The latest consumer credit card information security problem involves the online photo services of several major retailers. Walmart Canada informed its customers last week of a possible data breach in the credit card records of its online photo service, and this week CVS Health Corp. and Costco both suspended their services for the same reason. PNI Digital Media, which was hacked last year, is an outside vendor owned by Staples which operates the service for all three of the companies affected.

The companies have not revealed how many customers’ accounts might have been compromised, but similar breaches at Target and Home Depot over the past couple of years potentially affected millions of their customers’ accounts. Although CVS customers have been warned to check their credit card statements for suspicious activity, the company says its customers shopping at the company’s pharmacies either online or in stores are not at risk. In a separate statement, Walmart also said that its in-store and online non-photo shoppers’ financial transactions were safe.

In what appears to be an unrelated incident, University of California (UCLA) Health has reported that data on as possibly 4.5 million individuals has been potentially compromised. UCLA Health, which manages four hospitals in the university system, says the Federal Bureau of Investigation and private forensics examiners are investigating whether any patients’ personal or medical data were actually leaked.

Wells Fargo and JPMorgan Chase, the two largest mortgage originators in the United States, disclosed on their latest financial reports that their mortgage volume rose significantly from a year earlier. Respectively, they produced $62 billion (a 32% increase) and $29 billion (a 74% increase) for the second quarter of 2015.

Wells Fargo’s volume was comprised of $36 billion from retail mortgage lending and about $25 billion from correspondents. Purchase loan mortgages made up more than half of the totals, whereas in the first quarter of 2015 they were at 45% of the totals. Despite these increases, the bank’s net income dropped slightly from a year ago, at slightly under $6 billion, which matched analysts’ earnings estimates for the second quarter. Also, Wells Fargo has lost mortgage market share, with 13% of the nation’s total mortgages in the first quarter, less than half of the share it enjoyed just three years earlier. With 10-year Treasury yields and thus 30-year fixed mortgage rates rising about a half percentage point in the last couple of months, mortgage volume may begin contracting, especially when the new CFPB rules go into effect later this year.

Despite these encouraging figures and still-low mortgage interest rates, homeownership remains a tough goal for many Americans, even those with good credit, to achieve. Underwriting standards are still tight, unemployment and underemployment continues to plague large numbers of potential buyers and debt loads are heavy for many young recent college graduates struggling with high student loan balances.

239 Years of Good Credit in the USA

0 might not have been here on July 4, 1776, but good credit sure was.  We thought for Independence Day we would share some tidbits about credit in America through the years.

Although mortgages were made even in colonial times by “land banks,” it was not until after the American Revolutionary War when they became more commonplace.  In 1781, several prominent Philadelphia merchants founded The Bank of North America as the country’s first commercial bank.  With the formation of additional commercial banks, exchange of bank notes and some government involvement, mortgage risk was thus lessened for lenders which fueled growth in the mortgage market.

Prior to the advent of credit cards, a consumer would often run a tab with a local retailer on an account.  The purchaser would buy goods, the merchant would keep a record of the purchase in a ledger, and then the purchaser would settle the account later upon receiving a paycheck or, if the purchaser was a farmer, whenever crops were harvested and sold.  The cycle would then repeat itself.  In 1921, Western Union began printing paper credit cards for its customers, followed by several other types of merchants such as oil companies.  Eventually companies began to accept each other’s cards which led to the modern day credit card, which continues to evolve in the digital age.

Credit reporting was born in the Nineteenth Century when merchants began to share with each other information about their customers’ payment histories, eventually evolving into small credit bureaus.  After the onset of the Industrial Revolution and improvements in technology, transportation and communication, these bureaus grew and began merging with each other until Experian, Equifax and Transunion emerged as the biggest three.

Consumers who don’t have good credit can always take steps to get good credit, and in the meantime be thankful that one institution from the past no longer exists:  debtors’ prisons.  These prisons were prevalent from colonial times until the middle of the Nineteenth Century.  Borrowers unable to pay their debts were incarcerated until they were able to work off not only their debts but also the costs of imprisonment.

Another big-name financial institution has agreed to a big-dollar settlement stemming from alleged improper business practices, including robo-signing.  This time it’s the nation’s largest bank, JPMorgan Chase & Co., accused of violating various state and federal laws in collecting and selling consumer credit card debt, and the price tag will run at least $125 million.  The settlement, expected to be announced next week, involves 47 states, the District of Columbia and the federal Consumer Financial Protection Bureau (CFPB). It includes about $50 million in restitution, with $30 million allocated to the CFPB and the rest to the states and D.C.  Mississippi and California have brought separate lawsuits and are not part of the settlement.

The lawsuits claimed that the bank relied on robo-signing and other dubious collection methods in pursuing delinquent customers’ credit card accounts.  A “Robo-signed” affidavit is when a bank’s employee attests in a sworn court statement as to the amount, delinquency and other details of a customer’s debt without properly verifying the veracity of such information.  According to the settlement, Chase filed over a half million collection lawsuits during the years at issue (2009-2013),  while the California lawsuit claims that over 100,000 such lawsuits were filed against credit card customers over a three-year period, including over 400 in a single day.  The Mississippi lawsuit says that the bank had a serious lack of quality control in its collection practices.  Chase also purportedly improperly sold consumer debt which had, for example, already been paid in full, discharged in bankruptcy or previously transferred by Chase.

Two years ago, the CFPB ordered Chase to refund over $300 million to nearly 2 million credit card customers due to illegal lending practices, including failing to provide credit monitoring services while charging for such services.  At the same time, the bank consent entered into a consent order with the Office of the Comptroller of the Currency over debt collection practices including robo-signing.  Under the current settlement, among other requirements Chase will also have to notify the three major credit-reporting bureaus to remove derogatory entries on its customers’ credit records arising from the collection lawsuits and drop all remaining lawsuits against the customers, possibly helping some retain the good credit they would have otherwise lost.

Lending Outside the Box

0 recently reported that some lenders are starting to offer non-traditional interest-only mortgages again.  Now a non-bank lender is going even more non-traditional, providing jumbo mortgages to physicians and other professionals fresh out of school with as little as a 10% down payment with no private mortgage insurance (“PMI”) and no origination charge.  (A jumbo mortgage is one which will not be eligible for purchase by Fannie Mae or Freddie Mac because it exceeds a certain limit, generally $417,000.)

Social Finance, Inc. (often referred to as “SoFi”) claims that its innovative methods allow it to typically close one of these loans within 30 days.  The company uses a “virtual appraisal” in the early stages of the process — purchase prices of comparable properties are analyzed rather than a traditional appraisal where someone visits the property before compiling a report, thereby accelerating the mortgage application process (however, a traditional appraisal is later performed).  SoFi also saves time for its customers through use of a mobile loan application process, allowing them to do almost everything through their smartphone, tablet or laptop computer.  It is currently able to offer mortgages in about two dozen states.

So it sounds like you can get one of these loans and buy your expensive dream home straight out of law school despite your mountain of student loans?  Maybe.  You’ll need good credit, and you better have obtained your education from a top-rated school on SoFi’s approved list (SoFi was founded by Stanford graduates as a peer-to-peer student loan refinancing firm, so a law degree from St. Copius of Northern Nebraska with an undergraduate degree from Faber or Adams College wouldn’t make the cut.)  If you can get a SoFi loan the money you save from a lower down payment, no PMI and zero origination charge could be somewhat offset by a higher interest rate than another lender might charge.  However, if another lender won’t give you a loan under your circumstances then this might be a price worth paying.

Facebook and Your Good Credit?


Before you make or accept that next Facebook friend request, you might want to verify that your potential friend has good credit. Because of a patent on software technology obtained by Facebook, your own good credit just might eventually depend on it. Apparently the patent was part of a package that the social media giant bought from Friendster several years ago.

Although the technology could be used to improve internet searches or filter out spam or other unwanted content, the concern is that it would also allow a lender to examine a loan applicant’s network of social contacts and decide whether to deny the loan based on the presence of friends who lack good credit. In other words, loan underwriting would potentially penalize someone through guilt by association.

Facebook has not yet commented on this new technology, and it is not clear whether it will be used by lenders to evaluate loan applicants. However, a peer-based credit system has already been proposed by a company known as Lenddo. This Hong Kong company would allow people without traditional means of proving good credit to instead utilize their social networks to do so, but appears to be an optional alternative whereas the Facebook system might not be.

Goldman for the Common Man


You’d better get ready, Goldman Sachs may be coming to your town.   The American multinational powerhouse founded in 1869 and known for financial services such as investment banking appears to be setting its sights on lending to consumers and small businesses.  Because the firm’s customers have traditionally been big companies and ultra-rich individuals, such a move into small loans would seem puzzling at first.  However, the numbers tell the story:  while Goldman’s return on equity may have dropped almost into the single digits, the return on equity for consumer loans can easily be twice that much or more.

Although Goldman will be making small unsecured online loans, it will nevertheless focus on borrowers with good credit.  The firm is unlikely to venture in vehicle loans because of recent negative publicity affecting such lenders from investigations by regulators such as the CFPB (see this recent story for details).  Deposits held by Goldman’s banking division have more than doubled in the last six years, providing greatly increased opportunity for funding personal and small business loans.  By concentrating on online lending, the firm can achieve significantly higher investment returns than if it had to build or acquire physical bank branches such as those of large banks like Bank of America or Wells Fargo.

Goldman has appointed a former credit card company executive to be in charge of its consumer and small business lending but has not disclosed a time frame for implementing this new line of business.  Goldman will also have to overcome with potential borrowers some of the bad press the firm generated from its role in the financial crisis of a few years ago.

Will This New British Band Get Any Credit?


Barclaycard has introduced a new wristband and other contactless payment gadgets intended to make it easier for the company’s credit card customers to make purchases at retail rather than searching through wallets and purses to find a credit card or cash. The band, which contains a computer chip linked to a smartphone software application, is operated by the customer waving it in front of a payment reader.

Barclaycard has also released a key fob and a smart sticker which work in similar fashion to the wristband. The sticker can be attached to any device such as a smartphone or watch. The three different contactless devices, known as the “bPay” system, range in price from £15 – 25 (approximately $23 – 40). If one of these devices is lost or stolen, the customer can cancel the chip by calling the issuer.

Barclaycard, the top British credit card issuer, pioneered the bPay system last year at two festivals to accommodate cyclists, drivers and athletes who wanted to avoid carrying a lot of cash. Although not all merchants accept payment via these devices, so far over 300,000 stores in the United Kingdom do. Currently the amount of goods which can be purchased this way is limited to £20 but this is scheduled to increase to £30 in a couple of months. It is not yet clear how many merchants will agree to accept bPay payments or whether the low limits will hinder adoption of the alternative payment method by consumers whose contactless credit and debit cards can be used everywhere that has a regular chip-and-pin reader.

Credit Cards Get Smart

0 reported several months ago about trends in chip and PIN technology upgrades to traditional credit cards.  Now several competing companies are trying to bring to market digital alternatives to the plastic cards that have filled your wallets and purses without requiring you to carry your smartphone as Apple Pay or Google Wallet do.  These alternatives could also be attractive to most retailers who lack the technology required for the smartphone-based payment systems.  None of these devices are available yet, but will all work with ATMs once they reach the market.

A start-up called Coin began taking orders a couple of years ago for a Bluetooth-enabled digital electronic device designed to be a singular replacement for up to eight of a consumer’s credit cards (or any other type of card that comes with a magnetic stripe, such as a loyalty card).  The Coin device looks like a black plastic credit card except with a small LED display and button and comes with a credit card reader which is used to import your credit card data.  It is initiated through push of a button, unlocked via Bluetooth by your smartphone or by tapping it and then swiped by the cashier.

Stratos is another Bluetooth-enabled card with a card reader, but has unlike Coin has EMV contactless payment and fingerprint security.

Plastc, which is scheduled to ship later this summer, will store up to 20 cards.  Plastc also has contactless, a magnetic stripe, chip-and-PIN technology, and facial authentication.

Swyp is a metal device which will hold information for up to 25 cards which learns users’ preferences according to location and time of the day that the device is used.

Finally, Banq is another digital payment device which will feature similar technology to its competitors but is still being tested so don’t expect to see it as soon as you will see the others.