CFPB Director: We Can Help Americans Dig Themselves Out of the Financial Crisis

Although the Dodd-Frank Financial Reform Act requires regular reporting to Congress by the Consumer Financial Protection Bureau, the still-new agency is actively working to engage other federal and state officials too.

On March 6, CFPB Director Richard Cordray reached out to the nation’s state attorneys generals to share the Bureau’s recent progress and also request continued collaborations to protect the nation’s consumers. In a keynote address before the National Association of Attorneys General, Director Cordray heralded strategic partnerships, special initiatives and shared plans for new areas of action.

“Our goal is straightforward but the responsibility looms large,” said Director Cordray. “We are determined to make consumer financial markets work better for all Americans, for the honest businesses that serve them, and for the economy as a whole.”

In recognition of the collaborative efforts with state attorneys general in reaching the recently-announced mortgage settlement, Cordray assured officials that mortgage markets will remain an urgent CFPB priority.

In addition, CFPB will soon require mortgage servicers to improve the clarity of billing statements. Servicers will also be required to provide consumers with written, advance notice of interest rate adjustments on hybrid, adjustable-rate mortgages. Currently, as many as 10 million mortgage borrowers are at risk of default and nearly 4 million are more than 90 days delinquent.

Administratively, CFPB is now organized into functional teams across several lending areas for research, supervision and enforcement. In addition to mortgages, these teams will examine credit cards, payday loans, overdraft fees and an emerging consumer issue – debt settlement.

A newly-proposed rule that has yet to take effect will supervise all debt collectors in the United States with more than $10 million in annual receipts resulting from collection activities. Once final, the rule will enable CFPB’s supervision team to examine and determine whether debt collectors are complying with the law.

“While debtors need to pay back their creditors,” said Cordray, “the methods used by some debt collectors are just unconscionable. Harassment. Inexcusable language and threats. Repeated late-night phone calls. . . Some of this activity is downright illegal, and none of it comports with any proper vision of a civilized society.”

A December 2011 study by the Better Business Bureau found that consumer complaints on debt collection jumped 17 percent in just one year. Additional findings from the study included:

· Debt buyer-collectors pay pennies on the dollar for billions of dollars in delinquent debts that have been charged off and then try to collect the face amount of the debts.

· Income increased an average of 58 percent in one year for two large debt buyer-collectors.

· After unsuccessful oral or written attempts to collect a debt, collectors have filed suits in courts, often obtaining default judgments, and then garnishing the wages or attaching bank accounts of the debtor.

· The suits are often filed with scanty or false information regarding the debt, and sometimes are backed by affidavits which are robo-signed at the rate of hundreds daily per worker by employees who have no knowledge of the debt.

CFPB intends to work closely with state attorneys general along with the Federal Trade Commission and Department of Justice on debt collection practices.

According to Corday, “Our goal is to help the honest debt collectors do their jobs responsibly and see that the rest are either rehabilitated or run out of business once and for all. Until we do so, we will be failing all those people who are counting on us to change the world for the better – including ourselves.”

Charlene Crowell

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Consumers Still Buried In Credit Card Debt

Americans racked up $48 billion dollars in new credit card debt in 2011 according to a recent study

Remember a few years ago when millions of Americans spent beyond their means, racked up a bunch of credit card debt, and then ran into trouble when global financial markets tanked and the housing market went under?

It seems old habits die hard, according to a new study by credit card comparison website CardHub, which found that consumers are charging more on their credit cards again.

Americans racked up nearly $48 billion in new credit card debt in 2011, 424 percent more than what they charged in 2010, and 577 percent more than in 2009. Although total outstanding credit rose only about $4 billion, that number was largely offset by the magnitude of consumer defaults—$44.2 billion worth.

“Looking back two years, with the exception of a single quarter, U.S. consumer debt management has consistently worsened,” the report said, noting that the recent trend  of consumers paying down debt doesn’t match up with the hard data. “First-quarter pay-downs have become less significant and the amount of new debt added in each subsequent quarter has grown compared to its respective counterparts in the previous two years.”

But don’t freak out, the U.S. isn’t headed into another debt-fueled downward spiral just yet. While it’s true that some Americans have had to turn to credit cards to bridge gaps in household finances, there’s another reason for the apparent credit spending spree: credit card rewards.

“There’s a lot of competition on rewards credit cards to attract big spending consumers,” says Greg McBride, senior financial analyst at “These are consumers that by and large pay their balances in full every month, so people are spending a lot more on credit cards, but it doesn’t necessarily mean they are carrying bigger balances or accumulating more debt.”

About 35 percent of credit card holders pay off their balance each month, according to McBride, in large part to rack up rewards such as airline miles and gas points.

And although some experts cheered numbers showing that consumer credit card debt was dropping over the past few years, the bulk of that decline actually came from charge-offs, or card issuers writing off debt they had no hope to recoup.

“Card issuers were very aggressive in writing off bad debt in 2009 and 2010,” McBride says. “That’s why over the last year or so they’ve been out actively seeking to grow their business.”

As credit card companies ramp up efforts to expand their business—and profits—consumers should be aware of the pitfalls that come with credit card debt. According to Odysseas Papadimitriou, founder and CEO of CardHub, there should be a permanent reset when it comes to consumer spending behavior, especially if one’s wealth was tied to the booming housing market.

“It’s critical that people make a budget and in doing so remember that, if their spending was at all tied to the housing market prior to the Great Recession, the fact that the bubble has burst means it cannot return to pre-recession levels no matter how much the economy recovers,” Papadimitriou said in a statement.

Furthermore, even though many consumers unable to pay their credit card balances have had some of their debt erased by credit card companies, depending on where they live, that blemish on their credit record could stick around for anywhere between three and 15 years.

Meg Handley

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Debt, the American Way

America is back. You can tell because Americans are maxing out their credit cards again.

Household debt grew at an annualized rate of 0.25% in the last quarter of 2011, according to the Federal Reserve’s flow-of-funds report released last week. That’s not a big jump, but until now there hadn’t been any uptick at all in household debt since the 2008 crash.

“Consumers have been more willing to use credit cards for shopping, signaling renewed confidence in their financial and job prospects,” explained Paul Edelstein, director of financial economics at IHS Global Insight, in a recentAssociated Press report.

Banks are lending, consumers are borrowing and China is busy making us more stuff.

Who knew getting out of an unprecedented debt crisis was this easy? Print trillions of dollars for the banks, give Wall Street speculators zero-interest loans, and run up the national debt clock to $15 trillion.

Whip out your credit card, if you’ve still got one, and enjoy it while it lasts.

“We all know it’s going to happen,” says Louis Hyman. “Interest rates have to go up, and when they do—Kablooey!”

That is the precise technical term for where our debt-addicted economy is headed.

Mr. Hyman is a former McKinsey consultant, a Harvard Ph.D., a Cornell University professor and author of “Borrow: The American Way of Debt.”

His book, released in February, is an entertaining romp through the history and culture of credit. It points out that while borrowing has been around for millennia, it was used to finance production, not consumption, for most of that time.

This thing we take for granted, buying houses, cars and electronic gizmos on credit, is a relatively recent development. It created the middle class we know today, but it’s also destroying it.

“We haven’t really dealt with the underlying causes of the crisis,” Mr. Hyman says.

And the most basic cause is this: “Consumer debt has crowded out business debt. …GE Capital can make more money issuing credit cards to consumers than it can loaning money to businesses.”

Indeed, the interest rates charged for many consumer loans used to be prosecuted as criminal offenses. Banks bought off the lawmakers and became loan sharks with risk-management models singling out borrowers they know can’t repay—ruining them and everyone around them as their subprime debts choke the economy.

Mr. Hyman argues our economy will never be fixed until government policy encourages credit to flow more freely to those who produce and less freely to those who consume.

If capital is invested in businesses that can create decent-paying jobs, then maybe people won’t need so much credit to buy the things they consume.

Our grandparents would have never imagined taking out a loan for a bite to eat. Anyone who charges a pizza and doesn’t pay off the balance at the end of the month eats debt for dinner.

Americans do not need to eat like this. They need jobs. But the great allocators of capital known as Wall Street would rather keep flipping debt-backed securities. And the great drivers of the U.S. economy known as consumers are increasingly stuck with low-paying jobs and high-interest credit cards.

“When it is more profitable to build an electric car than to invest in a credit card, we will know that the crisis is over,” Mr. Hyman writes in his book.

It’s such a great book, I didn’t have the heart to tell him the news: General Motors just suspended production on the Chevy Volt.

Al Lewis

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First U.S. Increase in Consumer Debt Since 2008 – Good or Bad?

According to, a publisher of credit card statistics, “approximately 51 percent of the U.S. population has at least two credit cards … [and] on average, today’s consumer has a total of 13 credit obligations on record at a credit bureau … [with] the average consumer’s oldest obligation [at] 14 years…” So it’s reasonable to assume that credit debt payments have a significant  impact on most family’s monthly spend.

One positive consequence of our years of economic recession has been that consumers, in the aggregate, finally realized that reducing their personal debt is a wise practice and have generally done so since 2008 — that is until Q4 2011.

Today’s WSJ quotes the Federal Reserve saying “Household debt, including mortgages, credit cards, auto loans and student debt, rose 0.25% on an annualized basis in the fourth quarter of 2011[and]  was the first increase since the second quarter of 2008, before Lehman Brothers’ collapse and the ensuing financial panic and recession.”  A significant change in course but a very small numerical increase considering the holiday season. Many Monday morning economists would have us universally believe that debt — and increasing it — is bad, and savings is good. Absolutes such as these stem more from an absence of gray thinking than substantive economics.

More importantly, “U.S. households’ net worth — the value of homes, stocks and other investments minus debts and other liabilities — rose $1.2 trillion to $58.5 trillion from October through December, the first improvement in two quarters. The increase came as the Dow Jones Industrial Average rallied nearly 12%. A measure of households’ disposable personal income jumped, helping Americans keep a lid on debt, which fell to 113% of disposable income from 118% at the end of 2010.” Once again, this a rather small snapshot but,  none-the-less,  portends an interesting possible shift.

If there’s a take away here, it’s that consumer confidence is becoming unstuck and ever so slightly improving — not that U.S. consumers are about to resume their irresponsible pre-recession credit binge spending. A very interesting longer trend revealed by the Fed’s graph is that since 2010, debt as a percentage of GDP, has fallen sharply for households and financial businesses, remained flat for non-financial businesses and State and Local governments, and risen sharply at the Federal government level.

And, of course, all of the above will be totally meaningless if we can’t curb the acute ongoing panic — aka the ‘feeding frenzy’ —  in oil futures trading.

William Busch

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Household debt rises for first time in 3-1/2 years

(Reuters) – Household debt rose for the first time in three and a half years during the fourth quarter, suggesting Americans were more comfortable borrowing money and potentially laying the groundwork for higher consumer spending.

The data released on Thursday by the Federal Reserve also showed household wealth increasing by $1.2 trillion, which could also support spending.

The report showed the ratio of U.S. household debt to after-tax income fell in the fourth quarter to the lowest level since 2004.

Total household liabilities were 117.5 percent of disposable income during the October-December period, down from 118.2 percent in the previous quarter, according to Reuters’ calculations based on the Fed’s “Flow of Funds” report.

Consumer credit swelled by 6.9 percent during the October-December period. Households continued to shed mortgage debt, which makes up the majority of their liabilities and declined at a 1.5 percent annual rate. The pace of the decline in mortgage debt was the slowest in two years.

A jump in the value of financial assets pushed household net worth higher to $58.455 trillion, even though a fall in the value of real estate tempered the gains.

Households have struggled to rebuild their net worth after the country’s housing bubble popped and triggered the 2007-2009 recession.

Non-financial corporate businesses held $2.233 trillion in liquid assets, such as cash, in the fourth quarter, up from $2.120 trillion in the previous quarter, the data showed. The growing mountain of cash suggests companies are still leery about investing.

by Jason Lange

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Gas prices must come down, consumers say

Consumers fretting about soaring gasoline prices say President Barack Obama and Congress must act to keep them from rising further, a Gallup Poll finds.

An overwhelming number of consumers — 85 percent — say Obama and Congress should take “immediate” action to keep a lid on prices. After nearly four weeks of daily price increases, regular gasoline averages $3.76 a gallon nationwide.

Industry analysts still expect a $4 top by Memorial Day, although prices could rise to $5 a gallon if escalating tensions in the Middle East disrupt crude oil shipments. At $5, about 30 percent of those surveyed by Gallup say they would have to make major changes in their lives and significant cutbacks in spending. About 28 percent say $4 gas would prompt similar changes.

Typically, seasonal demand accounts for higher prices. But this year, U.S. consumption has fallen to its lowest levels since the late 1990s. Industry analysts say speculators, lower refinery output and foreign demand have driven prices to record winter highs.

The Gallup Poll underscores consumer sentiment about a hot-potato issue in an election year. Republican presidential contenders blame rising gas prices on Obama, while Obama counters that there is no quick fix.


“We’ll continue to see plenty of blame attributed to both parties if we see prices go higher,” says Tom Kloza, chief analyst for the Oil Price Information Service. “But there is very little a president can do to impact gas or crude oil prices over the short term.”


Just 31 percent in the Gallup survey agree that gas prices are largely beyond the control of Obama or Congress. The poll of about 500 adults was taken Monday and Tuesday; it has a margin of error of plus or minus 5 percentage points.


The American Petroleum Institute on Thursday urged Obama to spur domestic energy development and approve the controversial Keystone pipeline, which would push oil from Canada to Texas refineries. Such moves would help ease crude oil prices, API chief Jack Gerard says.


Obama advocates better fuel efficiency and alternative fuel sources, such as natural gas. He rejected the Keystone proposal in January, citing insufficient time to review its environmental impact. A Republican bid to speed approval of the pipeline was defeated in the Senate Thursday.


Crude oil prices may not provide any relief. They are expected to stay around $107 a barrel, where they are now, according to the Organization of the Petroleum Exporting Countries’ latest monthly forecast.


OPEC is predicting a flat market for oil due to weak economic performance in developed nations.


The forecast sees world oil demand growing by 900,000 barrels a day — unchanged from its previous report.


In its forecast issued Friday, OPEC says “the weak pace of growth in the OECD economies (in Europe) is negatively affecting oil demand.”


The forecast goes on to say that while the U.S. economy has improved, Europe’s debt crisis “along with higher oil prices has resulted in considerable uncertainties for future oil demand for the rest of the year.”


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CFPB announces plans to share data with state, federal law enforcement

Richard Cordray, the director of the Consumer Financial Protection Bureau, announced on Tuesday that the agency expects to soon reach a data-sharing deal between state and federal law enforcement to examine financial institutions.


The agreement will “establish a general framework to share data on consumer financial protection issues,” Cordray said in a speech at the National Association of State Attorneys General, according to Bloomberg.

Roy Cooper, the attorney general of North Carolina, said that the information-sharing relies on the use of the Federal Trade Commission’s Consumer Sentinel network as a hub for receiving complaints, Bloomberg reports.

The CFPB and state authorities have been working closely in staff groups on mutual issues.

“We are meeting regularly to discuss the challenges posed to our mutual constituents by payday loans, foreclosure scams, auto loans and debt collection,” Cordray said, according to Bloomberg. “These substantive groups allow us to keep each other updated and to launch joint initiatives in areas where we share jurisdiction.”

A spokeswoman for the FTC said, that virtually all state attorneys general can access the database, but not all states add information.

Bank lobbyists have expressed concern that the CFPB might share the confidential information with states attorneys general. Cordray said that he would not oppose legislation that allows the agency exclusive privilege to the information.

Alexandra Villarreal

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Fat consumer debt biggest risk in Canada

Bank of Canada cites debt

High consumer debt levels pose the biggest threat in Canada, the central bank warned today as it held its benchmark rate steady.

Bank of Canada Governor Mark Carney has oft warned Canadians that they must bring record household debt levels into line, and he did so again today, The Globe and Mail’s Jeremy Torobin reports.

“Canadian household spending is expected to remain high relative to GDP as households add to their debt burden, which remains the biggest domestic risk,” the central bank said in its statement.

“Net exports have been supported by stronger-than-anticipated U.S. activity but are expected to contribute little to growth, reflecting still-moderate foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar,” it added.

Mr. Carney and his rate-setting panel held their benchmark overnight rate at 1 per cent, for the 12th time in a row, while noting that recent evidence indicates a better outlook than it had projected just a couple of months ago. This indicates rates could rise again sooner rather than expected earlier, some economists believe, though others still think the central bank’s next move will be to cut.

“The message is clear: while rates are unlikely to increase in the near term, the next move is more likely to be up rather than down, and could well emerge sooner than we currently anticipate (2013Q4),” said senior economist Sal Guatieri of BMO Nesbitt Burns.

While rate hikes don’t appear imminent, the signal from the central bank is that they are on the horizon, a further warning for those who are drowning in debt.

Consumer debt has become the issue in Canada, and many have warned that a financial shock could put many at risk. The ratio of debt to personal disposable income, a key measure of where a consumer stands, stands at a record or almost 153 per cent.

“The comments reflect at least an indirect concern about the build-up of household debt and we expect to see more focus on this going forward,” said Mark Chandler, chief of fixed income and currency research at RBC Dominion Securities.

Michael Babad

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Does Rising Consumer Debt Show Strength or Stress?

The American consumer appears to be levering-up again. But ahead of Wednesday’s consumer credit report, the big debate among economists is whether borrowing signals economic growth or economic strain.

According to the Federal Reserve’s lastest report, total consumer borrowing reached $2.5 trillion in December of last year, nearly matching the pre-recessionlevel.
January’s report, which will be released later Wednesday, is forecast to add an additional $10.45 billion.

“For the first time since the recession, we’re starting to see bank credit increase. That historically has been the catalyst for strong economic growth,” said  Paul Kasriel, chief economist at Northern Trust.

Banks constitute the largest proportion of total consumer credit lending, to which various finance companies, credit unions, savings institutions, and the government also contribute.

It follows, Kasriel said, that bank lending is the most important factor for economic growth. “It’s what has been lacking up until recently in this economy.”
Others are not so certain, and expect credit growth to taper off given two persistent drags on the economy: housing and unemployment.

“The consumer credit rebound is not sustainable,” said Thomas Berner, an economist at UBS. While consensus estimates $10.45 billion will be added to the Fed’s borrowing total, Berner is forecasting $6 billion.

“Consumer credit cannot grow as quickly as it did before because home equity was its major driver. Now a fourth of all mortgages outstanding are underwater,” said Berner.

The latest industry reports show 1.1 million American borrowers are “underwater,” meaning they owe more on their mortgages than their homes are currently worth.

Berner’s lower estimate also hangs on the premise that the type of credit being borrowed — mostly non-revolving (auto and student loans) — is not as stimulative as short-term revolving credit card debt.

“Government-subsidized student loans are a huge part of consumer credit. And since state budgets continue to be strained, that will continue,” said Berner.

On this point, economists agree: student loan debt inflates credit levels with little economic impact.
In total, the Federal Reserve’s borrowing report covers auto loans, student loans and credit cards, and excludes real estate loans, such as mortgages and home equity loans.
Economist Peter Morici from the University of Maryland points out that high student debt levels are a factor of the unemployment rate — which is still 8.3 percent.

“People are going back to school because they can’t find a job,” he said. “Most consumer credit has been auto loans and higher education.”
Even on the heels of Wednesday’s ADP report, which showed private sector jobs rising by 216,000, Morici still contends that depressed income levels continue to hamper spending and growth.
“Consumption has been constant. There’s been no real growth in personal income and spending for the last three months,” he said.
For the bears, just because borrowing is up doesn’t necessarily mean the economy is improving.
But all three economists actually agree on the bullish credit scenario: if credit card debt shoots up today, they expect consumer spending to follow in the second half of this year.
“If we get a big jump in credit card debt, the consumer will be spending more. In 2012, we’re looking at 2 to 2.4 percent growth in consumer spending,” concluded Morici. 

Jennifer Leigh Parker Writer,


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Debt Collection…Wait A Minute!

Wait a minute…read this first before you give a Debt Collector your credit card number over the telephone.  One minute can save you a lot of time and money.

As part of Consumer Protection Week, the Florida Bar is releasing public information in one minute bites.  The following article is titled “Your Rights When Dealing With Debt Collectors.”  It is everything I always said, brought to you by the Florida Bar Consumer Protection Law Committee.


If you are contacted by debt collector, the Fair Debt Collection Practices Act provides guidelines and defines your rights in the debt collection process. It allows you to dispute and request validation of debt information given by a debt collector or debt collection company and defines illegal debt collection. The Fair Debt Collection Practices Act is enforced and debt collectors are regulated by the Federal Trade Commission (FTC).

A debt collector must identify themselves as the debt collector in every communication to you and must send a validation letter to you within five days of the first communication notifying you of your right to dispute the debt. If you send a letter to the collector requesting verification of the debt or the name and address of the original creditor, then the debt collector must comply with your request. If you send the debt collector a letter telling them not to contact you on your job, the debt collector must comply with your request.

The Fair Debt Collection Practices Act also prevents illegal debt collection activities such as: reporting or threatening to report false information on your credit report; contacting you before 8 a.m. or after 9 p.m.; annoying, harassing or abusing you by calling repeatedly; contacting you after being informed that you have an attorney; falsely representing themselves, their intentions, or the amount of debt; giving or threatening  to give your information to a third party without consent; threatening to have you arrested; using abusive language like profanity; sending mail with symbols and lettering on the outside of the parcel indicating to the public that the letter pertains to debt collection and contacting you requesting debt collection if you sent a letter denying the debt. NOTE: the debt collector may resume collection activities after the borrower has received proof of the debt.

To file a Complaint about the conduct of a debt collector, notify the Federal Trade Commission (FTC) electronically by visiting their website, calling 1-877-FTCHELP, or write to the FTC at Consumer Report Center 600 Pennsylvania Ave., N.W. Washington DC 20580. DO NOT file a complaint directly to the debt collector.

Rusty Collins

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