Household Debt Hits New Record

May 18, 2017 at 9:18 am Leave a comment

Far be it from me to tell anyone how to do their job, but if I was involved in lending for a living I would certainly take a close look at the New York Fed’s quarterly snapshot of household debt released yesterday. Its either (a) an infliction point signaling that sustained higher growth has taken hold; (b) a high point which masks some disturbing trends; or (c) something in-between.

First, the “good” news. The American consumer is back baby! The New York Fed tells us that household debt achieved a new peak in the first quarter of 2017, rising by $149 billion to $12.73 trillion—$50 billion above the previous peak reached in the third quarter of 2008. Balances climbed in several areas: mortgages (1.7 percent); auto loans (0.9 percent); and student loans (2.6 percent). Considering that consumer spending accounts for at least 70% of the nation’s economic growth all this spending is good news. Despite the growth, credit card balances fell 1.9 percent this quarter.

Secondly, there is evidence that we have learned our lesson According to this accompanying research the country still has less mortgage debt than it did a decade ago and lenders have actually followed the credit union lead in lending to more credit worthy borrowers.

So why am I a little skeptical? It doesn’t feel like it but by historical standards we are at the back end of the growth cycle. As none other than Ben Bernanke pointed out in a speech yesterday that from a historical standpoint a recession is due in the next two to four years.   In addition much of the current economic hype is predicated on a “Trump bump” but don’t expect major Reg Relief let alone tax reform until Robert Mueller completes his Russia investigation.

Supreme Court Makes Important Bankruptcy Rule

One of the CFPB’s real pet peeves has to do with debt collectors who continue to seek repayment of debts even after the statute of limitation for their collection has expired. In addition, inquiring minds want to know if it is legal for debt collectors to submit proofs of claim in Chapter 13 bankruptcy proceedings for the repayment of such debts. Earlier this week the Supreme Court provided guidance on this issue. It ruled that debt collectors do not engage in an unfair and deceptive practice, under the Fair Debt Collections Practices Act, by submitting claims for stale debts.

MIDLAND FUNDING, LLC v. JOHNSON dealt with a creditor who submitted a proof of claim for repayment of a 10 year old credit card debt. The debtor argued that this was an unfair and deceptive practice since the debt was not collectible. Alabama has a six year statute of limitations. The Court explained that the parties to a Chapter 13 bankruptcy are sophisticated. Most importantly the bankruptcy is responsible for reviewing the validity of all claims. The court effectively held that, while a trustee has every right to reject a stale loan there is nothing to keep the debt collector from seeing if he can slip one by the goalie.

Baseball Hot Dogs, Apple Pie and Uber

Nothing says summer like hailing a ride from Uber or Lyft, or at least that is what some New York lawmakers think. They recently proposed legislation to push up the effective date of New York’s law authorizing ride hailing services from July 9th to July 3rd, just in time to get a cheap ride home from the beer infused family Fourth of July party.

Entry filed under: Economy, General, Legal Watch, New York State. Tags: , , , .

Reports of CFPB’s Demise have been greatly exaggerated Mortgage Lending Mishap You Can Easily Avoid

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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