Trends in Consumer Finance

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Trends in Consumer Finance

• Jeanne M. Hogarth
• Federal Reserve Board
• The analysis and conclusions set forth in this
  presentation represent the work of the authors
  and do not indicate concurrence of the Federal
  Reserve Board, the Federal Reserve Banks, or
  their staff. Mention or display of a trademark,
  proprietary product, or firm in the presentation
  by the authors does not constitute an endorsement
  or criticism by the Federal Reserve System and
  does not imply approval to the exclusion of other
  suitable products or firms.

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Where are we now?

• Credit card debt
• Foreclosures
• Bankruptcy
• Savings rates

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And at the macro level. . .

• The financial futures of the American people are
  shaped by the fiscal choices made in Washington.
• .demographic trends, rising health care costs,
  and other factors lead to mounting deficits
• .threaten our economic and national security
• . adverse affects on quality of life and
  opportunities
• .impacts planning for financial future
• .cannot assume current federal entitlement
  programs will continue indefinitely in their
  present form.
• Government Accountability Office, 2005

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How did we get here?

• Increased complexity of products
• Mortgages credit cards
• Insurance annuities
• Non-traditional providers
• Non-traditional channels
• Increased personal responsibility
• Retirement savings

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Where are we going?

• Credit products services
• Mortgages
• Credit cards
• Transaction accounts
• New products services
• Financial data

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Mortgage trends

• Non-traditional mortgages
• Hybrid ARMs
• Interest-only payments
• Payment-option
• Sub-prime
• Higher risk ? higher rate, higher fees

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Problems in the news

• Rate adjustments
• Pre-payment penalties
• Escrow for taxes insurance
• Documentation of income assets
• Underwriting standards
• Income/ability to pay vs asset-based lending

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Foreclosure rates
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Mortgage comparison
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Shopping for a mortgage(5/1 interest-only)
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Shopping for a mortgage(5/1 interest-only)
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Shopping for a mortgage(5/1 interest-only)
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Shopping for a mortgage(5/1 interest-only)
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Shopping for a mortgage(5/1 interest-only)
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Credit card trends

• Risk-based pricing
• Multiple rates
• Rate adjustments
• Penalty rates
• Universal default
• Fees
• Balance calculation methods
• How payments are applied

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Minimum payments how long will it take you to
pay off?

• What interest rate?
• Purchases?
• Cash advances balance transfers?
• Penalty rates?
• Variable rate?
• What about additional charges, including fees?
• How are payments applied?

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Transaction account trends

• Changes over time in payment methods
• Electronic check conversion
• Debits debit cards
• Electronic banking
• Automatic bill paying
• Online banking
• Account management
• Overdraft coverage
• Debit holds

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Trends in other financial products services

• Prepaid cards
• Payroll cards
• Data transfer technologies
• Strips, chips, and RF devices
• Mobile banking
• Delivery channels for financial services

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E-Money (prepaid cards)

• Expiration dates and fees
• Sometimes, lost is lost
• Cards issued by non-banks
• Limited purpose
• Multi-purpose
• One-time vs reloadable

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Data transfer technologies

• Magnetic strip
• Electronic chip
• RF devices (EZ Pass, Speedpass)
• Mobile/cell phone payments

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Alternative delivery channels for financial
services

• Branch growth grocery stores
• Check cashers, money stores
• Other AFS providers
• Payday lenders
• Rent to own
• Pawn
• Tax preparers

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Data breaches, 2005-07(thousands)
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Credit report data

• Use of credit scores beyond credit
• Accuracy of data
• Annualcreditreport.com

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Trends on the horizon

• Reverse mortgages
• Annuities for 401k and IRA funds

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