More than a year ago, the Federal Reserve decided consumers over 21 would  only be able to apply for credit using their personal income rather than that of  the entire household.

The clause was supposed to prevent college-aged students from taking out  lines of credit based on their parents’ income, but it basically elbowed  stay-at-home parents out of the credit game altogether.

With no tangible income to report on loan applications,  homemakers are effectively denied credit before they even apply, unless they get  a spouse to co-sign. The impact on women has been undeniable, as they are 30  times more likely than men to stay at home.

“It’s 2012 and I have to ask my husband to get my own credit card,” stay-at-home mom Holly McCall said in a statement Tuesday. “I make 95% of our  household purchases, and have a nearly perfect credit score but under these new  rules, my application for a credit card is denied.”

McCall launched a petition against the law on Change.org, which has  garnered more than 33,000 signatures that she hand-delivered to the CFPB’s front  door Tuesday morning. The movement’s been backed by womens’ rights organization Moms Rising.

So far, the CFPB’s agreed to review McCall’s petition and the law itself,  according to a Change.org spokesperson. A CFPB spokesperson could not be reached  for comment.

“Denying someone a credit card because that person is a stay-at-home  parent devalues the work of raising and caring for children and that person’s  worth as a partner,” MomsRising Executive Director Kristin Rowe-Finkbeiner said  in a statement Tuesday. “This radical shift in policy — considering  individual income rather than household income in granting credit — does  nothing to help credit card companies assess credit-worthiness and everything to  harm moms or dads who don’t earn income.”

In a U.S. News & World Report column, Anisha Sekar, VP of  credit and debit products for Nerdwallet,  outlines the importance for any stay-at-home parent to maintain their financial  independence.

Financial infidelity is prevalent in nearly all cases of domestic abuse, she notes, and access to credit  could mean the difference between fleeing or staying put.

First and foremost, women (and men) should build their own savings account  outside of any joint account. Another strategy is to beef up your credit score  by taking out a joint loan with your partner. On-time payments will benefit  both your credit scores.

If those options aren’t available, consider a secured credit card.  “Secured  or pre-approved cards often come with annual fees, and you need to post  a security deposit that’s usually at least $200,” she says. “However, you’re  more or less guaranteed to qualify, and you can use a secured card to move onto  unsecured ones.”

Mandi Woodruff

The rate of payments at least 90 days overdue dipped in the first three months of the year to 0.73 percent, credit reporting agency TransUnion said Thursday.

That’s down from 0.78 percent in the fourth quarter of 2011 and 0.74 percent in the first quarter of last year.

While the rate increased in the second half of last year, the broader trend has seen delinquency rates decline steadily since the last recession started toward the end of 2007, said Charlie Wise, TransUnion’s director of research and consulting.

“We are now seeing that, when given a choice, consumers are overwhelmingly paying their bankcards before they’re paying their mortgages,” Wise said.

Between 1999 and 2007, the average quarterly credit card delinquency rate was 1.30 percent, said TransUnion, which culled data from a random sampling of about 27 million credit reports.

While late payments are down, cardholders have been racking up more debt.

On average, borrowers had $4,962 in credit card debt in the January-to-March period. That’s down 4.7 percent from the previous quarter, as cardholders paid off purchases charged during the holiday season. But card balances grew 6.1 percent versus the first quarter last year.

However, that trend has been changing in the last few quarters, as consumer confidence in the economy has shown some signs of improvement.

Another factor: The number of credit cards issued by banks over the past year has increased, along with those going to borrowers with less-than-sterling credit.

Banks consider prime borrowers to be the safest credit bet. Based on the VantageScore credit scale, those borrowers have a score between 900 and 990. Subprime borrowers, regarded as the highest-risk borrowers, are on the lowest end of the scale, with a score between 501 and 640.

The number of new cards issued to consumers last year rose by more than 20 percent versus 2010, according to TransUnion. And 24.2 percent of those cards went to people with below-prime credit scores.

That trend continued in the first three months of this year, as 24.1 percent of new cards issued in the quarter went to higher-risk borrowers.

“We expect these consumers have been making active use of their cards, because in many cases they may not have had access to cards in the past couple of years,” Wise said.

One key reason banks have become more open to issuing credit cards to higher-risk borrowers is tight competition for top-rated consumers, many of whom are not signing up for additional credit. So that leaves the crop of borrowers with some blemishes in their credit history.

Still, even with the pool of subprime credit card users growing, TransUnion has forecast that severe delinquency rates on cards will remain near current low levels at least through the end of this year.

ALEX VEIGA

Consumer Financial Protection Bureau (CFPB) accepts direct consumer complaints and also offers an industry whistleblower program.

The Debt Relief industry is a very competitive environment with hundreds of companies for debt ridden consumers to turn to for help. There are many players operating in the Debt Relief space making less than truthful claims in their marketing materials and on their website. Vulnerable consumers most often will believe what they read and based on the company’s claims will end up working with a company that does not have their best interest at heart.

The Consumer Financial Protection Bureau (CFPB) is the new sheriff in town and is tasked with protecting consumers from the unfair, deceptive and abusive acts or practices (UDAAP) of companies offering debt relief services. The CFPB has said that their main tool will be to use its enforcement authority relating to  (UDAAP). The CFPB will set the standards for what is an “unfair”, “deceptive” or “abusive” act or practice for purposes of their authority to prohibit such acts or practices.

From the CFPB website:

“Unfair, deceptive, or abusive acts and practices (UDAAPs) can cause significant financial injury to consumers, erode consumer confidence, and undermine the financial marketplace. Under the Dodd-Frank Act, it is unlawful for any provider of consumer financial products or services or a service provider to engage in any unfair, deceptive or abusive act or practice. The Act also provides CFPB with rule-making authority and, with respect to entities within its jurisdiction, enforcement authority to prevent unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. In addition, CFPB has supervisory authority for detecting and assessing risks to consumers and to markets for consumer financial products and services.”

The CFPB definitions of UDAAP are posted on their website here: http://www.consumerfinance.gov/guidance/supervision/manual/udaap-narrative/

Consumers who believe that the debt relief company that they have worked with operated in an unfair, deceptive or abusive manner in any way can now work directly with the CFPB by submitting a complaint against the company and can track the CFPB’s progress with their complaint. Debt relief companies are now directly accountable to their consumer clients and federal regulators. Companies would be well advised to resolve all consumer complaints including refund requests directly with their client before being reported to the CFPB. Companies that do not satisfy the CFPB after a consumer complaint is filed can quickly find themselves out of business and facing stiff penalties.

Compliant debt industry service providers have a strong desire to provide services based on truth and transparency. There is a very large number of debt relief companies who are operating in total compliance of all industry regulations and providing their consumer clients with outstanding customer service. These compliant service providers are being unfairly judged by the actions of their non-compliant competitors.

Consumer focused and compliant debt relief providers can now do something to help themselves while helping the CFPB rid the industry of the companies who are operating non-compliantly, providing poor customer care and putting their profits ahead of helping debt burdened American consumers.

The CFPB has included a special page on their website which encourages individuals (whistleblowers) to report companies violating any consumer financial law or violating a component of UDAAP for direct investigation by the bureau. The CFPB encourages the submission of information from “a current or former employee of such a company, an industry insider who knows about such a company, or even a competitor being unfairly undercut by such a company“.

With help of compliant debt relief companies and industry insiders the CFPB has the ability using it’s authority under UDAAP to radically and quickly clean the Debt Relief industry of companies who do not play fairly and do not place the consumer first.

The future of the consumer debt relief industry has never looked so bright for providers who will play by the new rules and will focus on providing stellar customer care.

IAPDA

Total U.S. consumer credit grew by $21.36 billion in March, according to the latest figures from the Federal Reserve. That was the biggest month-to-month jump since 2001 led by a surge in auto loans, personal loans and student loans, which combined for about $16 billion of the increase.

Credit card debt shot up, too, climbing by $5.1 billion after a $2.3 billion decline in February, according to the Fed.

As consumers increasingly leverage credit, local economists and financial experts continue to debate whether the turnaround from a lengthy period of austerity is good for the economy.

On one hand, a certain amount of consumer debt is necessary for a healthy economy since consumer spending accounts for about 70 percent of economic growth.

But overspending consumers strung out on easy credit were among those hit hardest by the financial collapse of 2008, and some experts fear consumers could be heading for the same financial cliff they fell off at the start of the recession.

“We don’t see it as much now as we did before the recession, but there are some individuals who are overextending themselves and doing just undisciplined kinds of things with credit,” said Melodee Shiels, director of Consumer Credit Counseling. “But the bulk of our clients are using credit just to get by and meet day-to-day expenses. Eventually, you reach your limit, and then you end up in a downward spiral because you can’t even make minimum payments.”

In Ohio, the average credit card balance climbed to $3,648 in March, up more than $190 from year ago, according to the latest figures available from Experian, one of the three main credit bureaus.

James Brock, a Miami University economics professor, said the pick-up in consumer borrowing can be viewed one of two ways:

“Some people would argue that it’s an indication that things are not good because people have had to go deeper into debt to get by,” he said. “But the other side of the story is that maybe things are getting better and people may feel a little safer about spending more than they did before. It’s really a glass-half-empty or glass-half-full question.”

Brock thinks the glass is half full.

“The economy is getting better,” he said. “It’s getting better in fits and starts; sometimes it’s two steps forward and one step back. But if you look at most of the broad statistical gauges of the economy, they’re generally trending up.”

Brock noted that retail sales, car sales, even home sales have all started to pick up in recent months.

“I would look at (consumer credit) as another reinforcing measure of the recovery of the economy,” he said.

Brock is not alone. More consumers also seem to think the economic glass is half full rather than half empty.

U.S. consumer sentiment has risen to its highest level since January 2008, according to the Thomson Reuters/University of Michigan’s preliminary May reading on the overall index of consumer sentiment. The index rose to 77.8 earlier this month from 76.4 in April, beating forecasts for a small decline to 76.2.

The monthly survey found also 65 percent of consumers thought buying conditions were favorable, the highest level in more than a year.

While many households are feeling more upbeat about the economy, a significant number have simply been compelled to make purchases — regardless of their financial situation.

David Rothstein, a researcher at Policy Matters Ohio, a public policy think tank in Cleveland, said Queen is typical of people who have delayed spending on necessities.

“People have waited and waited to see if the economy would get better,” he said. “They’ve put off different purchases like moving or buying a car, but people can no longer wait to make those decisions.

“They don’t have the money anymore to pay up front, so they just have to borrow,” he said. “And we saw what that did during the mortgage crisis.”

Ohioans are especially vulnerable to financial calamity as a result of overspending, according to the Corporation for Enterprise Development’s Assets and Opportunity scorecard.

Nearly a third of Ohio households are asset poor, or have little or no financial cushion to rely on in case of emergency. Ohio ranked 37th out of 50 states and the District of Columbia for the financial security of its residents.

Randy Tucker

In a sense, the March figures on income and outlays suggest that American consumers behaved rationally. That may be good news in the long run, but it is not the type of quick fix that would send stocks and deposit interest rates immediately higher.

Consumer spending slows

In a statement accompanying the March figures on personal income and outlays, Deputy U.S. Commerce Secretary Rebecca Blank pointed out that personal income rose for the 28th consecutive month, and that consumer spending was up 2.9 percent in the first quarter.

Despite the positive spin, the numbers suggested signs of consumer weakness. For example, though personal income may have risen for 28 consecutive months, some of those increases were purely the effects of inflation. After taxes and inflation, personal income actually declined in January and February.

Also, while consumer spending may have posted a solid gain for the quarter overall, it slowed dramatically in March. After a 0.5 percent gain in February, real (inflation-adjusted) consumer spending fell back to a 0.1 percent increase in March. This slowdown in consumer spending fits with the general tone of recent economic data, which suggests that the economy lost momentum as the first quarter progressed.

The underlying problems

The details of the Commerce Department report reveal one of the underlying problems for the economy. Although income growth exceeded consumer spending in March, this was the only time in the first quarter when that was the case. Factor in taxes and inflation, and the comparison between income and spending growth during the first quarter becomes even more unfavorable.

This helps explain March’s slowdown in consumer spending. Even though spending had seemed strong in January and February, this was not sustainable when real personal incomes were declining. By pulling spending growth back to within the levels of income growth during March, consumers were simply exhibiting rational behavior.

This rational behavior may have been forced on consumers by one of the other underlying problems in the economy: the fact that debt levels are back near all-time highs. Having consumers boost spending by borrowing is a limited option these days; it will take actual income growth to fuel spending going forward.

Ultimately, this is part of what ails savings account rates. Stronger loan demand could potentially boost those rates, but with consumer credit largely tapped out, that loan demand might not come until much later in the economic recovery — once income growth has put consumers in a solvent enough position to contemplate taking on debt again.

Richard Barrington

Debtmerica

In the late 1800′s, coal mine barons found no shortage of ways to maximize profits at the expense of their workers. Miners were paid subsistence wages then required to shop at the notorious “company stores” where they were sold over-priced goods on abusive credit terms. As time passed, coal-mining families would find themselves “another day older and deeper in debt” as Tennessee Ernie Ford lamented in the popular 1950′s song “Sixteen Tons.”

Much attention has been paid to rising income inequality in the U.S. over the past several decades. Less attention has been paid to rising disparities in debt between the haves and have-nots. According to a recent IMF report, debt to income ratios for the bottom 95% of income earners in the U.S. skyrocketed from 60% in 1983 to a whopping 140% in 2007. For the top 5%, the debt load actually decreased from 80% in 1983 to 65% in 2007. At the same time, real wages for the working classes stagnated. Our economy followed a business model akin to the company store. American workers experienced little real wage growth, but instead were given ready access to credit to buy over-priced houses, imported goods, and other things they could not otherwise afford.

Now comes a group of progressives, led by Nobel Laureate economist Paul Krugman, who propose, you guessed it, more consumer borrowing and spending as the main solution to our economic woes. They advocate aggressive action by the Fed to keep interest rates near zero, as well as to raise the inflation target to 4%-5%. They argue that consumers, enticed by low interest rates, will borrow and spend more while those of us who have built up savings will start spending those savings rather than let higher inflation erode their value. All of this new consumer spending will create jobs and get us out of our economic doldrums, or so their theory goes.

Here is my question: Once we’ve all borrowed as much as we can and spent down our savings, then what? Their arguments assume that our problems are cyclical, not structural, and that we can somehow successfully return to the pre-crisis good times if we can just stimulate enough consumer demand. But if we learned anything in 2008, it is that credit-infused consumer spending based on accommodative monetary policy is not a sustainable model. The Fed can print lots of money, but it cannot control what is done with it. Instead of supporting new lending for healthy, sustainable economic growth, those newly minted trillions can just as easily support asset bubbles and irresponsible lending and risk taking by yield hungry financial institutions and investors. Near zero interest rates discourage savings and weaken pension funds. At the same time, they encourage highly leveraged speculative investments based on short-term price fluctuations, not long term economic fundamentals.

Given the millions of baby boomers at or near the cusp of retirement, and the dwindling resources of Social Security and Medicare to support them, the last thing we should be doing is pursuing policies to erode private savings. And with overburdened consumers only midway through the process of de-leveraging, now is hardly the time to try to entice them to take on new debt. To be sure, the ability to refinance mortgages into much lower rates has been a positive outcome of the Fed’s near zero interest rate policies. But mortgage refinancings will eventually run their course.

Krugman and his allies want to increase the target inflation rate as a way to manipulate consumers into spending more with today’s higher-valued dollars. They downplay inflation’s harmful effects on those whose incomes do not keep pace with the cost of living. History has shown that once inflation starts to accelerate, it can be hard to control.  Moreover, it is unclear whether even the mighty Fed can keep rates low while explicitly raising target inflation. This may simply lead bond investors to demand higher interest on their investments to compensate for inflation risk. In addition, it is unlikely that the Fed could generate inflation in the one area where it might be helpful – housing – given the huge amounts of inventory projected to come on the market over the next several years which will put countervailing downward pressure on home prices.

The harsh reality is that the solution to our problems lies with fiscal policy, not monetary policy. Unfortunately, it is easier to call on the Fed to keep printing money than it is to convince our political leaders to start doing their jobs. The major road blocks to America’s economic future lie with inefficiencies in the tax code, unsustainable defense and entitlement spending, and most importantly, massive uncertainty on the part of both businesses and households over how or even whether these core issues will be resolved. Progressives would be better served by focusing on how we can get more bang out of our social spending bucks, given our high per capita expenditures on health care and education and subpar results. Similarly, conservatives need to face up to the fact that we need more tax revenues, with the real question being whether we do so by raising rates, imposing new consumption taxes, or, dramatically cutting back on tax loopholes (my preference).

Those who favor fiscal responsibility over lax monetary policy should not be branded with the scarlet A of austerity. Unlike many European countries which have tightened too rapidly (though some have little choice, given their dire fiscal situations), we can and should phase-in tax and spending reforms over time. What’s more, in some areas, additional spending makes sense. I agree with Krugman that even with current budget constraints, we should undertake well-designed and administered programs to repair infrastructure. That type of “stimulus” will create construction jobs while providing long-term benefits to our economy through more efficient transportation systems, uninterrupted water supplies, and safer buildings for our kids’ schools.

Structural fiscal reforms will give our economy real, lasting benefits. On the other hand, too much easy money from the Fed, while well-intentioned, contributed to asset bubbles, excessive risk taking, and a populace over-burdened by debt who, like the coal miners of yore, will be taking years to dig out.

Sheila Bair

The Consumer Financial Protection Bureau is considering new rules on mortgage fees, including banning origination charges based on the size of the loan.
The agency, which said the new rules would make it easier for potential home buyers to understand and compare mortgages, also is proposing that brokers and loan officers undergo criminal background checks and go through special training.

The preliminary proposals, unveiled Wednesday, also would prohibit incentives to steer consumers into higher priced loans.
“We want to bring greater transparency to the market so consumers can clearly see their options and choose the loan that is right for them,” said Richard Cordray, the agency’s director.

The 2010 financial reform law that created the consumer bureau mandated that it address mortgage fees and qualifications of mortgage originators.
One proposal the agency is considering would require flat origination fees so that consumers could more easily compare mortgages. The amount of work required to originate a mortgage doesn’t vary with its size, so agency officials argued that the origination fee shouldn’t either.

The agency also wants to make changes to discount points — a form of pre-paid interest — to prevent consumers from being misled about how much of a break they are receiving.

There are a couple of proposals regarding points. One would require that they come with at least a certain minium reduction in a loan’s interest rate. Another would require lenders and brokers to offer consumers a loan without discount points to enable better comparison shopping.

In addition, the bureau is working on standardized qualifications and screening procedures for people who originate mortgages. The goal is to help level the playing field between employees of banks, savings and loans, nonprofit groups and mortgage brokerages.

The agency is seeking feedback from the public and the mortgage industry before making formal proposals this summer. Comments can be emailed to mortgageloanorgination@cfpb.gov.
Jim Puzzanghera

Also in 1978, Congress enacted a debt-collection law known as the FDCPA, or “Fair Debt Collection Practices Act,” which we’re still working under today, 34 years later.

Hemlines have changed a zillion times since then, but our debt-collection laws have just plugged along like a rattling old jalopy, seriously mismatched to our current society. That situation would merely be quaint except that with each passing year, consumers are the ones that suffer from the law not being sufficiently updated.

Fortunately, the citizens of Massachusetts don’t need to hope that gridlock will evaporate in Washington for something to be done about the debt-collection laws. Martha Coakley, the Massachusetts attorney general, is doing her part to make reform a reality right now.

Attorney General Coakley first proposed revised regulations about a year ago, and then held hearings last year to consider all sides of the issue. Even so, after she announced final regulations last month, some in the debt-collection industry squealed in pain at the thought of how the new rules will be so draconian. Let’s look at some of the more controversial, “unreasonable” rules:

It will now be considered an unfair-trade practice for a debt collector to threaten to proceed with an action that it doesn’t take or at least attempt to take. This is in response to an abusive industry practice of threatening to sue a consumer when the debt collector knew that the debt was so old that it had gone beyond the statute of limitations to sue — but the collector would threaten to sue anyway. This type of debt is called “time-barred.”

The new rules also prohibit collection activity on time-barred debt without explaining in clear language that the collector can no longer sue to collect it. That is hardly a radical rule, yet it’s been necessary because one of the favorite tactics of unscrupulous debt collectors has been to threaten with lawsuits, arrest, and jail.

The new regulations in Massachusetts now limit the number of calls and text messages to two per week. Some debt collectors must be stunned at the thought of a lousy two calls per week to their targets, considering how someone received almost 1,000 calls from a single company.

Another provision requires that creditors collecting on their own debts must be able to verify that the debt is valid, and so must third-party buyers of debt. This rule puts a real cramp in the style of some collectors who much prefer to receive a computer file with names, phone numbers, and payment amounts, and who don’t see the need for pesky details like whether the consumer actually owes the debt. As common-sense as this concept sounds, it’s been necessary for Attorney General Coakley to create a regulation to protect consumers from collectors who would ignore the little detail of who actually owed the debt.

Attorney General Coakley summarized her reasons for the new regulations:

“Given the industry’s recent advances in technology, we concentrated on how we could bring our regulations up-to-date and streamline them to be consistent with other state and federal agencies. These amendments ensure that the playing field is level for both creditors and consumers so that all parties are better protected.”

Massachusetts and the rest of the nation still have a long way to go before we see more common sense than common criminals in the ranks of debt collectors and their accomplices. After a Massachusetts woman fell behind on her car payments, a collector filed suit. Never mind that the notice of suit was returned undelivered to the consumer — the collector won a judgment against her because she never appeared in court for a suit she knew nothing about. Deputy sheriffs then hauled away her car and put a lien on her home. Because the consumer couldn’t pay the $5,600 fee to store her car, it was auctioned off.

Regulations are not “good.” In fact, they’re neither good nor bad; the real measure is whether they are necessary and effective. The debt-collection industry has indicated by its actions that these new regulations have become necessary. It will now be up to us to watch whether they will be effective, because debt collectors have proven to be agile in dodging and weaving around laws. Debt collectors have gone too far and consumers should not hope for or merely request civil treatment — they should demand it.

Bill Bartmann

Total consumer credit grew by $21.36 billion – more than twice the $9.8 billion rise that Wall Street economists surveyed by Reuters had forecast. That followed a revised $9.27 billion increase in outstanding credit in February.

Analysts expressed some reservations whether the data reliably signaled a real pickup in demand, something that would normally fuel stronger growth, or just a need to rely more on credit in an economy generating anemic job growth.

“The optimistic read is that consumers’ improved outlook on the economy and employment prospects led them to feel comfortable spending on credit, while a more downbeat interpretation is that credit is needed for consumers to keep up,” Nomura Global Economics said in a note afterward.

The March rise in consumer credit was the strongest for any month since November 2001 when it soared by $28 billion. That was shortly after the September 11, 2001 attacks when big automakers were offering zero-percent financing and other incentives to lure consumers back to their showrooms.

New-car sales and production were a key influence on the 2.2 percent annual rate of economic growth posted during the first three months this year. The government estimated that about half of that growth came from increased new car production.

The March figures showed consumers once again expanding their credit card use after two months in which they had paid this debt. So-called revolving, or credit-card, debt rose $5.18 billion after declining by $2.35 billion in February and $2.95 billion in January.

Paul Edelstein, an economist with IHS Global Insight in Lexington, Massachusetts, said it might mean that consumers have now paid down debt that they accumulated over the holiday season and were ready and able to take on more, but cautioned that was not a certainty.

“The bearish view is that with income growth anemic, households needed to use their credit cards to pay for higher gasoline prices in March,” he added.

The main increase in March consumer credit was concentrated in nonrevolving credit, a category that includes student and car loans. It climbed by $16.17 billion following a revised $11.62-billion gain in February.

Concern about student loan levels has increased in an environment where newly graduating students face difficulty finding a job and keeping up with loan payments.

Congress is currently considering how to prevent a low interest rate for student loans from doubling on July 1 and is expected to find a way to do so, if only to avoid irritating young voters ahead of November’s presidential elections.

A scarcity of job opportunities has led more people to seek retraining at colleges and universities which has also contributed to loan demand and growth in outstanding credit.

“We expect that student loan growth will continue to push the level of consumer credit outstanding higher, and we look for revolving credit to expand as banks become more willing to lend,” Barclays Bank PLC said in a statement.

Last week, the Fed said in its latest report on bank lending standards that bankers had become more willing to lend and that demand for business loans had increased in the first three months of this year.

That was taken as a hopeful sign for expansion because credit standards had tightened sharply after the 2007-09 recession and any loosening of standards could indicate an easier flow of credit that is vital to fuel growth.

Glenn Somerville