The Consumer Financial Protection Bureau’s structure meets the requirements of the U.S. Constitution, a federal judge said Aug. 4 in an enforcement lawsuit brought by the CFPB (Cons. Fin. Protection Bureau v. Navient Corp. , M.D. Pa., 17-cv-00101, 8/4/17). The decision is the latest on the CFPB’s constitutional status, a question that’s before several courts, most prominently the U.S. Court of Appeals for the District of Columbia Circuit. It’s hearing a case that could end up in the U.S. Supreme Court. The Aug. 4 ruling also insulates the CFPB against other decisions that say it doesn’t pass constitutional muster. Navient Corp., a student loan servicer based in Wilmington, Del., sought to dismiss a suit filed by the CFPB by saying the agency is unconstitutional. Navient cited the agency’s single-director leadership, limits on the director’s removal by the president under the Dodd-Frank Act, and a funding mechanism outside the normal budget process.
Wiping out student loan debt in bankruptcy is so difficult it’s rarely an option for distressed borrowers. But there are indications that bankruptcy courts are starting to play a bigger role in addressing what is widely considered a financial crisis and a drag on the U.S. economy. While not aiming to discharge debt, about two dozen bankruptcy jurisdictions allow debtors to participate in programs that cap repayments based on income. And attorneys are having anecdotal success in negotiating with the government to get more debtors into these repayment plans even when they are in bankruptcy. Although borrowers in these types of plans may have lower default rates, according to one consumer agency, they, too, come with caveats in bankruptcy. Some debtors, in the end, may not be that much better off as interest on their loan piles up.
American consumers increased their borrowing at a slower pace in June, as the category that includes auto and student loans posted the smallest gain in a year. Still, the June increase brought overall consumer credit -- not including mortgages or other debt secured by real estate, including home-equity loans -- to a fresh record of $3.86 trillion. In addition, the total for the category of "revolving debt," primarily credit card balances also hit a new record high of $1.027 trillion. The Federal Reserve said Monday that overall consumer credit expanded by $12.4 billion in June, down from May's $18.3 billion increase and less than economists had been expecting. Revolving debt, the category that includes credit cards, climbed $4.1 billion, down from May's $6.9 billion gain. This category of debt had crossed the $1 trillion threshold in fourth-quarter 2016, not having seen that level since the Great Recession. "America's credit card balances have never been higher, but there's no reason to think they won't just keep climbing," said Matt Schulz, CreditCards.com's senior industry analyst. "Combine that with steadily rising interest rates and you have a potentially volatile mix."
The U.S. economy continues to show signs of modest growth in 2018 according to the latest forecast by the Economic Advisory Committee panel comprised of 15 leading economists from investment banking and financial institutions. “The forces that have sustained eight years of progress, such as low interest rates and improvements in labor markets, will continue into next year,” said Christopher Probyn, chairman of the group and managing director and chief economist of State Street Global Advisors. “Moreover, business and personal tax cuts, along with an increase in infrastructure spending, should boost the economy.” The U.S. economy is already at or near full employment, according to the group, which believes that job growth will taper progressively through 2018. The national unemployment rate, currently 4.3 percent, is forecast to drift gently downward and could drop to 4.0 percent or lower before the end of 2018, the group said.
The Consumer Financial Protection Bureau yesterday finalized a sweeping new rule banning arbitration agreements that prevent class actions against banks and other financial institutions, the Legal Times reported. "Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong," said CFPB Director Richard Cordray. "These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up. Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together." The move comes more than a year after the CFPB proposed the rule for arbitration agreements, calling such terms “contract gotchas” that allow the financial industry to sidestep the legal system. In taking the final step to push forward with the rule, the CFPB crossed off a bucket-list item for Cordray as he enters the final year of his five-year term and mulls a run for governor in his home state of Ohio. The rule will take effect 60 days after it is published in the Federal Register and apply to contracts entered into more than 180 days after that date.
Consumer credit expanded in May at the fastest rate in seven months, in what could be a sign that strong levels of confidence will lead to growth in consumption, MarketWatch.com reported yesterday. U.S. consumer credit rose at a seasonally adjusted annual rate of 5.8 percent, for growth of $18.4 billion, in May, the Federal Reserve said yesterday. Revolving credit like credit cards jumped 8.7 percent. Non-revolving credit, typically auto and student loans, increased 4.7 percent. The monthly growth of consumer credit often seesaws, but the first quarter’s 4.8 percent growth was the slowest quarterly expansion in more than six years.
Delinquencies in both open- and closed-end loans rose in the first quarter of 2017, according to the ABA Consumer Credit Delinquency Bulletin released today. The rise in closed-end delinquencies was driven by an uptick in late payments on auto loans, the report noted. The composite ratio, which tracks delinquencies in the closed-end installment loan categories, rose 5 basis points to 1.56 percent of all accounts, but remained well below the 15-year average of 2.17 percent. Delinquencies in indirect auto loans rose 8 basis points to 1.83 percent of all accounts, while direct auto lending delinquencies increased by 9 points to 1.03 percent of all accounts. Both remained well beneath 15-year averages, however. In the home-related category lines tracked, home equity line of credit delinquencies and home equity loan delinquencies rose to 1.11 percent and 2.59 percent, respectively. Property improvement loan delinquencies held steady at 0.98 percent of all accounts. Meanwhile, bank card delinquencies rose 5 basis points to 2.74 percent of all accounts.
The trustee has proposed hiring a genealogy firm to help track down the right people in a case that involves two states, a half-dozen companies, unanticipated oil and gas interests, and accumulated royalties set aside for unknown claimants. Closed for decades, the case’s revival began when a party claiming an interest in escrowed gas royalties filed a lawsuit in a Virginia federal court to establish its interest in the set-aside funds. When it became apparent in that lawsuit that the long defunct company, Yellow Poplar Lumber Co., had a potential claim to those funds, the judge directed the parties to reopen Yellow Poplar’s bankruptcy case, which was closed in 1931.
Americans have racked up $1.01 trillion in revolving debt — primarily credit card debt — according to the Federal Reserve. That's the highest tally since the financial crisis in 2008. The credit card is now the preferred method of payment among Americans, edging out debit cards and cash, according to the 2016 US Payment Study by payment processing company Total Systems Services, or TSYS. It's the first time credit cards claimed the top spot in the six years TSYS has been conducting the study, which surveys 1,000 consumers who hold at least one debt card and one credit card. The study offers some insights as to why: TSYS found that rewards are the feature Americans value most in credit cards, followed by attractive interest rates and reasonable finance charges. This helps explain why high-income households enjoy plastic so much, according to the TSYS report, which said these families are "likely driven by rewards accumulated for those purchases."
The revised health care bill recently released by Senate Republicans includes cuts to Medicaid that would leave 15 million fewer people enrolled in the program by 2026, according to the Congressional Budget Report released yesterday. Health care and bankruptcy experts said that those cuts could result in more personal bankruptcy filings from Americans, reversing course from a decrease after the Affordable Care Act was implemented, Money reported yesterday. "If you were to roll back the Medicaid expansion, that's going to lead to more bankruptcies," Matthew Notowidigdo, an associate professor of economics at Northwestern University who specializes in health and labor economics. While there is no definitive estimate on how many filings come as a result of predominantly high medical costs, it is a "significant reason" why consumers may file for personal bankruptcy, said Prof. Lois Lupica, at the University of Maine School of Law. "It seems absurd that we're using the statutory benefit of debt discharge rather than using a statutory benefit of health insurance, because the people who get sick and defer preventative medicine are going to be sicker," Lupica said. The CBO score of the revised bill notes that 16 percent fewer Americans under the age of 65 would be insured through Medicaid if the bill becomes law. In total, the CBO estimates 22 million fewer Americans would be insured in 2026 than those would if the current law stayed in place. The cuts to Medicaid would reduce federal spending on the program by $772 billion by 2026.