From U.S. government “bail-outs” to new checking and credit card account regulations, the banking industry was bombarded with changes in 2010. As any experienced banker will attest, when serious changes come from the federal government, they are seldom beneficial to financial institutions.
But, what can we expect for 2011? More of the same? A regulation or change-free year? Polish up your history notes and your crystal ball.
Many bank executives may consider 2010 filled with “lowlights,” as new Congressional regulations and market influences have decreased gross income for financial institutions. Consumers may have a different perspective.
The CARD (Credit Card Accountability, Responsibility and Disclosure) Act of 2009.
Most of the important changes of the CARD Act took effect in 2010. New rules limiting increased interest rates, expanding disclosures, improved statement notifications, and other consumer-targeted protections are now in place to help you better understand and control your credit card options.
New banking regulations affecting checking accounts.
The possible disappearance of free checking accounts became a sporadic reality in 2010, as new banking regulations restricted automatic overdraft protection, for a fee, without the account owner authorization of this feature. As a reaction to these regulations, many banks are eliminating “free” checking accounts or mandating new minimum balance requirements to lower or eliminate monthly maintenance fees.
Mortgage qualifications further “tightening” and disappearance of non-conforming loan products.
As mortgage interest rates declined to historic lows, many buyers and homeowners were “shut out” of the market as qualification rules became more restrictive, allowing only those with superior credit scores to qualify at these amazing low interest rates. Self-employed people and other non-conforming borrowers faced new challenges as many former mortgage loans structured for this group disappeared. Bank rates are low, but so are CD rates, money market and savings accounts.
Fewer new credit card direct mail offers.
After the CARD Act features took effect in February 2010, many credit card companies slowed or suspended using direct mail to offer new accounts to their mailing lists. Uncertain of the real world effects of new disclosures, interest rate increase restrictions, and unemployment levels caused by the recession, many card companies simply refused to encourage new accounts.
While additional legislation is possible, there are no certain revisions currently on the table. However, the effects of 2010 legislation will be prominent in 2011. A few trends seem to be probable in the wonderful world of banking.
Federal legislation will affect bank operations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in mid-2010, places all bank operations under a federal “microscope” and stronger control. This act allows closer monitoring of a bank’s financial risk. It also permits government regulators to order a bank to “shrink” in size, should undue risk levels be reached. Finally, this legislation gives the government greater powers to seize control and auction assets of financial firms in serious trouble. It’s still uncertain how these major changes will affect depositors and borrowers.
Credit card companies will escalate marketing for new accounts.
Many large credit card issuers have become more comfortable that the perceived negative effects of the CARD Act have not befallen them. While some profits are down and many cardholders have become more frugal when using credit, most of the potential income disasters originally forecasted did not occur.
Recession recovery activities will affect credit availability.
The recovery from the recession has been slow—often non-existent. Some CEOs have stated that they will begin hiring in 2011, but only as sales volume increases. Banks, who have been stockpiling cash from government infusion and deposits, may loosen credit rules for borrowers.
Bank rates should remain low.
Unless the recovery accelerates, when you compare savings rates, you’ll struggle to find increased earnings potential. For example, savings rates—even CD rates—have moved little in the past few years. If you compare CD rates, you’ll probably learn that few banks, even larger institutions that seek “national” deposits, advertise rates you can’t match at your favorite local bank. Neither money market accounts nor savings accounts project increasing rates significantly.
Banks will continue to suffer “write-downs” for mortgages, credit cards, and commercial loans.
Combined with new powers of oversight and action, federal regulators will closely monitor bank write-downs of bad loans to test for financial stability. This makes it important for you to examine your bank’s financial situation at the FDIC (commercial bank) or NCUA (credit union) websites, since an institution’s operating and financial results are public information.
While 2011 may be relatively free of new Congressional regulations, the major changes of 2009 and 2010 will influence the interest rates, credit, mortgages, and fees you’ll face in the new year.