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.
Thirty-four of the largest banks operating in the U.S. cleared a Federal Reserve stress test of their ability to withstand economic shocks, Bloomberg News reported yesterday. Every bank subject to the annual tests’ first phase exceeded minimum thresholds, though Morgan Stanley trailed the rest of Wall Street on a key measure of leverage — the second year it performed worse than peers on one of the main metrics. Last year, during a second phase examining proposals to pay out capital to shareholders, the bank was forced to resubmit its plan to address a “material weakness.” Results from that round are due next week. “This year’s results show that, even during a severe recession, our large banks would remain well capitalized,” Fed Governor Jerome Powell said in a statement yesterday announcing the central bank’s findings. The exams, started after the 2008 market crash, assess how banks would handle hypothetical turmoil, such as surging unemployment, a sharp drop in housing prices or an extended stock slump. The reviews have encouraged the 34 banks to add more than $750 billion in common equity capital since 2009, with a focus on safe and less profitable businesses. Firms that handily clear the first phase typically have more room to make payouts to shareholders.
Banking groups are pushing for a major change to the leadership of the Consumer Financial Protection Bureau, and want it attached to must-pass government funding legislation, the Washington Examiner reported today. A wide range of financial industry trade groups wrote to congressional appropriators yesterday and asked them to use government funding bills to change the agency to a five-member bipartisan commission. The CFPB is currently headed by a single director, former President Barack Obama appointee Richard Cordray. Banks regulated by the bureau have chafed at Cordray's power to supervise them and write rules unilaterally. Republicans have argued that the setup of the bureau, created by the 2010 Dodd-Frank law, is unconstitutional. A federal court ruled in October the single-director structure does run afoul of the separation of powers in government, but that ruling is under appeal.
The government’s consumer watchdog is adding its voice to a growing chorus of warnings about problems with a federal program that permits people who take public service jobs to have their student loans forgiven after a decade, the New York Times reported today. Confusing rules, bureaucratic tripwires and outright errors are hindering thousands of people as they try to take advantage of the program, according to a report released yesterday by the Consumer Financial Protection Bureau. These are people who teach, serve in the military or work for a nonprofit organization, for example. The volume of complaints is especially alarming because the program has not yet reached its first milestone: forgiving debts. Created in 2007, the program requires borrowers to do 10 years of service before any federal student loan debt is eliminated. The first wave of qualifying borrowers can submit applications in October. But hundreds of complaints in the last year indicate many applicants are encountering obstacles, the agency said.
Sen. Elizabeth Warren said yesterday that Senate Democrats are willing to pursue targeted changes for regulations affecting community banks and credit unions as Congress moves to review post-crisis financial regulations, the Wall Street Journal reported today. But the Massachusetts Democrat, Congress’s leading critic of Wall Street, said that she would stand fast against changing laws to roll back consumer protection or to help big banks. “There are places where we should do targeted changes in laws and regulations to make sure community banks don’t have to endure regulations…for problems like disrupting the entire U.S. economy when they really don’t pose that kind of threat,” Warren said.
International Business Machines Corp. today formally launched a Watson product for financial regulation, rolling out artificial-intelligence tools to help financial institutions comply with rules and detect possible financial crimes, the Wall Street Journal reported today. The technology giant’s entry into the regulatory-compliance space, where a number of firms already use AI to manage immense amounts of data, comes after it purchased financial consultancy Promontory Financial Group in September. Watson’s move comes as financial firms continue to shift to AI and so-called “machine learning” to manage data that must be analyzed for regulatory compliance and crime prevention. IBM rolled out three Watson tools: One analyzes regulatory text to identify obligations that companies might face and help assess whether the company’s compliance programs are sufficient to comply with the rules. Another assists banks in detecting suspicious customers or transactions, and a third seeks to make “big data” at financial firms more accessible to decision makers when developing new business strategies.
Even as Wells Fargo was reeling from a major scandal in its consumer bank last year, officials in the company’s mortgage business were putting through unauthorized changes to home loans held by customers in bankruptcy, a new class action and other lawsuits contend, the New York Times reported today. The changes, which surprised the customers, typically lowered their monthly loan payments, which would seem to benefit borrowers, particularly those in bankruptcy. But deep in the details was this fact: Wells Fargo’s changes would extend the terms of borrowers’ loans by decades, meaning they would have monthly payments for far longer and would ultimately owe the bank much more. Any change to a payment plan for a person in bankruptcy is subject to approval by the court and the other parties involved. But Wells Fargo put through big changes to the home loans without such approval, according to the lawsuits.
Justice Gorsuch’s maiden opinion is a unanimous decision favoring debt purchasers. In a unanimous opinion written by Justice Neil M. Gorsuch, the Supreme Court ruled today that someone who purchases a defaulted debt is not a “debt collector” and is therefore not subject to the federal Fair Debt Collection Practices Act, or FDCPA.
The case, Henson v. Santander Consumer USA Inc., was argued on April 18, the second day Justice Gorsuch sat on the bench after being sworn in the week before as the high court’s 113th justice. The opinion was Justice Gorsuch’s first for the Supreme Court, even though he did not ask a single question or make any comments at oral argument.
Santander had purchased a portfolio of defaulted auto loans from a bank. The district court and the Fourth Circuit both held that Santander was not a “debt collector” and thus not subject to the regulations and remedies afforded to consumers under the FDCPA. The Supreme Court granted certiorari to resolve a split because other circuits had held that purchasing debt did not give a debt collector immunity from the FDCPA.
The U.S. Treasury Secretary Steven Mnuchin unveiled the much-anticipated report on the department's assessment of the financial market as ordered by President Donald Trump earlier this year. The report details potential executive actions and regulatory changes that can be immediately undertaken to provide much-needed relief, according to the Treasury. Though, to be sure, the timeline of implementing any actual change is likely to be at least one year away. The report also makes extensive recommendations on the path to bring back private mortgage investor capital into the secondary markets. Shortly after taking office, Trump issued an executive order mandating that the Treasury examine financial regulations to determine if they satisfied a set of seven core principles. Those seven principles are generally related to economic growth, prudential regulation and taxpayer protection. So, for the past four months, Mnuchin and other Treasury officials got to work on this, meeting with stakeholders across the financial ecosystem, including community, independent, regional and large banks, regulators, FSOC members, consumer advocates, academics, analysts and investors.