ECONOMY

Monthly Archives: MARCH 2018


Debt-conscious millennials ditch credit cards, threaten industry
06.03.18 - LISA FU*
Debt-conscious millennials ditch credit cards, threaten industry



Millennials have been accused of disrupting many industries, from newspapers to brick-and-mortar stores. Credit cards appear to be next in line.

Just one out of three millennials carries plastic, according to a Bankrate.com survey, compared to the majority of older Americans. In addition, a Fed survey found the 18 to 24 demographic preferred to pay cash more than others. And if they do carry a card, it tends to be of the prepaid or debit variety, TD Bank found.

None of that bodes well for banks like JPMorgan Chase & Co. or payment networks like Visa Inc. and MasterCard Inc., since the fees they earn from debit card transactions are less than those earned via credit cards. The 2008 global financial crisis and ballooning college tuition may have also scared some millennials away.

"They experienced the Great Recession just as they were beginning school or starting their career, pondering about buying a home,” said Erin Currier, director of financial security and mobility at Pew Charitable Trusts. "They’re very sensitive to this life experience.”

In debt

Millennials are more likely than older generations to have student loans to pay. About 41% of them held such debt, according to a 2015 Pew report. That compares to, at their peaks, 26% for Generation X; 13% for Baby Boomers; and 3% for the Silent Generation.

And the burden is heavier, too: From 1990 to 2015, student debt for the typical college bachelor’s degree increased about 164%, according to Education Department data.

Those big obligations could explain millennials’ aversion to borrowing, Currier said. Over time, they may never grow as comfortable with credit cards and debt as previous generations have, she said.

TransUnion confirms millennials carry fewer cards and have lower balances than Gen-Xers did when the latter group was aged 21-34, thanks in part to legislation limiting the marketing of credit cards on campus and the subsequent boom in the use of debit cards. Millennials have also increased the use of auto and personal loans, TransUnion found, at the expense of credit cards.

Take Bo King, a 26-year-old who applied for his first credit card about a year ago. He grew up cautious after watching friends and family pile up thousands in debt. King, who works in retail, has been using a debit card since turning 18, but knew he would need a credit history to be able to buy a house.

"I’ve always been sceptical about getting a credit card,” King said. Eventually, though, "I saw it as a necessary evil.”

Millennial needs

It’s an evil some millennials will shift to from prepaid and debit cards as they get older, according to a study by payment processor TSYS Merchant Solutions, which shows credit cards becoming the preferred method of payment after age 25.

That’s the saving grace for the card companies. A breakdown of balances by age suggests that the older people get, the more they rely on credit cards. A Fico study showed 18- to 24-year-olds had an average balance of just over $2,000. With 25- to 34-year-olds, the number almost doubled, said Ethan Dornhelm, vice-president of analytics and scores from Fico.

"As millennials grow older and more affluent, the ownership of credit cards and the need for and desire for credit cards will increase,” said Solana Cozzo, VP of prepaid and financial inclusion at Mastercard.

They’re not only expected to change their spending habits when they have children, but they’re also more likely to be in tune with the awards credit card companies bestow, like airline miles and cash back on purchases.

Perhaps the issuers should tie rewards to student loan debt. Sam DeMario, a 20-year-old finishing his undergraduate degree, has been putting off getting a credit card until he can earn a bit more money and start paying off his school bills.

"Once I’ve been accepted into a graduate program and have a stipend that I can report as income, I don’t see a reason not to have one,” he said.
 
(*Courtesy: Bloomberg)




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WILL DETER ECONOMIC OFFENDERS FROM FLEEING THE COUNTRY
PNB scam fallout: Cabinet okays Fugitive Economic Offenders Bill
01.03.18 - TEAM PT
PNB scam fallout: Cabinet okays Fugitive Economic Offenders Bill



Facing criticism from opposition for not being able to stop the PNB fraud accused Nirav Modi from escaping the country, the Cabinet on Thursday approved the Fugitive Economic Offenders Bill that enables confiscation of assets without conviction in cases where economic offenders flee the country.
 
The Union Cabinet chaired by Prime Minister Narendra Modi, has approved the proposal of the Ministry of Finance to introduce the Fugitive Economic Offenders Bill, 2018 in Parliament. The Bill would help in laying down measures to deter economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts. The cases where the total value involved in such offences is Rs.100 crore or more, will come under the purview of this Bill.

The Bill is expected to re-establish the rule of law with respect to the fugitive economic offenders as they would be forced to return to India to face trial for scheduled offences. This would also help the banks and other financial institutions to achieve higher recovery from financial defaults committed by such fugitive economic offenders, improving the financial health of such institutions.
 
The bill, which deals with those fleeing overseas to avoid getting caught, aims to provide an "effective, expeditious and constitutionally permissible deterrent to ensure that such actions are curbed" and steps can be taken against the culprit.

Speaking to media after cabinet's nod to the bill, Finance Minister Arun Jaitley said, "the bill will be introduced in the upcoming session of Parliament.
 
The Fugitive Economic Offenders Bill 2017 was first mentioned by Finance Minister Arun Jaitley in his Budget speech in 2017-18, against the backdrop of bringing back Vijay Mallya, who owes over Rs 9,000 crore in the Kingfisher Airlines fraud case. 

The minister, while introducing the details of the Bill, had said: "In the recent past, there have been instances of big time offenders, including economic offenders, fleeing the country to escape the reach of law. We have to ensure that the law is allowed to take its own course. Government is therefore considering introduction of legislative changes, or even a new law, to confiscate the assets of such persons located within the country, till they submit to the jurisdiction of the appropriate legal forum."
 
The Bill primarily empowers the government and investigating agencies to confiscate property and assets of economic offenders and defaulters who flee India.

It covers a wide range of offences, including wilful loan defaults, cheating and forgery, forged or fraudulent document of electronic records, duty evasion, non-repayment of deposits and others.

The Bill also proposes setting up of a "Special Court" under the Prevention of Money Laundering Act, which will declare a person a "fugitive economic offender".

The law, though it was announced in the Budget for 2017-18, has been hastened after Nirav Modi and his uncle Mehul Choksi allegedly defrauded state-owned Punjab National Bank (PNB) of Rs12,700 crore and left the country and are refusing to cooperate with law enforcement agencies.
 
Once both the houses pass the bill, the new legislation will empower investigating agencies to confiscate any property of the absconding offenders without any encumbrances.

Under the Law, the offender will be "disentitled" from bringing forward or defending any civil claim. It will also prevent the offender, if he returns to India, from reclaiming any property.




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