The longest government shutdown in modern U.S. history is choking the economic lifeblood of many entrepreneurs, the Wall Street Journal reported. The Small Business Administration has stopped approving routine small-business loans that the agency backs to ensure entrepreneurs have access to funds, halting their plans for expansion and repairs and forcing some owners to consider costlier sources of cash. SBA loans are a mainstay for many entrepreneurs, who generally can borrow as much as $5 million to start, buy, expand or run a small business through the agency’s two biggest programs. While the SBA doesn’t directly fund small-business owners, it covers as much as 90 percent of loan losses, giving an incentive to banks and other financial institutions to finance businesses they might not otherwise serve. Lenders say they are still taking loan applications and closing loans that have already received SBA approval. But it isn’t clear when borrowers will get financing. “About half the loans going through due diligence now aren’t going to be able to close before the government opens up,” said John Moshier, president of small business lending at Ready Capital Corp., a licensed nonbank SBA lender in New Providence, N.J.
The Consumer Financial Protection Bureau is changing course on its previous decision to stop supervising lending to active duty service members, HousingWire.com reported. Kathy Kraninger, the recently confirmed director of the bureau, sent a letter to Congress yesterday, asking for “clear authority” to supervise for compliance with the Military Lending Act. This turnaround comes several months after Mick Mulvaney, who served as acting director of the CFPB prior to Kraninger’s confirmation, decided that the bureau would stop supervising lending made to active duty service members. Much to the dismay of congressional Democrats, who pushed the CFPB to retain oversight. Under Mulvaney’s changes, the CFPB relied solely on complaints from service members and their families to trigger investigations. Mulvaney had reportedly expressed that the bureau had overstepped its authority by proactively looking into cases against military members without receiving complaints. Now, Kraninger has sent a proposal to clarify the CFPB’s authority to supervise compliance with the Military Lending Act to Vice President Mike Pence and Speaker of the House Nancy Pelosi. The proposal outlines a case for spelling out clearly what authority the CFPB would have over supervising military lending and proposes amending several sections of the Consumer Financial Protection Act of 2010 to outline that, according to the draft, “the Bureau shall have nonexclusive authority to require reports and conduct examinations” in regard to lending to military service members.
Heightened scrutiny on bankruptcy advisers’ conflict disclosures by the U.S. Trustee Program is sending a new and forceful message that current practices among some participants are likely to face challenges from the Justice Department and has already resulted in greater transparency in two chapter 11 cases, the Wall Street Journal reported. A judge in New York overseeing the Synergy Pharmaceuticals Inc. bankruptcy today will be asked to decide whether to approve Centerview Partners LLC as an adviser to the company on its reorganization. An objection last week from the U.S. Trustee citing “vague client confidentiality concerns” prompted Centerview yesterday to identify by name a connection it previously had sought to keep secret. (Subscription required.)
The Federal Reserve has linked rising student debt to a drop in homeownership among young Americans and the flight of college graduates from rural areas, two big shifts that have helped reshape the U.S. economy, the Wall Street Journal reported. The effect of student debt on the economy has been debated in recent years, as the total has soared to $1.5 trillion, surpassing Americans’ credit-card and car-loan bills. Congress and various White House administrations have pointed to federal student loans as a key way for Americans to pay for college and boost their career earnings. Critics have said the debt is damaging the economic prospects of a generation of Americans. The Fed research published Wednesday didn’t offer a verdict on those assertions. But it showed that student debt is linked to key life decisions for some — including whether to buy a home and where to live. Homeownership among people ages 24 to 32 fell 9 percentage points, to 36 percent from 45 percent, between 2005 and 2014, the Fed said. While many factors affected the homeowner rate, the Fed said 2 percentage points, or about a fifth, of the decline was tied directly to student debt. That translated into 400,000 borrowers who could have owned a home by 2014 but didn’t because of student loans.
The U.S. Supreme Court yesterday turned away a Texas bank’s constitutional challenge to the structure of the U.S. Consumer Financial Protection Bureau, passing up a case that could have led to more presidential power over an independent agency that President Donald Trump’s administration already has weakened, Reuters reported. The decision by the justices not to hear an appeal by State National Bank of Big Spring may not be the final word on the matter as three other cases involving the CFPB are heading toward the high court. At issue was whether the CFPB’s sole director possesses too much power in violation of the authority the U.S. Constitution gives a president to appoint and remove certain federal officials. A ruling in favor of the bank could have allowed a president to fire the agency’s director for any reason. The Texas bank’s challenge was delayed in reaching the justices because it was put on hold while the U.S. Court of Appeals for the District of Columbia Circuit dealt with a case involving mortgage servicer PHH Corp that had raised the same issues. Only eight of the nine justices on the court, which has a 5-4 conservative majority, participated in the decision to hear the case. Trump’s appointee Brett Kavanaugh recused himself, most likely because he took part in an earlier ruling in the case before joining the high court last October.
The average millennial (aged 18 to 34) had about $36,000 in personal debt, excluding home mortgages, last year, according to Northwestern Mutual’s 2018 Planning & Progress Study. That debt can feel both crushing — and endless. Just over 60 percent of millennials (classified here as those aged 18-37) with debt don’t know when, or if, they’ll ever be able to pay off what they owe, according to a new CreditCards.com report. That includes roughly 42 percent of millennials who don’t know when they’ll be able to wipe out their debt, and almost 20 percent of those who expect to die in debt. There are some bright spots in the data: Among those aged 18 to 30 with credit card debt specifically, 79 percent say they have a plan to wipe it out. On average, they expect to be debt-free by age 43, CreditCards.com finds.
Still, a lot of young people are feeling trapped. A lot of older people, too: Over 35 percent of those over age 73 predict that they’ll never pay off their debt.
The partial government shutdown has left some companies unable to get a taxpayer identification number from the IRS, holding up routine business deals until the agency’s workers return, the Wall Street Journal reported. Andy Mattson, an accountant with Moss Adams LLP in California who advises Silicon Valley companies, said the number-issuing halt has delayed deals for startups, some of which are based offshore to prevent double taxation of investors. Without a tax identification number, a foreign startup can’t get bank accounts to receive venture-capital money or make crucial tax elections, Mattson said. The shutdown’s impact on small businesses reaches beyond the slowdown in new identification numbers. “We have a buyer, but the buyer can’t actually take ownership of the business,” said Thompson. “All our tax planning is done. We are retiring. We are trying to be done, but it’s not happening.” The IRS system is still processing online requests for new taxpayer identification numbers. Many businesses in the U.S. or a U.S. territory can use the online system. But paper applications that need to be processed by IRS workers are stuck for now. Physical applications are typically made by foreign companies and by some companies in complicated financial situations. The IRS has been operating with a skeleton staff since the shutdown started on Dec. 22. Just one in eight employees are working, largely to maintain computer systems and investigate crimes, according to the IRS’s shutdown plan. Under federal law, the IRS can generally still perform activities needed to protect life and government property, including tax revenue.
Corporate bankruptcy cases unfolding in the nation’s federal courts are largely continuing during the government shutdown, even if it means furloughed Justice Department lawyers have to work for free, the Wall Street Journal reported. While the country’s bankruptcy courts have enough money to operate normally at least until Jan. 18, Justice Department officials are only allowed to play a limited role in continuing corporate bankruptcy cases during the shutdown. Some major cases are proceeding anyway. On Friday, a Delaware bankruptcy judge rejected the Justice Department’s request to pause the bankruptcy case of hospital operator Promise Healthcare Group LLC, which cares for more than 9,000 patients. Justice Department lawyers said their oversight power has been weakened by the government shutdown. Promise officials had argued that halting the case could scare off buyers who are interested in its 16 hospitals and two nursing homes. The Boca Raton, Fla., company employs about 4,500 people in nine states. Justice Department officials who are working without pay asked on Wednesday to halt the case, citing the heavily regulated nature of Promise’s operations. “I have limited ability to continue reviewing orders and participating in hearings,” Justice Department lawyer Danielle Pham told Judge Christopher Sontchi during a Friday hearing in U.S. Bankruptcy Court in Wilmington, Del.
The numbers: Consumer borrowing stayed strong for the second straight month in November, according to the Federal Reserve on Tuesday. Total consumer credit increased $22.1 billion in November to a seasonally adjusted $3.98 trillion. That’s down only slightly from a $25 billion gain in October, which was the fastest pace in 11 months. Economists had been expecting a $19 billion gain in credit, according to Econoday. This is the third month out of the past four that consumer credit grew more than $20 billion. That hasn’t happened in four years. Consumer credit has been trending around a $15 billion-a-month growth rate. What happened: Revolving credit, such as credit cards, cooled off a bit in November, rising by 5.5% after a 10.9% gain in October. Nonrevolving credit, typically auto and student loans, picked up, rising 7.1% in November after a 6.5% gain in the prior month. The data does not include mortgage loans.
Markets are racked by turmoil, and there are signs the booming U.S. economy could slow down later this year. Yet the Supreme Court is reckoning with the lingering fallout from the financial crisis that rocked the global economy a decade ago. The top court on Monday attempted to resolve a legal question that could have broad ramifications on hundreds of thousands of Americans who are foreclosed on without a judicial process each year. A key issue in the matter is who or what can be considered a "debt collector." The justices were divided, but not into clear ideological zones. Chief Justice John Roberts and Justice Brett Kavanaugh, Republican-appointed conservatives who are typically business friendly, were among the most skeptical questioners of the respondent in the case, a law firm working on behalf of Wells Fargo.