Losses at Hertz Global Holdings Inc. are piling up and Avis Budget Group Inc. just dialed back its profit forecast, prompting analysts to question if the U.S. car-rental business can thrive in the era of Uber Technologies Inc., Lyft Inc. and, one day, autonomous vehicles, Bloomberg News reported yesterday. In recent years, Hertz bought more cars than it needs, and it’s been struggling to unload them at decent prices. Perhaps more troubling, however, is that car-rental companies face the kind of threat that felled Blockbuster, which was undone by new technology in the form of digital video and Netflix Inc. There will always be a market for rental cars, but for a growing number of business customers, and even some casual consumers, they seem like a throwback. To be sure, the industry’s tough times may have more to do with mismanagement than Uber, Lyft or new mobility companies delivering a glancing blow. Hertz in particular built up a bloated fleet of too many cars to rent. To keep those vehicles generating revenue, the company had to drop rental rates. The companies have had to slim down their fleets at the worst possible time. Millions of vehicles are coming back off leases from when the U.S. auto industry was on its years-long growth spurt.
U.S. consumer credit card debt just passed an ominous milestone, beating a record set just before the global financial system almost collapsed in 2008, Bloomberg News reported. Outstanding card loans reached $1.02 trillion in June, data from the Federal Reserve show, as lenders including Citigroup Inc. and JPMorgan Chase & Co. compete to sign up cardholders who may carry balances — a relatively lucrative business in a prolonged period of low interest rates. Investors have been skittish over the potential for defaults to rise ever since card balances eclipsed $1 trillion in February. Credit card issuers Capital One Financial Corp., Synchrony Financial and Discover Financial Services said write-off rates ticked up in the second quarter from the previous three months.
U.S. Justice Department lawyer Kent Kawakami was once the Consumer Financial Protection Bureau’s point man on the ground in Los Angeles, the National Law Journal reported today. An assistant U.S. attorney in the Central District of California, Kawakami would vouch for CFPB attorneys looking to jump into the federal courts there. Ever since the bureau’s first lawsuit in Los Angeles in 2012 — accusing a law firm of scamming struggling homeowners — his name has been a fixture on the roster of attorneys assigned to CFPB enforcement cases in the region. However, Kawakami withdrew from each of the four open CFPB enforcement cases between June and July in which he was designated as the local counsel. When the bureau recently brought a case to force a law firm to comply with a subpoena, it did so without Kawakami. Instead, an attorney in the CFPB’s San Francisco office helped a Washington-based colleague make an appearance. Kawakami is not the only assistant U.S. attorney who’s dropped off a CFPB case recently. In June, Mitzi Dease Paige, a prosecutor with the U.S. Attorney’s Office for the Southern District of Mississippi, withdrew from the CFPB’s case against All American Check Cashing Inc. The move away from CFPB cases comes months after the Justice Department, under U.S. Attorney General Jeff Sessions, said that it would no longer defend the lawfulness of the CFPB’s independent, single-director design. That issue is under review in a Washington appeals court, where Main Justice took a position against the CFPB — an Obama-era agency long assailed by Republican leaders in Congress and attacked by companies in court.
The Federal Reserve moved yesterday to lighten the regulatory load it places on bank boards of directors, saying that it wants directors to refocus on their core responsibilities of overseeing risks, the Washington Examiner reported. The central bank announced that it was soliciting feedback on proposals to eliminate or scale back some of the responsibilities it places on directors, ranging from oversight of energy loans to securitization. After reviewing its oversight of banks, the Fed said in its request for comments, it learned that its expectations "for boards of directors and senior management have become increasingly difficult to distinguish."
Acting Comptroller of the Currency Keith A. Noreika has taken another swipe at a fellow financial regulator.
Noreika chastised the Federal Deposit Insurance Corporation for what he perceived as inaction on granting deposit insurance for new banks seeking to set up shop. The OCC approves bank charters, but new banks also must obtain deposit insurance from the FDIC. “We, ourselves, since 2001 have chartered 14 institutions, and the FDIC hasn’t acted on a single—any of those 14 applications,” Noreika said in a podcast posted Aug. 4 by the Commodity Futures Trading Commission. “They just let it hang out there forever, so that the organizers wasted all their money trying to get insurance, and then they gave up.” Lawmakers and regulators, particularly Republicans, have pointed to this lack of new bank formation as a reason to deregulate. Requiring new banks to apply to separate agencies is “a significant barrier to entry into the banking business,” Noreika said in prior remarks. “The FDIC’s role in reviewing and approving applications for deposit insurance—and closely monitoring the condition of new banks as they become established—has been an important safeguard of the safety and soundness of our banking system for more than 25 years,” Hagenbaugh said.
A regulator responsible for the safety of banks has a message to senators: Don't listen to bankers telling you that they need lower capital requirements to increase lending, the Washington Examiner reported today. Despite the push from the industry to lower the standards that were ramped up in the wake of the 2008 financial crisis, big banks actually have too little capital, according to Thomas Hoenig, the vice chairman of the Federal Deposit Insurance Corporation. In a letter sent on Monday to Senate Banking Committee Chairman Mike Crapo (R-Idaho), Hoenig argued that if banks want to increase lending, they could do so without lower capital requirements, by retaining earnings rather than paying dividends to shareholders. The 10 biggest banks could boost lending by $1 trillion annually simply by holding onto more earnings, he said. "I can only caution against relaxing current capital requirements and allowing the largest banks to increase their already highly leveraged positions," Hoenig told Crapo and his Democratic counterpart on the committee, Sen. Sherrod Brown of Ohio in the previously unreported letter. "The real economy has little to gain, and much to lose, by doing so."
Ocwen Financial could soon get a big boost in its fight against the Consumer Financial Protection Bureau from a once-unlikely source – the Department of Justice. In defending itself against the CFPB’s claims that Ocwen illegally foreclosed on borrowers, ignored customer complaints, mishandled borrowers’ money, and failed at the most basic of mortgage servicing actions. Ocwen asked a federal judge to declare the CFPB unconstitutional and toss out the CFPB’s lawsuit against the company. The issue raised by Ocwen is the whether the structure of the CFPB is unconstitutional, which is also currently in question in a legal battle between the CFPB and PHH. Both PHH and Ocwen have argued that the CFPB is unconstitutionally structured because the bureau’s director has too much power and that the bureau operates without supervision or oversight. It should be noted that the judge’s ruling simply allows the DOJ to contribute to the case if it chooses to. There’s no guarantee that the DOJ will elect to join the case, but given the agency’s previous declaration that the CFPB is unconstitutionally structured, it is likely that the DOJ will contribute to the Ocwen case and make a similar declaration about the CFPB.
The last financial crisis cleared out an alphabet soup of complex credit products. One type, however, has returned in droves in recent years, although popularity is now threatening their viability, the Wall Street Journal reported on Tuesday. This product is collateralized loan obligations (CLOs), which buy portfolios of risky, leveraged loans often used by private-equity firms in buyouts. In the U.S., new CLO volumes have outstripped pre-crisis totals since 2014, while Europe is catching up to its previous levels fast. But returns from the loans they buy are getting squeezed as money from retail and institutional investors rushes in alongside CLOs to snap up loans. That could bring CLOs to a painful halt again. The biggest CLO managers, such as Blackstone’s GSO Capital Partners, Carlyle Group, Investcorp and Alcentra, run billions of dollars’ worth of deals. Such vehicles own more than 60 percent of the more than $900 billion in outstanding U.S. leveraged loans, according to S&P Global LCD.
On the day the Senate moved on long-promised health-care legislation, President Donald Trump signaled his next priority: overhauling the tax code to push corporate rates down and give middle-class taxpayers a break, even if it means some of the wealthiest pay more, The Wall Street Journal reported yesterday. “The people I care most about are the middle-income people in this country, who have gotten screwed,” President Trump said, reiterating that he wants to bring down the corporate tax rate to 15 percent. “And if there’s upward revision it’s going to be on high-income people.” Sitting behind his desk in the Oval Office, President Trump hopscotched across a variety of policy and personnel topics over the course of the 45-minute interview. The president said his front-runners to be the next chairman of the Federal Reserve board of governors early next year would be the incumbent, Janet Yellen, and Gary Cohn, director of the National Economic Council. Turning to taxes, he echoed some of the populist themes from his presidential campaign. He described twin imperatives in overhauling the tax structure: boosting economic growth and easing the tax burden on middle-class families. “I have wealthy friends that say to me, ‘I don’t mind paying more tax,’” the president said. He added that “we have to take care of middle-income people in this country. They built the country. They started this whole beautiful thing that we have. And we have to take care of them. And people have not taken care of them, and we’re going to.” President Trump’s aides are working with top Republican lawmakers on a proposal that would bring about the first major rewrite of the tax code in 30 years. President Trump and White House officials have been vague on significant middle-class provisions, such as the personal exemption, while promising specific benefits for high-income households such as the repeal of the estate tax and alternative minimum tax.
Targeting government regulations, the Republican-led House on voted to nullify a rule that would let consumers join together to sue their banks or credit card companies rather than use an arbitrator to resolve a dispute, The Associated Press reported yesterday. The repeal resolution passed by a vote of 231-190. The Consumer Financial Protection Bureau finalized the rule just two weeks ago. It bans most type of mandatory arbitration clauses, which are often found in the fine print of contracts governing the terms of millions of credit card and checking accounts. Republican lawmakers, cheered on by the banking sector and other leading business groups, wasted no time seeking to undo the rule before it goes into effect next year. They'll succeed if they can get a simple majority of both chambers of Congress to approve the legislation and President Donald Trump to sign it. The numbers are likely on their side, just as they were earlier this year when Republicans led efforts to upend 14 Obama-era rules. GOP lawmakers described the rule as a bad deal for consumers but a big win for trial lawyers. They said the average payout for participants in a class-action lawsuit was just $32 in the financial disputes the consumer bureau studied. "How is that pro-consumer?" asked Rep. Keith Rothfus (R-Pa.). Meanwhile, Rothfus said the average payout for the attorneys in the class-action cases amounted to nearly $1 million. Democratic lawmakers fought to keep the rule. They said they're not opposed to arbitration. It just shouldn't be the only option consumers have.