It goes without says that passage of the Consumer Financial Protection Agency Act  (CFPA) could make or break some firms.

I have said that passage would imperil that payday lenders like Cash America or Advance America. Well, that may no longer be the case.  Senator Hagan’s amendment to put a cap on the number of loans that any borrower can take in one year has not found support.  This could spell an opportunity.  The payday lenders are off about percent in the last months, but now they are inching back up.  I think that this was an all-or-nothing scenario. Hagan’s amendment is made law and the payday industry is suddenly unprofitable.  Payday lenders fly under the CFPA radar, and it goes the other way.

That said, I think that there are some less obvious situations where the implications of the CFPA could matter.  I’m not going to write about how derivatives regulation could hit the big banks.  Far wiser minds have said plenty.

I think that auto parts suppliers and retail tire producers could be big winners. Credit is already tight, particularly for the kinds of loans that are packaged into asset-backed securities.  Add to that, not many people have the dollars to buy a new car.  Granted, Ford is showing some strength, but that remains an exceptional case.  The larger story, with auto loans, is much like the situation with home purchases.  People don’t have the cash to make a down payment.

People can’t put off spending money on their cars, forever. That means that more and more people are going to be fixing up their old cars. That is where the retail auto parts stores play. Consumers are going to need new tires.  You can only go so long on outdated tires. In fact, in many states, you cannot pass the annual inspection if you don’t have a properly functioning vehicle. Blinkers need to be running. Emissions standards have to be met.

Not all tire manufacturers are the same, though. It is going to pay off to do some homework, instead of just buying the first name brand that comes to mind. Some companies get a lot of their business through the new car manufacturers.  Others, not so much.

The other big “if” out there is the crisis in the gulf.  I think that the reinsurance markets are going to feel the impact of this disaster.  Any company with a lot of contracts in the Gulf could lose a lot of money. But, it stands to reason that firms will be able to get higher prices going forward on all reinsurance. Some firms are going to benefit, because they will be able to charge (more…)

Guess what state leads the nation in the highest average credit awarded to tax filers under the Child Tax Credit? If you guessed Massachusetts, you would be wrong.  The child tax credit, it turns out, is a boom for red states in the West, particularly those that are largely rural.  The leader, not surprisingly, is Utah.  In Utah, the average credit was $342.  Lowest? The District of Columbia, at $104.  Why the large discrepancy? There are two factors.  First, states with higher family sizes have a big advantage.  Idaho was second, Wyoming was third, followed by Nebraska and Alaska .  As well, it hurts if incomes are generally higher.  Northeastern states lagged.

Payday lenders are doing very well lately.  At EZCorp, outstanding loans went up 23 percent in just the last month. They reported a 30 percent surge in income over the results for March.  At Cash America, revenues from cash advances rose 40 percent last quarter. That stoked a 34 percent increase in profit.

Word is that Sears wants to get in on  pawn lending. Sears is not interested in taking back your old Craftsman tool set, though. They want silver and gold.  Sears ProKits are available in jewelry departments.  Sears won’t be running a pawn shop on its own floors.  Customer have to mail in their heirlooms, with up to $750 in insurance, to Pro Gold Network.  Call it brand liquidation.

Yesterday’s vote in the Senate on the CFPA should put a long shadow on the prospects of payday lending.

Senator Harry Reid pulled back the existing bill after 57 Senators voted in favor of one draft. Reid pulled it back because two Senators were withholding their support until the protections in the bill could be strengthened.  This creates an odd dynamic, where progressive concerns are holding up legislation that spells doom for some of the more predatory financial products out there. Payday lenders, who seem destined to become the fall guys for the sins of Goldman Sachs, will be severely constrained if the CFPA passes.

The holdups

Sen. Lincoln of Arkansas is concerned about derivatives, and she wants to see rules in place that would amend how they are traded. Lincoln wants an end to the trading of derivatives behind closed doors.  She’d go one step further and see to it that institutions trading in derivatives can’t gain access to the Federal Reserve’s discount window.

Sen. Maria Cantwell, working in concert with Sen. John McCain, have another proposal.  They would like to return to the rules laid out in Glass-Steagall. Gramm-Leach-Bliley rewrote how financial institutions are organized. It took away the firewalls that separated investment banks from commercial banks.  That was important.  It predicated the rise of money center banks like (more…)

Jamie Dimon earns more in one hour than one of his bank tellers earns in an entire year. Errol Louis at the NY Daily News hopes that a few non-profit groups pushing back against Chase will draw more followers.

Is it really possible to draft a “bucket list” for Raleigh? Can’t a city just be productive and affordable? Does it have to be fun, too? An ad on facebook suggests that such a list should be made.  I bet it says that for all the cities.  But, let’s try. Think about it this way: If a friend told you that he or she was going to stop over in your town for six hours, where would you tell them to go? Would you tell them to just stay in the airport? I hope not.  If your friend was in Raleigh, it would be a thought-provoking question. Maybe you could go to Umstead Park.  You could try to park on Jones Street.  You could have a funnel cake at the State Fair. Perhaps you could drive two hours to the beach. One of our local television announcers made his own top ten list. Only two of his ideas include North Carolina, and both involve listening to music. What about basketball?  No, in the Triangle, we’re affordable and productive. Go to the Big Easy if you want to take a few days off for a good time. Or, if you just want to take a few days off, go to Detroit.

I keep on seeing things that undermine any sense that I could have in a near-term recovery. The Federal Reserve Bank of San Francisco has a report out today that says that the economy is about to come back.  The number of borrowers that missed a mortgage payment has never been higher than it was in the first quarter. In fact, more than one in ten borrowers is now delinquent! Auctioneers in Mobile, Alabama are auctioning off assets of shipbuilders and manufacturers.  American manufacturing capacity actually decreased last year, the first time ever. Oh, yeah, and inflation is at a 44-year low.  Lenders are offering loans at less than 5 percent, and even then, mortgage applications are down.

FingerHut, where the poor avoid paying more up front by instead paying more over 12 easy payments, has a new credit partner. Remember that Fingerhut’s old provider, CIT, almost went insolvent. The new bank…drumroll, please: MetaBank.  In the catalog, prices are given for the product and then for the lowest monthly payment. The fine print on page 28 says that MetaBank extends credit at 24.9 percent. A special treat at Finger Hut: no payments during the “Deferral Period.” In that feature, a borrower can elect to make no monthly payments for an initial period after purchase.  During that time, interest accrues into additional principal.

There is new political will to eliminate disparities in how different types of income are treated by our tax system.

Tucked away in the health care bill is language that establishes the “unearned income medicare contribution.” Unearned income includes dividends, interest, and rental income. The new policy increases the imposition on unearned income by 3.8 percentage points, and by earned income by 0.9 percentage points.  The new level of taxation on unearned income becomes 19.8 percent for individual filers that earn more than $200,000 per year, or on dual filers earning more than (more…)