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Banking Regulation for Marijuana Business Entrepreneurs

Posted by Bobbe Sigler on Fri, Sep 12, 2014

For marijuana growers and retailers in the states that have legalized the drug for recreational or medical use, money and banking are perhaps the most vexing challenges of doing business. Piles of cash accumulate in back rooms and safes, making the businesses, their employees and their customers a target for robberies. Businesses often have no access to business loans or regular lines of credit. Many say they struggle to even keep a checking account open to pay their employees or electricity bills.Medical Marijuana

Legal sales of marijuana have already reached $2.6 billion so far this year. Most estimates predict sales from medical marijuana will likely reach $3 billion by the end of 2014, up from $1.5 billion in 2013. Marijuana can be grown legally in 23 states and the District of Columbia; and another 11 states have limited legal access, often for research purposes, according to the National Conference of State Legislatures. A recent Huffington Post article cited studies that predict that legal marijuana sales could bring in between $7.4 and $8.2 billion in revenue by the year 2018.

 

Source: ProCon.org

Under federal statues, the use, possession, sale, cultivation, and transportation of cannabis (marijuana) in the United States under federal law is illegal but the federal government has announced that if a state wants to pass a law to decriminalize cannabis for recreational or medical use they can do so, but they need to have a regulation system in place for cannabis. Cannabis is listed as a Schedule I substance under the Controller Substances Act of 1970, the highest classification under the legislation. This means that the substance has been decided by the federal government to have both high abuse potential and no established safe medical use.

However the stimulation or boost, selling and taxing marijuana will provide to both the state and national economies has become very evident to lawmakers. Take the state of Colorado that has implemented selling recreational marijuana. On the first day of 2014 alone, shops opened across the state totaled over $1 million in sales, according to multiple sources. Combine that with a nearly 29 percent tax rate statewide, and you can calculate what the state is anticipating in revenue.  The Colorado State Department of Revenue reported that as of July 2014, the state sold $29.7 million worth of recreational marijuana which was slightly higher than $28.9 million worth of medical marijuana sold in the same month.

In January, 2014, Attorney General Eric H. Holder Jr. stated, “that lawful marijuana businesses should have access to the American banking system and that the government would soon offer rules to help them gain it. The rules are not expected to give banks a green light to accept deposits and provide other services, but would tell prosecutors not to prioritize cases involving legal marijuana businesses that use banks. “You don’t want just huge amounts of cash in these places. They want to be able to use the banking system,” Mr. Holder said at the Miller Center at the University of Virginia. “There’s a public safety component to this. Huge amounts of cash, substantial amounts of cash just kind of lying around with no place for it to be appropriately deposited, is something that would worry me, just from a law enforcement perspective.”

While marijuana is illegal in most states and is prohibited under federal law, the Obama administration said last summer that it would allow Colorado and Washington State to move ahead with legalizing the drug for recreational use.  In an interview with The New Yorker, President Obama said that despite his misgivings about marijuana and the push for broader legalization of the drug, it was important that Colorado’s and Washington’s experiments go forward. “It’s important for society not to have a situation in which a large portion of people have at one time or another broken the law and only a select few get punished,” he said.

A bipartisan effort to help marijuana entrepreneurs is emerging. The House amendment passed July 16th (HR5016) that should help marijuana businesses get banking services in the 23 states where marijuana is legal in some form. Specifically, the amendment prohibits the Treasury Department from spending money to penalize financial institutions that serve legal marijuana businesses. It passed 231 to 192.

Last May, the House passed another appropriations bill amendment forbidding the Drug Enforcement Administration from undermining state medical marijuana laws, with 219 members voting yes. Also passed were two measures to keep the DEA from interfering with state hemp production or research programs.

What’s making marijuana one of the few issues Democrats and Republicans can agree on? At least as far as the banking amendment, it’s partly about public safety and transparency.

In this year’s guidance to financial institutions, the Financial Crimes Enforcement Network (“FinCEN”) in coordination with the U.S. Department of Justice (DOJ) issued guidelines that clarified customer due diligence expectations and reporting requirements for financial institutions seeking to provide services to marijuana businesses. FinCEN Director Jennifer Shasky Calvery declared that “Our guidance provides financial institutions with clarity on what they must do if they are going to provide financial services to marijuana businesses and what reporting will assist law enforcement.”

At the August, 2014 Mid-Atlantic AML Conference in Washington, DC, FinCEN Director Shasky Calvery, remarked that “just because a particular customer may be considered high risk does not mean that it is “unbankable” and it certainly does not make an entire category of customer is “unbankable”. Banks and other financial institutions have the ability to manage high risk customer relationships. It is not the intention of AML (anti-money laundering) regulations to shut legitimate business out of the financial system.”

Since FinCEN’s guidance went into effect in February, 2014, a reported 105 individual financial institutions from states in more than one third of the country engaged in banking relationships with marijuana related businesses.  From FinCEN’s perspective, the guidance is having the intended effect. It is facilitating access to financial services, while ensuring that marijuana-related business activity is transparent and the funds are going into financial institutions responsible for implementing appropriate AML safeguards.

The taxation of marijuana production and sale has tempting budgetary implications for Congress and this country. The 2005 Budgetary Implications of Marijuana Prohibition by Jeffrey A. Miron, Visiting Professor of Economics Harvard University, reported that legalization would save $7.7 billion per year in state and federal expenditures on prohibition enforcement and produce tax revenues of at least $2.4 billion annually if marijuana were taxed like most consumer goods. If, however, marijuana were taxed similarly to alcohol or tobacco, it might generate as much as $6.2 billion annually.

According to Gallup 58% of Americans support ending marijuana prohibition, and Colorado and Washington State has already passed historic ballot initiatives to tax and regulate pot. When it comes to marijuana in the United States, it is no longer a question of when, but how it will be legalized.

Topics: Banking, regulation, marijuana, cannibus

“GEN Y” Consumers - What Banking Services Do They Want

Posted by Bobbe Sigler on Fri, May 16, 2014

Generation Y consumers primarily look for mobile services and rewards programs when shopping for a new bank, according to a December 2013 study, conducted by Harris Poll among more than 1,000 U.S. adults.

The study found that Generation Y adults (those between age 18 to 34) with a checking account are more likely to say mobile banking is at least somewhat important when choosing a bank (78 percent) than those in the 35-54 age group (66 percent) or those ages 55 and up (44 percent).

Gen Y images

Members of Gen Y are also more likely to believe customizable rewards are at least somewhat important (86 percent versus 73 percent of 35-54 year olds and 63 percent of those ages 55 and up) and that cash back options are at least somewhat important (88 percent versus 74 percent and 67 percent, respectively). A recognizable brand name is also more important to Gen Y adults (81 percent say it’s at least somewhat important) than it is to those ages 35-54 (68 percent), the study found.

While 72 percent of Gen Y adults say banking locally is at least somewhat important to them, roughly one-quarter of those same people who have a checking account but do not bank with a community financial institution say they don’t use one because they don’t believe a community bank or credit union will offer the same benefits they’re getting at their current bank. Additionally, 30 percent of these Gen Y consumers say they don’t use a community bank or credit union because they’ve never thought about it.

Are these study results indicative of the U.S. market or does it extend further?

In the eleventh annual World Retail Banking Report (WRBR) released in 2013 by Capgemini more than one-quarter of the countries in the WRBR's Voice of the Customer survey reported a decrease of more than 10 percent in the share of customers with positive experiences, a reversal from the prior year when increases of more than 20 percent were prevalent.

According to the report, since Gen Y consumers make up anywhere from one-quarter to one-third of the population in many markets, catering to their tastes is a key for banks. "This group's expectations of how banks should serve their customers, particularly via digital platforms, are significantly higher than those of the general population thanks to their prolific and sophisticated use of technology," the report adds.

For the first time, the report measured the impact of positive experiences on a number of behaviors linked to increased profits. Specifically, the report found that customers with positive experiences are more than three times more likely to stay with their bank than those who have negative ones. Customers with positive experiences are also three to five times more likely to refer others and purchase another product, the report finds.

In North America, Gen Y consumers are significantly less likely to have a positive experience with their bank, the report found. Only 41.7 percent in North America of those between 18 and 34 years cited positive experiences with their bank, compared to 63.4 percent of those of other ages, a difference of 21.7 percent. In other regions, positive experiences for Gen Y lag those of other age groups by anywhere from only 7 percent to nearly 10 percent.

This downward shift underscores the challenges banks are facing in meeting the evolving demands and high expectations of digitally-savvy Gen Y customers. The balance between traditional channels and the need to address the Gen Y customers will require a transformation for many banks. The new reality - Banks are no longer a branch or a place where customers go, but a collection of services that take place, anywhere, anytime.

Topics: banks, Banking, Gen Y, Mobile Services, Rewards Programs

Banking Survey About Small Business

Posted by Wendell Brock on Wed, Sep 01, 2010

Survey Provides Insight for Serving Small Business Customers

The J.D. Power and Associates 2009 Small Business Banking Satisfaction StudySM shares insight on serving small business banking customers to create differentiation and grow revenues.

Small business customers represent revenue opportunities for banking institutions, particularly if the bank can obtain the personal banking relationship as well. The survey finds that small business owners’ average value exceeds the consumer average by $31,000 or 66 percent. Further, highly satisfied small business customers create about 20 percent more revenue for the bank relative to less-satisfied customers. The difference in annual revenue dollars, according to the survey, is $675 per customer.

Unlocking this extra revenue per small business customer requires a strong commitment to relationship management. The survey finds that higher levels of satisfaction are associated with:

  • Assignment of an account manager to every small business customer
  • Completion of a needs assessment
  • Account managers who proactively reach out to customers throughout the year
  • Account managers who focus on quick resolution to problems
  • Account managers who closely manage the credit process

Economic woes weighing on small business

The survey estimates that 48 percent of small business customers are negative about the economic outlook. Downbeat business owners have special needs with respect to banking. In particular, they generally appreciate working with a proactive banker who demonstrates a thorough understanding of their business and its needs. The J.D. Power survey establishes a link between the completion of a needs assessment at the beginning of the relationship and the customer’s belief that his banker “understands” the business. Sadly, only 45 percent of small business customers report that their banker has a complete understanding of the business.

Communicate to create upsell opportunities

Proactive communication is also important. Regular interaction between the account manager and small business customer can minimize misunderstandings about fees and services. It also helps the banker identify opportunities to provide the customer with additional business or personal banking services. The goal is to help the customer manage his business and personal finances more efficiently, while creating revenue opportunities for the bank. To fulfill that goal, the banker must a trusted advisor who maintains regular contact.

Manage new loans for higher satisfaction

Many small business customers are currently concerned about obtaining the funds they need to manage through this economic downturn. The J.D. Power survey reports that account managers who focus on streamlining the loan funding process tend to score higher on small business customer satisfaction metrics. Account managers who can identify a lending need and then move the customer through the application and funding process quickly add value and generate customer loyalty.

The survey also notes that small business account managers do not have to be high-level bank employees to be effective. Lower-level service personnel are able to achieve very high satisfaction scores, particularly when they focus on communication, quick problem resolution, and efficient loan funding.

See the video overview of the J.D. Power and Associates 2009 Small Business Banking Satisfaction Survey here: http://businesscenter.jdpower.com/library/videos.aspx?localID=286679 and read the press release here: http://businesscenter.jdpower.com/news/pressrelease.aspx?ID=2009227

Topics: Banking, banker's survey, Commercial Banks, Building Smarter Banks, Deposit Growth, Deposits

Bank Regulation Increases Under the HIRE Act

Posted by Wendell Brock on Thu, Aug 19, 2010

Many Bank’s don’t realize that the HIRE Act, signed into law in March, which was sold to promote jobs, also has implications for the banking industry. Namely, the offset provisions impose withholding and reporting requirements to expand offshore tax compliance by non US banks, thereby funding the cost of the act.

 

Tax penalty for failure to report

 

Under the new legislation, foreign financial institutions must enter into a reporting arrangement with the IRS to provide account information on U.S.-owned accounts. Institutions that refuse such an arrangement are subject to a 30% tax on any payment of interest, dividends, rents, salaries, gains, profits and other forms of income from U.S. sources. Excluded from this definition of “withholdable payments” are payments owned by publicly traded companies or businesses wholly owned by U.S. residents.   

 

An institution may obtain a waiver of withholding by certifying to the withholding agent that it has no substantial U.S. account owners. However, withholding agents are liable for the tax and are still required to collect it if they have any reason to believe such certification is false.

 

Terms of reporting arrangement

 

The accepted reporting arrangement defined in the act requires foreign financial institutions to provide the IRS with the following information for each U.S.-owned account:

 

  1. Name, address and TIN of each account holder
  2. If the account holder is a U.S.-owned foreign entity, the name, address and TIN of each substantial U.S. owner of that entity
  3. Account number
  4. Account balance
  5. Gross receipts and gross withdrawals from the account

 

With respect to Number 2 above, a substantial U.S. owner is: any U.S. individual who owns 10 percent or more of the stock of a foreign corporation; any U.S. individual who owns more than 10 percent of the profit or capital interests in a foreign partnership; or any U.S. individual who owns more than 10 percent of the beneficial interests of a foreign trust.

 

The institution does have the option to exclude reporting on individually owned accounts where the account holder has less than $50,000 in aggregate balances at that institution.

 

Individual reporting requirements

 

The legislation also requires individuals to comply with the new reporting regime. Individuals who own certain foreign financial assets worth more than $50,000 in aggregate must include the information listed above in their personal tax returns. Foreign financial assets are defined as financial accounts, as well as stocks or securities issued by a non-U.S. person, financial instruments or contracts issued by or counterparty to a non-U.S. person, or any interest in a foreign entity.  The IRS wants to know where US citizens are keeping their money and how much.

 

Basically, banks will chose to not to bear the risk being liable for the tax and withhold the 30 percent on all wire transfers/payments to offshore bank accounts and businesses that have not made the disclosure agreement with the IRS. If the bank makes the wire transfer and should have withheld the 30 percent but did not – they are liable to pay the 30 percent tax to the IRS.  If the bank makes the wire transfer, and should NOT have withheld the 30 percent, then it is the individual’s responsibility to collect the tax from the IRS, there is no liability on the bank for the mistake.

 

The HIRE Act’s reporting and withholding requirements apply to payments made after December 31, 2012. 

Topics: Bank, Banking, Bank Risks, regulators, tax laws, Banking industry

Small-dollar Loan -- Pilot Study Results Are In

Posted by Wendell Brock on Wed, Jul 07, 2010

Creation of Safe, Affordable and Feasible Template for Small-Dollar Loans

Small-dollar loan pilot

The Small-dollar Loan Pilot Project was a study to find if it is profitable for banks to offer small-dollar loans to their customers. Small-dollar loans were created as an option to expensive payday loans, or heavy fee-based overdraft programs.  This study opened up opportunities for small-dollar loans to be more affordable.    

Small-dollar loans have created a way to maintain associations with current costumers and opportunities to attract unbanked new customers.

Goals: The main goal the FDIC had in mind for small-dollar loans was for banks to create long-lasting relationships with their customers using the product of small-dollar loans. Many banks had another goal in mind in addition to the FDIC’s goal. Some banks wanted to become more profitable by producing the product while other banks produced the product to create more goodwill in their community. 

Where and how the study started: The FDIC found 28 volunteer banks with total assets from $28 million to nearly $10 billion to use the new product, offering of small-dollar loans. All were found in 450 offices in 27 states. Now, in the pilot study there have been over 34,400 small-dollar loans that represent a balance of $40.2 million. 

Template for small-dollar loans: Loans are given with an amount of $2,500 or less, with a term of 90 days or more. The Annual Percentage Rate is 36 percent or less depending on the circumstances of the borrower. There are little to no fees and, underwriting follows with proof of identity, address, income, and credit report to decide the loan amount and the ability to pay. The loan decision will usually take less than 24 hours. There are also additional optional features of mandatory savings and financial education.  

Long loan term success: Studies found that having a longer loan term increased the amount of success in small-dollar loans. This allowed the customer to recover from any financial emergency by going through a few pay check cycles before it was time to start paying the loan back.  Liberty Bank in New Orleans, Louisiana offered loan terms to 6 months in order to avoid continuously renewed “treadmill” loans.  The pilot decided that a minimum loan term of 90 days would prove to be feasible.

Often the bank will require the customer to place a minimum of ten percent of the loan in a savings account that becomes available when the loan is paid off.

Delinquencies: In 2009 the delinquency rates by quarter for small dollar loans were 6.2 in the fourth, 5.7 in the third, 5.2 in the second, and 4.3 in the first.

How to be most successful when producing small-dollar loans: The FDIC is reporting that the participating banks have found much success through small-dollar loans. But the most success came from long term support from the bank’s board, and the senior management. It is critically important to have strong support coming from senior management.

The small-dollar loan pilot has proven to be a great addition to bank’s loan portfolio, the FDIC hopes that it will spread to banks outside the pilot.

Profitability may depend on location: The FDIC has found the most successful programs are in banks located in communities with a high population of low- and moderate-income, military, or immigrant households. Banks in rural areas that did not have many other financial service providers also saw feasibility because of the low amount of competition.

Improving performance: Automatic repayments are a way to improve performance for all products not just the small-dollar loans.

 

 

Topics: Bank, FDIC, banks, Pay Day Loans, Banking, Bank Risks, Small Dollar Loans, Bank Executives, Loans, market opportunity, bank customers, Bank Asset

Banking and HR 2847: Hiring Incentives to Restore Employment Act

Posted by Wendell Brock on Thu, Jul 01, 2010

On March 18, 2010, President Obama signed HR 2847, unbeknown to most this law has several banking implacations/regulations and new taxes, even though it is not disclosed by its name: the Hiring Incentives to Restore Employment Act.

Much of the press and commentary about the resolution has centered on the tax benefits it affords to businesses that hire new employees between February 3 of this year and January, 1, 2011.

What has gone mostly unnoticed is how these incentives will be paid for by the Foreign Account Tax Compliance provisions known in Title V of the Act as Offset Provisions.

SUBTITLE A

Part I: Increased Disclosure of Beneficial Owners

Financial institutions that make payments, on behalf of their customers, to Foreign financial and nonfinancial institutions must withhold 30% of payments made to those institutions, unless such institutions agree to disclose the identity of such individuals and report on their bank transactions.

The bank risk for not withholding the 30% is with the financial institution that initiated the transfer of funds – in other words, the bank will be responsible to send to the IRS the 30% it should have withheld. The individual sending the money will be responsible to get a refund from the IRS on their tax return. Also denies a tax deduction for interest on non-registered bonds issued abroad.

Part II: Under Reporting With Respect to Foreign Assets

Anyone with more than $50,000 in a depository or custodial account maintained by a foreign financial institution must report it. Underpayments resulting from undisclosed foreign financial assets will incur an enhanced penalty.

Part III: Other Disclosure Provisions

U.S. shareholders of a foreign investment company must file annual returns.

Part IV: Provisions Related to Foreign Trusts

A foreign trust has a U.S. beneficiary if the beneficiary's interest in the trust is contingent on a future event or such beneficiary directly or indirectly transfers property to such trust or uses trust property without paying compensation to the trust. Owners of foreign trusts must report them in their taxes, and they will be penalized if transfers to and distributions from such trusts aren’t reported.

Part V: Substitute Dividends and Dividend Equivalent Payments Received by Foreign Persons Treated as Dividends

A dividend equivalent payment is considered a dividend from a source within the United States for purposes of taxation of income from foreign sources and tax withholding rules applicable to foreign persons.

SUBTITLE B

Delay in Application of Worldwide Allocation of Interest

Delays until 2021 the application of special rules for the worldwide allocation of interest for purposes of computing the limitation on the foreign tax credit.

SUBTITLE C

Budgetary Provisions

Increases the required estimated tax payments for corporations with assets of not less than $1 billion in specified calendar quarters. Provides criteria for compliance with the Statutory Pay-As-You-Go Act of 2010.

 

Topics: Banking, Bank Regulation, Bank Risk, Bank Regulations, Foreign Banks

Bankers Should Have Cautious Optimism on Housing Market

Posted by Wendell Brock on Fri, Apr 30, 2010

This week, Standard & Poor's posted new figures that show the domestic housing market's rebound is anything but certain, causing bankers to have cautious optimism.

Utilizing 10- and 20-city composites, the S&P/Case-Shiller Home Prices Indices data compared one-month price changes from January to February 2010, and also twelve-month prices from February to February.

January to February

In the 20-city composite, only one location-San Diego-saw a rise in prices from January 2010. The 0.6% rise, though, was slight. All other cities saw decreases that ranged from New York's -0.4% to Portland's -2.4%. The 20-city composite fell -0.9%.

What a Difference a Year Makes

A brighter picture emerges, though, in the sampled metro areas' twelve-month comparisons. San Francisco's 11.6% rise was the largest among the surveyed cities. San Diego came in second with a 7.6% increase. The 20-city composite improved 0.6%.

Las Vegas, which has endured one of the country's largest drops in home value, continues its decline with a -14.6% drop from February to February.

Writing in USAToday.com, Stephanie Armour states that prices in Charlotte, New York, Las Vegas, Portland, Seattle, and Tampa have fallen to new lows.

Home prices peaked nearly four years ago in June and July of 2006. February's average prices dropped close to their numbers from 2003's summer and early fall.

But David M. Blitzer, chairman of the Index Committee at Standard and Poor's, is cautious. "It is too early to say that the housing market is recovering," he says. "The homebuyer tax credit...is the likely cause for these encouraging numbers and this may also flow through to some of our home price data in the next few months. Amidst all the news, however, we should also pay heed to foreclosure activity, which have reached their highest level in at least the last five years."

Consumer Confidence

But even with these dismal numbers, it appears that consumers think the economy is turning a corner. The Conference Board's Consumer Confidence Index shows an increase from March to April 2010.

April's Index number was 57.9, which is an improvement over March's 52.3. Providing evidence that the rebound may not be fleeting, this is the highest the Index has been since September 2008. The Index pulls its data from a survey of 5,000 American households.

Americans are also feeling good about the job market. 18% of those surveyed thought the future would bring more jobs, which is an improvement from March's 14.1%. Similarly, those who believed the number of jobs would decrease dropped from 21.1% to 20%.

In March, 45.8% of survey respondents said that jobs were "hard to get." This is a decline from February's number of 47.3. Combined with the optimistic responses to April's survey, these data could indicate a rising trend.

Topics: Banking, Loans, Economic Outlook, Growth, real estate, Standard & Poor's, Case-Shiller, Foreclosure, Consumer Confidence

The Art of Asset-based Lending

Posted by Wendell Brock on Fri, Feb 12, 2010

If art imitates life, then the burgeoning market of art-as-loan-collateral is a mirror of today's financial sector, of asset-based lending.

Last year, venerable portrait photographer Annie Leibovitz  called on Art Capital Group (ACG) for a $15.5M loan. Leibovitz's collateral? The rights to her entire photograph collection.

ACG only makes loans against an artist's or art patron's collection. Their website explains: "Unlike traditional sources of capital, we are comfortable utilizing fine and decorative art as the sole asset securing a loan or as a component of a collateral package."

And you thought the medical profession was specialized.

A preeminent photographer borrowing against her artistic catalog makes headlines (and blogs!), but asset-based lending and lending tailored to a business industry aren't new nor confined to the fine arts.

What is new is how popular this lending practice has become.

As Kyle Stock writes in the Wall Street Journal, "Asset-based lending, excluding mortgages, swelled by 8.3% to almost $600 billion in 2008, according to the Commercial Finance Association, an industry trade group. The association is still gathering data on 2009, but preliminary surveys show double-digit percent increases in lending. In comparison, syndicated lending in 2009 sagged by 39%, according to Dealogic Inc."

Interest rates for asset-based lending are typically higher than traditional loans, but still less than a credit card's terms. And if you can't persuade a bank to lend money through the usual channels-whether because of poor credit or the contracted credit market-then it's your best option.

Loans are made based on a business's accounts receivable, invoices, inventory, patents, and equipment. Most lenders require a detailed (and optimistic) business plan. But depending on the lender, businesses can use the cash for, among other things, acquisition, management buyout, recapitalization, growth financing, and turnaround.

Along with higher interest rates than traditional loans, asset-based loans also typically carry stiffer penalties for default, including a quick seizure of the collateral rather than a penalty. And if a bank has to liquidate assets, knowledge of the industry is very important.

Asset-based lending that matches a specialized lender with a customer-as with Leibovitz's loan-benefits both parties. The lender knows that what they're-literally-buying into, and the business gets payment terms that are tailored to their billing cycle.

Several banks around the country--both large and small--offer asset-based lending including, Bank of America, which offers several specialties, and is the asset-based lending industry leader.

According to the Wall Street Journal, the industry's biggest companies funded 23% more asset-based deals in 2009 as compared to the previous year.

And BOA, Wells Fargo, JP Morgan Chase, and TD Bank are all taking steps to expand their asset-based lending to stay competitive.

Whether this trend will continue remains to be seen. Much of it will depend on the default rate of these types of loans. Late last year, ACG accused Leibovitz of defaulting on her loan. Although ACG threatened a lawsuit, the issue was resolved last September without court proceedings.

Andy Warhol once said, "Being good in business is the most fascinating kind of art. Making money is art and working is art and good business is the best art."

Topics: Banking, Loans, asset, asset lending, asset-based lending

CREED Brings Crowdfunding to the U.S.

Posted by Wendell Brock on Thu, Dec 10, 2009

De Novo Strategy is a supporter of CREED and its nonprofit work; we invite you to participate in this project that CREED has just launched. It is a project that every entrepreneur should be a part of and enjoy supporting! Maybe a banker would catch the vision on and support this too!

CREED, a non-profit 501 (c)3 corporation, is launching a crowdfunding initiative to jumpstart small business in the U.S. Crowdfunding involves collecting small donations via grassroots marketing campaigns. The donations will be used to fund $5,000 in free start-up capital, awarded to the entrepreneur who sends in the most compelling business plan. 

Crowdfunding or crowdsourcing programs have been run successfully by two organizations in Ireland,Outvesting and iQ Prize. The two entities raised an aggregate 15,000 euros, by way of 50-euro pledges, to fund small business start-ups. 

CREED's effort will be similar. The non-profit is currently accepting $50 pledges, with a goal of accumulating $5,000. Once this pledge goal is reached, CREED will publish business plan submission guidelines and begin accepting business plan entrants. Everyone who pledges $50 to the effort receives one vote to help determine the best business plan among those entered. The plan with the most votes will be awarded $5,000 in start-up capital, with no strings attached. 

Please visit Crowdfunding to learn more about CREED's this great American opportunity.

Follow us at CREED

Topics: Banking, Marketing, De Novo Strategy, organizers, CREED, entrepreneur

Unbanked and Underbanked Americans - Who Are They?

Posted by Wendell Brock on Thu, Dec 03, 2009

The U.S. Census Bureau conducted a National survey this year on behalf of the FDIC to ascertain the level of Unbanked and Underbanked households in the United States. The survey was designed to help the FDIC understand who is outside the banking system. The study which is the most comprehensive to date, reveals that just over a fourth (25.6 percent) of the households in the U.S. are unbanked or underbanked and those households are largely low-income and/or minority.

The survey additionally collected more accurate estimates of the Unbanked and Underbanked Households, and reasons why the people remain unbanked or underbanked. The survey estimates, represent the first time this kind of data has been collected in large metropolitan statistical areas (MSA), states, and across the nation.

"Access to an account at a federally insured institution provides households with an important first step toward achieving financial security - the opportunity to conduct basic financial transactions, save for emergency and long-term security needs, and access credit on affordable terms," stated Sheila Bair, Chairman of the FDIC. "By better understanding the households that make up this group - who they are and their reasons for being unbanked or underbanked, we will be better positioned to help them take that first step."

Terms

Unbanked is determined by households who answered "no" to the question "Do you or does anyone in your household currently have a checking or a savings account?"

Underbanked households were determined by those who have a checking or savings account but rely on alternative financial services. Specifically, using money orders, nonbank check-cashing services, payday loans, rent-to-own agreements, or pawn shops at least once or twice a year or tax refund anticipation loans at least once in the past five years.

Key Findings of the Study

  • Of the households surveyed, 7.7 percent were unbanked, which translates nationally to 9 million households - approximately 17 million adults. An additional 17.9 percent - or 21 million households nationally (approximately 43 million adults) - were found to be underbanked.
  • The proportion of U.S. households that are unbanked varies considerably across racial and ethnic groups with certain racial and ethnic groups being more likely to be unbanked than the population as a whole. Minorities more likely to be unbanked include blacks (21.7 percent of black households), Hispanics (19.3 percent), and American Indian/Alaskans (15.6 percent). Racial groups less likely to be unbanked are Asians (3.5 percent) and whites (3.3 percent).
  • Certain racial and ethnic minorities are more likely to be underbanked than the population as a whole. Minorities more likely to be underbanked include blacks (an estimated 31.6 percent), American Indian/Alaskans (28.9 percent), and Hispanics (24.0 percent). Asians and whites are less likely to be underbanked (7.2 percent and 14.9 percent, respectively).
  • Households with income under $30,000 account for at least 71 percent of unbanked households. As income increases, the share of households that are unbanked declines considerably. Nationally, nearly 20 percent of lower-income U.S. households - almost 7 million households earning below $30,000 per year - do not currently have a bank account. In contrast, only 4.2 percent of households with annual income between $30,000 and $50,000 and less than 1 percent of households with yearly income of $75,000 or higher are unbanked.
  • Households with an annual income between $30,000 and $50,000 are almost as likely as lower-income households to be underbanked.

This survey goes hand in hand with a survey the FDIC conducted earlier in the year of bankers efforts to serve the unbanked and underbanked households in their community, see FDIC's Unbanked Survey. The survey is of such important information to the FDIC that they created a special website to display the findings at online at www.economicinclusion.gov.

It appears that the unbanked and underbanked households are close to the same number of estimates of those without proper medical insurance. Is there a correlation here? Is this something congress should be addressing - making sure that every American has proper banking and financial services?

Topics: FDIC, underserved communities, underserved areas, Pay Day Loans, Banking, Unbanked customers, FDIC’s, Unbanked, Underbnked, banker's survey

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