Category Archives: federal reserve

Consumer Financial Protection Bureau to Supervise Payday Lenders

Posted on February 21, 2012 by admin

On January 5, the Consumer Financial Protection Bureau (CFPB) opened a new initiative, the nonbank supervision program, which is designed to ensure that nonbank financial institutions comply with consumer financial regulations.  As with the Bureau’s bank supervision program, the nonbank program enforces federal laws and examines potential risks to consumers from financial businesses. A nonbank institution is a company that provides financial products, but is not a chartered thrift, bank, or credit union.  Examples of nonbanks include mortgage lenders and servicers, payday lenders, loan modification and mortgage relief services, private education lenders, and money services companies.  The nonbank supervision program is authorized to supervise small businesses as well as large corporations. The thousands of nonbanks in the country make up a major segment of the financial marketplace.   Approximately 20 million Americans use payday loan services while about 200 million rely on credit reporting agencies to give credit scores.  Fourteen percent of Americans have one or more debts that are subject to debt collections agencies and nonbank lenders offered 2 million new mortgages in 2010. During an investigation the agency will examine a business’s compliance with federal law through interviews with employees and observing the business’s operations.  They will also examine the nonbank entity’s internal processes for detecting and preventing violations of federal law.  Businesses that are found to be in violation of the laws will be subject to corrective actions, including requiring that the company strengthen its processes to prevent violations. When applicable, the agency will enforce laws through appropriate legal actions. The CFPB has pulled examiners from various agencies, including the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the Office of the Comptroller of the Currency, state banking regulatory agencies, and industry.  The CFPB examiners will operate from field offices in San Francisco, New York, Chicago, and Washington, D.C. and will work to understand the business practices in different regional markets. The CFPB was formed in response to the 2007 financial crisis and was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The CFPB brings together most federal consumer financial protection authority under one roof. Its focus is on protecting Americans in the market for consumer financial products and services.  Among other responsibilities, the agency supervises providers of consumer financial products that had previously escaped federal oversight.  One of its first initiatives was to redesign credit card statements to make them easier for the average consumer to read and understand.  It is designed to protect Americans from deceptive, unfair, and abusive financial practices. Continue reading →

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Fed Sees US Economy Treading Water

Posted on February 16, 2012 by admin

Recently the Federal Open Market Committee (FOMC) released the minutes from the January 24 th and 25 th meeting.  The bottom line is things are not looking up, nor are they looking down.  The board was split about the overall direction of the US economy, and on what should be done in the short-term in order to influence positive direction in the long-term. The main focus of the latest meeting was a debate on the direction of the economy.  The members were split on the pace of the economic recovery and what should be done to hasten it.  The board agreed that GDP growth will accelerate through 2013, but at the same time unemployment will remain high.  It is no surprise that the announcement also confirmed that the Federal Reserve Rate will remain low through late 2014.  This news has been announced in the past, and comes as no shock to investors.  The FOMC did make as firm of a projection on inflation as they could, targeting 2% inflation in the medium-term.  They feel this number will allow for the most economic growth, while stimulating employers to continue to hire. The housing market is still in turmoil ( falling home prices , record low new home sales , and declining mortgage applications are just a few of the factors in the turmoil) and is providing no clear picture on when it will really start to pick back up.  Combine that with troubles with the European economy, and the FOMC is rightfully skeptical about a quick paced recovery for the US economy.  There was even some debate about a QE3 ( Quantitative Easing 2 was in late 2010), but there was really no substance behind it, nor any reason that another round would do any good to the economy. After the release of the latest minutes, the stock market took a tumble.  The saying “No News is Good News” certainly does not apply to the US economy.  When individuals and companies are putting their money on the line, they want a good clear picture that things are looking up.  When a lack of confidence is displayed by what is supposed to be a committee of the most intelligent economists around, investors pull their money.  Until there is a clear path defined, and a good projection set forth by the FOMC, we can expect a slow, bumpy recovery. Made up of 12 members of the Federal Reserve System, the FOMC meets 8 times per year, or about every six weeks.  Three weeks after each meeting, the minutes are released.  Four times per year the minutes are accompanied by a press release describing the most important aspects of the meeting and discussing the current economic projection (all documents can be viewed here ).  During their meetings they discuss where the economy has been, where it is going, and what needs to be done to keep it on track.  This can mean a multitude of different actions and desired results, but the most anticipated from each meeting is whether or not the Federal Reserve rate will be changed, and how many, if any, treasuries will be bought up. Continue reading →

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Federal Reserve to Keep Low Interest Rates Until 2014

Posted on January 27, 2012 by admin

After the conclusion of its Federal Open Market Committee (FOMC) meeting on January 25 , the Feds announced it would maintain record–low interest rates well into 2014.  Many analysts interpret the announcement as a sign that the FOMC do not expect the economy to grow much faster between now and the end of 2014. According to the Federal Open Market Committee, despite a sluggish global economy, the U.S. economy has expanded at a moderate pace. Consumer spending accounts for most of the growth. In fact, businesses have actually curtailed spending on fixed investments, which consist of physical assets like building, land, machinery, vehicles, and technology. In addition, despite a series of positive news regarding housing indicators, the sector continues to weigh down the U.S. economy. The Feds forecast an economic growth rate of 2.2% to 2.7%, for this year. Although Committee members expressed hopefulness about the state of unemployment in the nation, as the rate declined from 8.5% in November to 8.2% for December, slow economic growth will cap job growth. On the inflation front, the Feds believes inflation will remain at or below its objective of two percent going into future quarters. The Federal Reserve Act of 1913 Over 100 years ago, the U.S. Congress passed The Federal Reserve Act of 1913. This controversial piece of legislation gave the Federal Reserve System, often called the “Feds,” the power set the nation’s monetary policy. The Act establishes a Federal Reserve System, which consists of 12 Federal Reserve District Banks — Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago St. Louis, Minneapolis, Kansas City, Dallas and San Francisco. Each Federal Reserve District Bank has a board made up of nine directors. The Bank directors have responsibility for supervising its’ activities, which include the selection of a president. The president functions as chief executive officer and serves a five-year term. The Federal Reserve System’s Board of Governors must approve the Bank’s choice of CEO. Federal Reserve District Banks supervise depository institutions in its region. They provide a variety of services to those institutions as well as the public. They also help determine monetary policy by monitoring and reporting on economic developments in their region of the country. Board of Governors, FOMC and Monetary Policy The seven members of the Board of Governors serve on the 12-member Federal Open Market Committee (FOMC), which has, which has the primary responsibility for developing the country’s monetary policies. The other members of the FOMC are the president of the Federal Reserve Bank of New York and four presidents selected from a grouping of three Federal Reserve Banks, who serve one-year terms on a rotating basis. The FOMC determines monetary policy, which denotes certain actions taken by the Feds. These actions affect the availability of money, credit and interest rates as it relates to supporting the economic goals of the country. Continue reading →

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Fed Beige Book – Consumer Spending Up While Real Estate Sector Remains Depressed

Posted on January 13, 2012 by admin

The first Fed Beige Book release of the year indicates that the economy is looking good, but not great.  The reports from the most recent Beige Book show that the overall economy is recovering at a modest to moderate pace.  Many of the districts are showing a good sign of recovery, while only one indicates that things are flattened or slightly improved. Consumer spending has picked up.  Compared to last year, the holiday season brought about an increase in consumer spending.  Much of the spending was directed toward luxury goods, such as jewelry and electronics, and automobiles.  Large ticket items like these will help to drive the economy and keep the money moving since many are financed. Financial sectors show that the mortgage loans for both residential and commercial remain depressed.  They continue to move in an overall upward direction, but they are sluggish.  As seen in the recent release by the MBA , the real estate sector is taking quite a while to turn around and return to the robust levels previously seen. Manufacturing continues to increase in most areas with the exception of technology.  A boost in the demand for heavy equipment (due to an increase in the agricultural and energy sectors) spurred a growth in this subsector of manufacturing.  Overall, manufacturing is seeing an excellent turnaround, in some cases reversing a slowdown in prior periods. The Beige Book reports are designed to give Federal Reserve, and investors, a look at what the economy has done in the past 6 weeks.  From this point the Fed will decide how they want to act with the money supply.  If the Beige Book shows an overheating economy or a rise in inflation, then the Fed may choose to raise interest rates.  The latest release from the Beige Book is showing that there is slow, yet steady growth in the economy. The Beige Book is a summary of how the economy is doing in the major districts around the country.  It is released eight times per year, each time two weeks ahead of the next Federal Reserve meeting.  The snapshots include sectors such as real estate, consumer spending, manufacturing, and several others.  It is considered by many to be the most important economic indicator and can have a profound effect on the market. As the most important economic indicator, the Beige Book carries a lot of weight with investors.  Using the information provided, they can accurately determine what the next course of action will be from the Fed.  However, if their prediction is wrong, speculation in the market can go wild and have far reaching effects.  A good report from the Beige Book will help give a psychological boost to many, which in turn will help to further increase growth in the economy. Continue reading →

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