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.
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.