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Many Americans are now paying with plastic a little more frequently but have also managed to get their credit card debt under control. Recent reports from the banking industry show a significant rise in consumer borrowing, coupled with a decline in the rate of credit card delinquencies and defaults. That’s welcome news after years of American angst over stressful levels of debt and an epidemic of defaults, foreclosures, defaults, and plummeting credit ratings. The news lately has been quite positive and helps to confirm that the worst is behind us, and that the economy is starting to grow perceptively stronger.
Retirement savings plans, for example, are being significantly bolstered by a stock market that is now setting new records for all-time highs. Consumer confidence has also returned to the marketplace, as reflected by the fact that overall borrowing rose higher than expected in recent months. The Federal Reserve reports that use of credit cards and other kinds of revolving credit were the big change agents fueling that increase – jumping more than eight percent between April and May of this year. That was the most accelerated rise in a year, and it came during a period when charge-offs for credit card defaults also diminished rather significantly.
Credit Card Issuers Are Optimistic
Capital One, for instance, saw the rates of defaults on its credit cards fall to a level that the company has not experienced since the spring of 2012, when it bought HSBC’s credit card business. At Discover Financial Services there were also significantly fewer late payments within the second quarter of this year. The volume of its credit card payments more than a month past due dropped to record lows for the company. Meanwhile, Discover’s online banking business has grown by nearly $100 million within the past year.
By cardholders paying down their obligations, it frees up more money for banks to lend, which has inspired credit card companies to issue more plastic. The opening of new credit accounts grew by more than 15 percent during the first few months of the year, and the statistics related to both new credit and new loans show that consumer borrowing is stronger than it has been in at least four years.
The Latest Equifax Consumer Trends Report
Equifax, which is one of the three biggest credit reporting agencies in the USA, also recently issued an encouraging report on consumer debt repayment, showing substantial across-the-board improvement. New credit being extended to borrowers grew from June 2012 to June 2013 in almost all of the categories that the company tracks, as the number of late payments and defaults shrank.
Some of the most positive news from Equifax was related to the mortgage industry, where delinquencies of at least 90 days appear to be in steep decline. That reverses the tragic trend and trajectory of the past several years, when historically high numbers of mortgage payment defaults led to millions of Americans slipping into foreclosure and losing their homes.
Hitting the Credit Industry Complaint Lottery
To its chagrin, however, Equifax is not just making the news these days because of its report on consumer trends. A woman who lives in Oregon just won a staggering judgment against Equifax because of the agency’s failure to follow the law and resolve problems in her credit report that was their fault.
Julie Miller tried almost a dozen times to get Equifax to fix the glaring inaccuracies, which included getting both her birthday and her all-import Social Security number dead wrong. Despite her urging and pleading, Equifax did not effectively address her complaints. Already this year the Federal Trade Commission (FTC) reported that more than 20 percent of credit reports likely contain erroneous information. That’s part of the reason why government watchdogs like the FTC and the Consumer Financial Protection Bureau (CFPB) are actively pursuing multiple investigations, including those scrutinizing credit reporting companies and collection agencies.
Instead of waiting around for the FTC or CFPB to take Equifax to task, Miller took them to court herself. The federal jury that heard the case awarded compensatory damages of a rather modest $180,000. Then they tacked on more than $18 million in punitive awards to chastise the company for its lack of responsiveness, hitting Equifax with an $18.6 million judgment in favor of Miller.
Now for the Bad News
Not all the news is upbeat, however, because the problems with mounting student loan debt and rising tuitions are still plaguing consumers. The top economist at Equifax said that while performance in all the other sectors is showing healthy improvement, the rebounding economy has not had the same impact on the student loan sector. He explained that student loan debt is currently the fastest growing consumer debt segment and is also the only sector or category where the rates of charge-offs and delinquencies is quickly accelerating. There are a number of factors converging this year to help create a perfect storm within the student loan industry, which had already been in disastrous shape for years.
For one thing the cost of higher education in this country is off the charts, and there is no end to tuition inflation in sight. While the price tag for going to college gets bigger, unfortunately, the payoff for earning a diploma has diminished. More and more recent graduates find themselves standing in the unemployment line. Then there is the problem of a dysfunctional Congress. Despite years of wrangling over the troublesome issue of student loans, legislators have failed to reach any kind of workable agreement that benefits students. Their lack of productivity regarding student loans even triggered a doubling last month of the interest rates charged on loans. So the student loan problem got twice as bad simply because of inaction at the congressional level.