News

Married to Debt: Couples are Taking Out Loans to Pay for Their Weddings - ABI

Demand among Americans, who are already holding record levels of debt, for help financing weddings are giving rise to an industry of personal loans marketed specifically to brides and grooms, the Washington Post reported. Online lenders say they are issuing up to four times as many “wedding loans” as they did a year ago, as they look to reach a fast-growing demographic: Couples who are picking up the tab for their own nuptials, either by choice or by necessity. Financial technology companies with snappy names like Prosper, Upstart and Earnest are promoting wedding-specific loans with interest rates as high as 30 percent to cash-strapped couples. The loans are often marketed as a way to fund extras like custom calligraphy, doughnut displays and “Instagram-worthy” venues, though some borrowers say they rely on the loans to fund their entire wedding. “People are carrying more debt, they want to get married but don’t have the funds to do so,” said David Green, chief product officer at Earnest, a San Francisco-based online lender. “These loans are a way to thread the needle.”


Investors Are Buying More of the U.S. Housing Market Than Ever Before - ABI

Investor purchases of U.S. homes have climbed to an all-time high, a sign that rising home prices have done little to dampen demand for flipping homes or turning them into single-family rentals, the Wall Street Journal reported. Big private-equity firms, real-estate speculators and others that buy properties comprised more than 11 percent of U.S. home purchasers in 2018, according to data released yesterday by CoreLogic Inc. The investor purchases are the highest on record and nearly twice the levels before the 2008 housing crash. The investor interest poses a challenge for millennials and other first-time buyers who are increasingly looking to buy starter homes and are forced to compete with deep-pocketed cash buyers. Big commercial property owners like Blackstone Group LP and Starwood Capital Group began buying thousands of homes out of foreclosure during the housing bust. Many economists credit investors with helping to stabilize the housing market in 2011 and 2012 by buying with cash when prices were low and mortgage credit froze. But analysts expected those purchases to slow, as the market rebounded and properties could no longer be had for fire-sale prices. Instead, demand for properties has intensified. While these purchases dipped slightly when the market started to recover in 2015 and 2016, they have rebounded to surpass the previous peak of six years ago.


Big Banks Face Less Stress in This Year’s Fed Tests - ABI

The Federal Reserve is scheduled to release results of annual stress tests for big banks in two parts, one today, and the other on Thursday, June 27. The firms could have an easier time with the exams because the Fed for this year overhauled several components, including a test of how firms would fare under a hypothetical doomsday scenario, the Wall Street Journal reported. Each year, banks subject their balance sheets to doomsday scenarios envisioned by the Fed. This year, the central bank’s “severely adverse” scenario would see unemployment rising by more than 6 percentage points to 10 percent, with U.S. stocks declining by 50 percent and major stresses in the corporate lending and real-estate markets. After the Fed publishes the scenarios, banks run their own tests, which helps them determine how much capital they can return to shareholders while still remaining sufficiently capitalized under the hypothetical crisis. Eighteen banks, including JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. will take the stress tests this year, compared with 35 last year. The Fed allowed firms with assets generally between $100 billion and $250 billion to skip this year’s tests under a new biennial schedule for those firms.


U.S. Consumers Boost Spending Despite Trade Tensions - ABI

American shoppers ramped up their spending in May, providing critical fuel for the U.S. economy’s continued expansion despite trade tensions and slowing global growth, the Wall Street Journal reported. Retail sales, a measure of purchases at stores, restaurants and online, rose a seasonally adjusted 0.5 percent in May from a month earlier, the Commerce Department said Friday. Overall sales also rose 0.3 percent in April, an improvement over the department’s previous estimate of a 0.2 percent decline and an indication that household spending was strong in the spring. The May spending pickup was broad-based, with increases seen at electronics stores, restaurants, sporting-goods shops, gasoline stations and online.


Top U.S. B-School Students Pile on Debt to Earn MBAs - Bloomberg

For aspiring executives, the truism that’s held constant for a generation probably has been that there’s no faster way to advance up the corporate ladder than to go back to school and get an MBA. For many, it’s also been the quickest way to pile up a mountain of debt. New data from a Bloomberg Businessweek survey of more than 10,000 MBA graduates from the class of 2018 at 126 schools around the world suggest that nearly half the students at some of the best business schools are borrowing at least $100,000 to finance their master’s degree in business administration.


The SEC Lends a Hand to Banks in this Low Interest Rate Environment - The National Review

On May 9, 2019, the U.S. Securities and Exchange Commission) proposed amendments to the definitions of “accelerated filer” and “large accelerated filer” in Exchange Act § 240 12b-2 to reduce the number of issuers that would qualify as accelerated filers and exempt more companies from the Section 404(b) of the Sarbanes-Oxley Act’s requirement to provide an auditor’s attestation of management’s assessment of internal control over financial reporting (ICFR).


Report: Retirees Might Run Out of Money 10 Years Before They Die - ABI

From the U.S. to Europe, Australia and Japan, the World Economic Forum warned in a report published yesterday that retirement account balances aren’t increasing fast enough to cover rising life expectancy, Bloomberg News reported. The result could be workers outliving their savings by as much as a decade or more. “The size of the gap is such that it requires action” from policymakers, employers and individuals, said report co-author Han Yik, head of institutional investors at the World Economic Forum. Unless more is done, older people will either need to get by on less or postpone retirement, he said. In the U.S., the forum calculates that 65-year-olds have enough savings to cover just 9.7 years of retirement income. That leaves the average American man with a gap of 8.3 years. Women, who live longer, face a 10.9-year gap. The forum assumed retirees would need enough income to cover 70 percent of their pre-retirement pay, and didn’t include Social Security or other government welfare payments in the total. The retirement savings gap is about 10 years for men in the U.K., Australia, Canada, and the Netherlands, the forum says. Longer-living women in those countries face an extra two to three years of financial uncertainty.


Regulators Alarmed by Risky Loans, But Don’t Know Who Holds Them - ABI

The steady drumbeat of warnings over the surge in risky corporate borrowing is growing louder and louder as regulators in the U.S. and Europe point to the hazards of businesses taking on too much debt, Bloomberg News reported. At issue is the $1.3 trillion leveraged lending market, composed of high-yield loans from firms with some of the weakest finances. While Federal Reserve and European Central Bank officials have drawn attention to these heavily indebted companies and the deteriorating standards of loans bundled into securities called CLOs, most regulators are careful to say a repeat of 2008 is unlikely because investors, rather than the banks they oversee, hold most of the debt. Yet that’s created a new, and potentially more dangerous, kind of risk. Precisely because roughly 85 percent of leveraged loans are held by non-banks, regulators are largely in the dark when it comes to pinpointing where the risks lie and how they’ll ripple through the financial system when the economy turns. More and more, critics are questioning whether regulators like the Fed have a handle on the problem or the right tools to contain the fallout. A big worry is highly indebted businesses employing thousands could face severe financial stress and, in some cases, insolvency, deepening the next downturn. “I always remind myself that even the smartest policy maker with the most far-reaching perspective, data and tools was basically blind-sided by the breadth and depth of the housing crisis,” said Mark Spindel, chief investment officer at Potomac River Capital. “Leveraged loans and corporate debt are not housing, but maybe it’s more pervasive than we think. We can’t take any of the CLO, leveraged loan, or private debt growth for granted.”


Third Circuit Interprets “Debt Collector” to Include Debt Buyer - JPSupra

Earlier this year, on February 22, 2019, a three-judge panel upheld a lower court ruling that debt-buying businesses could be liable for violations under the Fair Debt Collections Practices Act (the “FDCPA”).   The FDCPA’s purpose is to protect consumers from deceptive or unfair debt collection practices and applies to “debt collectors,” which is defined as those engaged “in any business the principal purpose of which is the collection of any debts” and those “who regularly collect” debts “owed or due another.” 15 U.S.C. § 1692(a).  The underlying case involves Crown Asset Management, LLC (“Crown Asset”), which is a purchaser of charged-off consumer debt.  After purchasing an account, if the consumer has not filed for bankruptcy, Crown Asset will refer the matter to a third-party service for collection or hires a debt collection law firm to file a lawsuit on its behalf.  Barbato v. Greystone Alliance, LLC, 916 F.3d 260 (3d Cir. 2019).  In 2014, Mary Barbato sued Crown Asset for violations under the FDCPA, due to Crown Asset’s alleged failure to identify itself as a collection agency.


Savings Accounts for Disabled Americans Catch On, but Slowly - ABI

New state-based accounts that let disabled people work and save money without risking the loss of government aid are slowly catching on, but advocates say millions more people with disabilities could be taking advantage of the accounts, the New York Times reported. Forty-one states and Washington, D.C., now offer the accounts, which first became available in 2016. The tax-free accounts, known as ABLE accounts, are named after the Achieving a Better Life Experience Act, the 2014 law that created them. The accounts are modeled somewhat after 529 college savings accounts and let people with disabilities save for future needs and current expenses, including education, housing and transportation, without having the money disqualify them for need-based federal benefits like Medicaid and Supplemental Security Income. Advocates have heralded the accounts as a boon that could lift many people with disabilities out of poverty, but just a tiny fraction of people eligible for the accounts are using them so far. More than 40,000 ABLE accounts were open by the end of March, with combined balances of about $225 million, said Michael Morris, executive director of the National Disability Institute. However, the institute estimates that as many as 8 million people are eligible under current rules, which limit the accounts to people who became disabled before age 26. (The number who are eligible will swell to about 14 million if Congress approves a proposal to expand access.) The growth in accounts is well below what’s needed to keep fees affordable for participants and keep the ABLE program viable, according to an analysis in May from the National Association of State Treasurers. The analysis estimated that about 450,000 funded accounts were needed by mid-2021 for most programs “to approach self-sustainability.” It recommended “critically important” changes to make the program more robust, including expanding the pool of eligible participants. Part of the challenge in fostering more growth is that ABLE accounts have nuanced rules, and states have limited budgets to promote the accounts, said JJ Hanley, director of the Illinois ABLE program. When people do hear about the accounts, she said, they are often skeptical that opening one truly won’t jeopardize their benefits. “The disability community has to be convinced it’s real,” Ms. Hanley said.