The American Bankers Association (ABA) reported yesterday that installment loan and bank card delinquencies rose in six of the 11 categories in the third quarter of 2018, Financial Regulation News reported. ABA's Consumer Credit Delinquency Bulletin found that the delinquency composite ratio, which tracks delinquencies in eight closed-end installment loan categories, rose 11 basis points to 1.87 percent of all accounts. Looking at the specific categories, delinquencies in bank cards increased 12 basis points to 3.05 percent of all accounts. “Bank card delinquencies remain low by historical standards, which is a direct result of consumers continuing to do a good job of managing their cards by keeping balances low relative to their income,” said James Chessen, ABA chief economist.
AI Helps Auto-Loan Company Handle Industry’s Trickiest Turn
Wrestling with how to boost business while maintaining underwriting standards, subprime auto lender Prestige Financial Services Inc. last year partnered with artificial-intelligence software developer ZestFinance Inc. and started drilling down into some 2,700 borrower characteristics instead of the couple of dozen that the lender typically had on its risk-assessment scorecard, according to a Wall Street Journal analysis. Prestige is among a growing number of lenders, including Synchrony Financial and Ford Motor Credit Co., that have looked into the future and believe it could include artificial intelligence as a tool to take increasing amounts of data and find relationships between variables to help determine creditworthiness. Instead of looking simply at whether a potential borrower has ever filed for bankruptcy, for example, the machine-learning system helped Prestige consider such factors as when the bankruptcy happened, and analyze that data with other variables, including previous car-payment records and time spent living in his or her current residence. The timing of a bankruptcy is important because individuals are restricted from repeatedly trying to wipe out their debts. So someone fresh out of bankruptcy for the first time might be a better credit risk than someone who filed, say, six years ago, said Douglas Merrill, ZestFinance CEO and founder. (Subscription required.)
U.S. Relies on Old Rules to Police Cryptoassets
Despite calls for international unity on financial regulations following the 2008 financial crisis, the U.S. is unlikely to follow Europe in exploring a unique regulatory regime for “cryptoassets,” whether for payment models like Bitcoin or utility tokens that have been touted by celebrities as can’t-miss investments, Roll Call reported. The U.S. approach, which has been reaffirmed several times by regulators, is to apply standard rules and tests dating back to the 1930s to fintech, or financial technology, products when determining whether agencies have authority over them. Cryptocurrencies such as Bitcoin and Ethereum are not securities, according to the Securities and Exchange Commission, and will not be subject to disclosure under federal securities law. But tokens and offerings that feature and market the potential for profit based on the entrepreneurial efforts of others contain the hallmarks of a security under U.S. law.
Don't miss the "New Technology in Bankruptcy: Artificial Intelligence, Cybersecurity, Blockchain and Virtual Currency" session at the 2019 Rocky Mountain Bankruptcy Conference on Jan. 24-25 in Salt Lake City, Utah. Click here to register.
Strong Economy Can’t Save Retailers from Holiday Blues
The strong U.S. economy wasn’t enough to boost all retailers during the key holiday season, with Macy’s Inc. and other mall-based stores continuing to lose customers to discounters and e-commerce, the Wall Street Journal reported. Shares of Macy’s Inc. were down almost 19 percent in morning trading today as the department store lowered its full-year guidance following weak December sales. Rival Kohl’s Corp. and mall stalwart Victoria’s Secret owner L Brands also posted tepid holiday sales, triggering a broad-based sell-off in retail stocks. “The holiday season began strong — particularly during Black Friday and the following Cyber Week, but weakened in the mid-December period,” said Macy’s Chief Executive Jeff Gennette. The negative sentiment even weighed on discounters like Target Corp. and Costco Wholesale Corp., which reported strong holiday sales. Those chains, which are less dependent on apparel, and Amazon.com Inc. have been taking market share from department stores. Target cited strong demand for toys and baby products along with seasonal gifts. “The rising tide of retail sales hasn’t floated all boats,” said Neil Saunders, managing director of research firm GlobalData. (Subscription required.)
Analysis: Income-Sharing Agreements Gain Attention of Higher Education and Wall Street
Silicon Valley is backing a novel idea that proposes to rewrite the economics of getting an education, according to a New York Times analysis. Instead of charging students tuition — which often requires them to take out thousands of dollars in loans — students go to school for free and are required to pay back a percentage of their income after graduation, but only if they get a job with a good salary. The idea, known as an Income Share Agreement (ISA), has been experimented with and talked about for years. But what’s happening at Lambda School, an online learning start-up founded in 2017 with the backing of Y Combinator, has captivated venture capitalists. On Tuesday, Lambda will receive $30 million in funding led by one of Peter Thiel’s disciples, Geoff Lewis, the founder of Bedrock, along with additional funds from Google Ventures; GGV Capital; Vy Capital; Y Combinator; and actor-investor Ashton Kutcher, among others. The new funding round values the school at $150 million. The investments will be used to turn Lambda, which has focused on subjects like coding and data science, into a multidisciplinary school offering half-year programs in professions where there is significant hiring demand, like nursing and cybersecurity. It’s an expansion that could be a precursor to Lambda becoming a full-scale university. Lambda is being closely watched by educators, the student debt complex and even Wall Street. Purdue University has developed a version of an Income Share Agreement. And Tony James, executive vice chairman of Blackstone Group, has started the Education Finance Institute and hired James Runcie, former chief operating officer of the Office of Federal Student Aid, to help universities and education systems develop ISA programs.
Next Thursday: Former White House Counsel Don McGahn and Former Governor Howard Dean to Speak at ABI’s Health Care Industry Distress Program
Issues to be discussed at the “Disruption, Consolidation and Innovation in the Health Care Industry” Program on January 17 at Georgetown University Law Center include the delivery of health care, private equity’s takeover of the industry, the rationing of health care services and reimbursements, and more. Former White House Counsel Donald F. McGahn II will kick off the symposium with his take on health care deregulation in the current political environment, and he will address Judge Reed O'Connor's ruling this month holding the Affordable Care Act unconstitutional, and what that ruling might mean for the future of health care. Former DNC chairman, presidential candidate, six-term governor and physician Howard B. Dean, III of Dentons (Washington, D.C.) will provide a luncheon keynote with his perspectives on how to move health reform forward. Conference attendees will take away a detailed understanding of the key issues that will plague the industry in the coming years, enabling attendees to identify opportunities within the ever-changing health care industry. Click here to register.
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New on ABI’s Bankruptcy Blog Exchange: FHA Urges Servicers to Go Easy on Federal Workers During Shutdown
The Federal Housing Administration wants mortgage servicers to extend special forbearance plans to those affected by the partial government shutdown and evaluate borrowers for loss-mitigation options.
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