automotive Sales

/PRNewswire/ -- Based on detailed analysis and evaluation of the current economic stimulus package expected to be voted on today in Washington, Polk analysts predict the current proposed government incentive will increase U.S. light vehicle sales by 94,000 units in 2009, providing consumers with an average rebate of $330 for each new vehicle purchased.

Throughout the negotiations between the House and the Senate over the economic stimulus plan, Senator Barbara Mikulski (D-MD) spearheaded a provision to help revive the sagging automotive market. Under the current proposal, consumers who buy a new vehicle will be able to deduct the sales tax from their income taxes.

Polk analyzed vehicle prices, sales tax rates, registrations by state, and income tax brackets to develop its rebate forecast. The sales projection forecast is based on measuring the efficiency of past incentive programs across the automotive industry, together with current economic conditions including limited credit availability, low consumer confidence and a rising unemployment rate.

A previous proposal also included a deduction for interest expenses on new vehicle financing. Under that plan, Polk estimates the average rebate would have been $1,250 per vehicle, and would have provided a sales boost of 359,000 units in the U.S.

"Although the current tax incentive is not as generous as the initial one, it is nevertheless an encouraging measure. This incentive program could be even more successful if coupled with additional steps to boost consumer confidence that would drive more showroom traffic for dealers," said Lionel Yron, director of Consulting & Analytics at Polk.

"For example, Hyundai just launched a special program where U.S. consumers can return their newly purchased vehicle if they lose their income within a year. As a result, Hyundai's sales are up 14% in January while overall, the industry is down 37% compared to January 2008," explains Yron. "The magnitude of this gap hints at how much market uncertainties weigh on consumer spending."

Another interesting point of comparison is to look at the steps taken by Western European governments to spur automotive demand in their region. In Germany, consumers can receive a rebate of 2,500 Euros (equivalent to $3,200 USD) if they scrap their old vehicle when purchasing a new one. According to Polk estimates, this measure is expected to increase light vehicle sales by 200,000 units for 2009 and should push the German car market just above 3 million units.

"Because of the fixed rebate amount, small car buyers will benefit from a greater discount. As such, Polk expects to see robust sales gains in this segment. The scrappage bonus may very well ignite a sustained recovery for the German car market," commented Ulrich Winzen, chief analyst at Polk.

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