Consumer Debt Narrows, Consumer Still Struggling

Total consumer debt continues to narrow. That’s the good news.

Total consumer debt in the second quarter fell to $11.38 trillion, according to the New York Fed’s quarterly review, down 0.5% from the first quarter ($11.44 trillion).

The narrowing was driven by home loans, and that’s where this little bit of feel-good news starts to break down. The balances on home-equity lines of credit narrowed by $23 billion in the quarter. Excluding mortgages and HELOCs, consumer credit increased by 0.4%, to $2.6 trillion, driven mainly by student and auto loans.

It’s certainly good that consumer debt is narrowing. But it’s troubling that the single-biggest component of this remains charge-offs due to mortgage foreclosure and default – not a sign of a healthy consumer.

That’s made clear by some of the data in this post from the New York Fed’s Liberty Street Economics blog. The single-biggest contributor to the narrowing of consumer debt (and narrowing seems the more accurate word when talking about debt; we’re talking about negative numbers, not positive. Debt doesn’t “slide,” or “fall,” it narrows. We’re still more than $11 trillion in the hole, people) remains household foreclosure and default. In 2011, mortgage charge-offs totaled $303 billion. That’s less than the $357 billion in 2010, to be sure. But this category sat at $41.3 billion in 2006.

While total household wealth is rising (thank you, U.S. stock market), median wealth has taken a big hit, and it’ll take years of real economic growth (whenever it decides to show up) to make up for everything people have lost since 2007.

Also, what would make this trend of narrowing overall debt really something to celebrate would be if incomes were rising as well. Then you might be able to discern a day when consumers are actually seeing their positions improve, and we could all start dreaming of that time when economic growth will be self-sustaining. But all indications are that wages are barely keeping up with inflation.

The bottom line is the consumer’s position is not improving materially, which means pressure is going to remain on the federal government and the Federal Reserve to keep propping up the economy, no matter who wins the election in November.

Paul Vigna

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The most common financial complaints — and how to avoid them

The Consumer Financial Protection Bureau is the newest federal regulatory agency. Its mission is to rein in abuses by the financial industry. Over the summer, it announced a refund of $140 million to 2 million Capital One customers who, it determined, had been victims of deceptive marketing of add-on fees.

The CFPB has also begun taking complaints from the public about loans, credit cards and other financial products, and releasing the results. If you are the victim of fraud, a billing dispute or any other problem with a bank or credit card company, you can contact the agency via its website at You can also phone toll-free at (855)411-2372 or write to the following address: Consumer Financial Protection Bureau, P.O. Box 4503, Iowa City, IA 52244.

Here are some of the most common problems reported to the CFPB in 2011 and the first half of 2012, along with some tips for preventing these problems before they occur.

1) Billing disputes on credit cards.

Many people don’t know that they only have 60 days to dispute a charge. So review your statement every month. If you see something on your bill that you would like to dispute, write to the address listed on the statement for billing inquiries. Include your name, address, account number and an explanation of the error you would like the company to correct. It’s a good idea to send the letter by certified mail and return receipt requested. The company has 30 days to acknowledge your dispute and 90 days to investigate and resolve it.

2) Reversing charges.

It can be difficult to get your money back once a charge is authorized or if a merchant has a “no returns” policy, which should be disclosed in the terms of service. Again, watch your statement carefully.

3) Mystery fees on credit cards.

This is the issue that led to the CFPB assessing the fine on Capital One. When you sign up for a new credit card, watch for the company’s marketers trying to sell you “identity theft protection” or “fraud monitoring.” You don’t need these extra-cost services, so it is wise to decline them. If they show up on your bill, call the number on the back of the card.

4) Overdraft fees.

Two types of consumer complaints are associated with automatic overdraft protection. The first is simply the amount of the fee, $25 to $35 for each charge made with insufficient funds, plus an additional charge if the amount is not covered within a few days. Make sure to read the fine print on your agreements. You may be enrolled in overdraft protection on your debit card without realizing it.

5) Transaction processing and reordering.

The second kind of overdraft complaint comes from a practice called “reordering,” which leads to increased overdraft fees. Let’s say you have $1,900 in your account. You go to the drugstore ($25), pick up some coffee ($3) and pay a parking ticket ($75), before going home and sending in a $2500 mortgage payment that goes through the day before your paycheck arrives in your account. Many banks will process the large check first, followed by the smaller charges, leading to four separate $30 overdraft fees.

The smartest way to avoid overdraft fees, of course, is to avoid spending more than you have on hand. You might call up and cancel “courtesy” overdraft protection. That means your card will be declined when you have too little money in the account. Or you can link your checking account to a savings account or a line of credit to use as a backup. Finally, it’s a good idea to sign up for automatic low balance alerts, which can come as an email or text message, from your bank or a service like They have saved me several times.

Anya Kamenetz

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Keeping pace with living costs

A collision of two statistics regarding Canadians’ spending habits might indicate tough times are coming.

Late last week, credit-reporting company TransUnion released a report that showed the average Canadian’s debt load is $26,221 — that doesn’t include any mortgage and it’s 2.41 per cent more than a year ago.

It’s also the highest debt per capita that TransUnion has counted since it began compiling the numbers in 2004. Even more than in 2008, when the global economy tanked.

Put that trend beside another statistic and a cautionary picture of Canadian consumers begins to take shape.

Statistics Canada’s retail sales tally for June shows an unexpected drop in spending. The number might not seem big — 0.4 per cent less spending in June than in May — but considering it was expected to go up by 0.1 per cent, the downward slide should have shop owners watching closely.

So how is it our debt is going up if we’re not spending as much in Canadian stores? Cross-border and online shopping could be factors, along with store closures and consumer cutbacks.

As Canadians, we tend to be cautious spenders. We tend to be savers. But we’re slipping. Our financial conservatism is being eroded as incomes struggle to keep pace with the cost of living.

Low interest rates are helping keep the cost of loans down, but they won’t stay down forever. A sudden economic change could see interest rates leap upward, and all those people who owe thousands of dollars could be stuck.

Even the Bank of Canada has said household debt is the top domestic risk to the economy. Canadians have to remember low interest doesn’t mean no interest, just as careful budgeting doesn’t mean stop spending. Living within our means is an important tenet, especially with per-capita debt loads on the rise.

It’s a good time for Canadians to take another look at their household budgets and see if there are ways to better balance the books.

Kamloops Daily News

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Why Should I Have a Credit Card at All? What if I Never Want to Use One?

Years ago,  banking executives complained loudly about consumers who carried their credit  cards without running up a monthly balance. Then, personal lending flipped  itself upside down. Today, many credit card product managers believe they’ll  make as much money from transaction charges as they will from late fees and  interest payments. That’s changed the dynamic for rewards credit cards and cash back credit cards,  designed to entice consumers to float their purchases for 20 or 30 days.

Here’s why I think you should carry at least one rewards credit card:

  • Purchase protection. Cash, checks, and most debit cards  won’t help you get your money back when your flight gets cancelled or your new  gadget busts. Federal laws and bank policies favor credit card holders in most  disputes. Even during a charge-back investigation, it’s the bank’s money on the  line, not yours.
  • Credit report impact. Contrary to popular belief, credit  scores don’t measure how much debt you’re in. They report how well you manage  your accounts. If you don’t have a credit card to maintain, there’s nothing to  score. That can cause problems when employers and insurance companies use credit  scores to evaluate you for jobs or policies.
  • Rebates and bonuses. Retail industry lobbyists complain  about high transaction rates, but there’s no indication that making purchasing  platforms cheaper will trickle down to the consumer. Cash back credit cards  offer discounts of up to 6 percent on purchases you make in person. Stack  special rebates of up to 20 percent when you shop from your credit card  company’s website, and you can enjoy some serious savings.

Depending on your lifestyle and your spending habits, you might even consider  a travel rewards card  that offers bonus miles, room upgrades, or free baggage check. Just pretend your  credit card’s a debit card, and set aside the cash you’ll need to pay your  balance each month. That way, you won’t risk running up a pile of debt you can’t  handle.

Joe Taylor Jr.

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Debt ties a knot around those who want to say ‘I do’

Newlyweds have always had to deal with a load of sometimes painful money issues when starting life together. Now, rising college loan debt has made it even more challenging for couples to get off on the right foot.

After all, who wants to start a marriage with somebody who owes $100,000 or more to a bank or the federal government?

Ann Hakan, who specializes in relationship counseling in Kansas City, sees evidence that burdensome student loan debt has caused some couples to forestall marriage.

“It seems more that (debt) just delays the relationship,” Hakan said.

Besides the average $27,000 in student loan debt, many young people also owe thousands of dollars on their credit cards.

Recent reports indicate that the average age of first marriages has risen by about a year. For men, the average age at first marriage is 28.7, and for women 26.5, according to Bloomberg News data. But there was no direct correlation in the data between delaying marriage and having more loans to pay off.

Still, Hakan said she has noticed younger couples who are dating are keeping their financial information separate from each other longer. Sometimes the person in debt won’t talk about money issues until the loans are paid off.

Hakan said debt was less of an issue in a relationship if it had been accumulated while working toward a professional degree, in occupations such as medicine or law where future earnings power could make it easier to pay off loans.

But if someone in the relationship doesn’t think the other person is working hard enough or being realistic in paying off the loans, that can raise a red flag, she said.

Lack of communication is often the underlying issue, experts said. Dealing with debt is often the first issue that couples should put on the table when dating gets serious. Knowing what you are about to get yourself into can help you decide how to deal with credit problems, experts said.

Arguments about money have always hampered relationships. A recent survey by Chase Card Services and XO Group reinforced the notion that money was the No. 1 cause of conflict between couples, especially while planning their wedding, starting off married life and deciding when to start a family. So the first years of marriage can set the tone for financial and marital bliss.

For Matt and Rachel Kendrick of Kansas City, student loan bills were common knowledge among them and their friends at the University of Missouri-Columbia.

The Kendricks, who began dating their freshman year in college and were married in 2009, said they eventually started having conversations about their spending habits and financial priorities. By the time they were married, they were on the same wavelength.

Matt Kendrick said their debt probably didn’t affect their decision to get married, but it had spilled over into other life decisions.

The couple have made it a priority to eliminate as much of their debt as possible before entering another phase of their lives, such as raising children.

“Finances are a huge thing to think about when building your life together,” Rachel Kendrick said.

Sandi Weaver, a financial planner and president of Financial Security Advisers in Prairie Village, said young married couples need to understand their money personality. For example, is one person a spender and the other a saver? Does one handle the finances more than the other?

Weaver said couples need to figure out how to deal with money and financial problems before they say “I do.”

“A lot of young couples don’t even talk about it,” Weaver said of couples’ financial situations. “They just think love’ll figure that out, but it doesn’t.”


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Consumer debt load hits eight-year high

Consumer debt among Canadians has shot to an eight-year high, credit bureau TransUnion reports.

Average debt levels, not including mortgages, are the highest since the company began keeping track in 2004.

Debt increased $192 in the second quarter of this year to $26,221 per person.

In 2007, the average consumer debt nationwide was $19,702 – the lowest recorded.

The latest data shows British Columbia as having the highest average debt at $37,879, while Quebec has the lowest at $18,580.

Alberta is not far behind its western neighbour with an average $33,564 debt.

Saskatchewan is the only province not to record an increase in the second quarter, showing a debt average of $27,699.

“We are in a unique situation because while it is somewhat disconcerting to see average consumer total debt reach its highest level since we’ve been tracking this variable, Canadian consumers appear to be able to manage this debt as delinquency levels have dropped across all of the major credit vehicles,” said Thomas Higgins, TransUnion’s vice-president of analytics and decision services, in a statement Thursday.

Delinquencies across the board, such as credit cards, loans and auto loans, have dropped.

“It’s quite possible that this is a trend that will continue as consumers take advantage of the low-interest environment,” he said.

“However, if there are any sudden economic shifts, such as a significant rise in unemployment, then it’s quite conceivable that delinquencies will rise with debt levels.”

QMI Agency

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Feds try Facebook approach to financial rules

As the Consumer Financial Protection Bureau gears up to write one of its first major rules, it’s trying new things—including the kinds of tools associated with texting tweens.

The agency, created in the wake of the 2008 crash as a sort of consumer watchdog for the financial-services industry, has so far attracted public attention mostly through controversy over its leadership. Only recently has it started focusing on the everyday business of policing financial firms—most notably, at the moment, by overhauling the arcane rules that govern the mortgage-servicing industry.

The CFPB is also trying to solve a problem that’s long bedeviled consumer advocacy groups: getting individuals to chime in on rules that affect big industries like insurance companies and banks. Their experimental solution, this time around, is Regulation Room, an Internet chat room run by Cornell University where the public can air opinions—sometimes with hurried grammar and all-caps script of the Facebook generation—as well as ask questions and “Like” things they see.

Getting the general public involved is more than just a trending topic. Most federal regulations are required by law to be subject to periods of public comment, when those affected are allowed to throw in their two cents. In practice, the vast majority of input comes from lawyers working for big corporations and trade groups with a financial stake in the outcome. “It’s called ‘public,’” says Barry Zigas, director of housing policy at the Consumer Federation of America. “But what’s developed is a class of professionals who specialize in analyzing and commenting on these rules.”

The result, critics say, is a regulatory process that gives industries a thumb on the scale. As their comments shape arcane but critically important details of controversial laws, they give rise to the changes that those outside the Beltway recognize as loopholes.

Regulation Room, which has also run a pilot program with the Department of Transportation, aims to break down conversations over key regulations into plain-English questions–to which the public can post answers. Responses are anonymous to readers. Unlike the regular rule-making process, in which stakeholders post long letters that often resemble position papers, Regulation Room is designed for give and take, with a moderator writing follow-up questions.

Buttons allow readers to “Endorse” and “Share” things they like, options that resemble features on Facebook and Twitter. Since they went live on the site last Friday, the proposed mortgage-servicing rules have received about 110 comments—not much compared with a “Call Me Maybe” lip dub, but still a significant amount of traffic.

In some comments, posters share stories of frustration with the way things have been done in the past: “Hearing someone tell you over the phone that they can’t find a document that you delivered over and over again is about the most frustrating and alienating and helpless shady experience I had while trying to short sale my home,” wrote someone with the screen name “arron banner.”

Others are blunt about rule-making minutiae that carry the whiff of lawyering. On a proposed 45-business-day window for servicers to furnish account information: “The CFPB has been watching too much Mad Men and is attempting to regulate a bank in 1960,” said “Versability.”

While the tone of conversation is generally civil, the rhetorical conventions reflect the age of the Web. One post about how borrowers should ask for and get information consisted of a long list of questions, each of which began, “Why is it. “ Another underlined its argument by noting, “This is CAPITALISM.”

The new effort doesn’t require the industry’s insiders to mix with the hoi polloi. The new comment system will supplement the regular process of posting letters on, the federal government’s official site. When the comment period closes in mid-October, Regulation Room will summarize the various strands into a memo, which will itself be submitted to Register.

Site designers say this extra step is necessary, given the back-and-forth nature of the discussion and (they hope) the volume of comments. Organizers say the chat-room comments will be on equal legal footing with traditional letters, although it remains to be seen how much the regulators, lawmakers and judges who ultimately set down the rules will look at them.

Even the CFPB admits the effort faces an uphill battle. Asked if the idea was ultimately far-fetched, a CFPB spokeswoman emphasized that the site is just one prong of its outreach program, which also includes town hall meetings in hard-hit areas like Detroit and more traditional meetings with consumer groups and small businesses.

And, of course, as most insiders will admit, comment periods are at least as much about politics as fact-finding. Consumer groups struggle to promote changes that they say will have benefits to the public; businesses claim the same changes will raise prices and cut jobs.

“The more comments, the better,” says Veronica Raphael, director of foreclosure prevention at Westchester Residential Opportunities, a group that helps minorities navigate the housing market in neighborhoods near New York City. “It gives us ammunition.”

Ian Salisbury

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Tight credit is throttling consumer spending, U.S. Fed says

Bankers’ reluctance to lend to people with less-than-pristine credit histories is restraining the U.S. economic recovery by holding back consumer borrowing and spending, new research from the San Francisco Federal Reserve Bank shows.

The study, published on Monday in the regional Fed bank’s Economic Letter, adds to evidence that tighter credit, not just consumers’ reluctance to pile on more debt, is impeding household spending.

Banks are particularly unwilling to lend to borrowers who have defaulted on mortgages or have low credit scores, San Francisco Fed senior economist John Krainer found.

The findings suggest that policymakers who aim to foster growth should strive not only to keep borrowing costs low but also to find new ways to induce banks to lend.

If banks are unwilling to make loans, Krainer wrote, policies that “attack bank financial problems directly or help consumers qualify for stricter underwriting terms may be appropriate, along with the traditional monetary policy prescription of lowering interest rates.”

Ann Saphir

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Top 5 Tips to Fight Junk Debt Lawsuits

Creditors who buy consumers’ old debt for pennies on the dollar have increasingly won bogus lawsuits, but consumers can begin to fight back by taking a few easy steps.

One judge in Brooklyn, N.Y., this week called about 90 percent of credit card lawsuits, often the source of debt junk suits, “flawed.”

A common example of junk debt is credit card debt that a private company purchases from banks, or another original creditor. Original creditors or junk-debt buyers can sue the borrower for the money.

Peter Holland, a professor at the University of Maryland Francis King Carey School of Law, wrote the paper “Defending Junk-Debt-Buyer Lawsuits,” which was published in the Journal of Poverty Law and Policy in June. In Maryland, one junk debt creditor filed more than 7,000 lawsuits in November and December 2011 alone, he wrote. Another Maryland creditor filed 130 lawsuits on  one day in March 2011.

He said many defendants in these lawsuits don’t have the resources for an attorney, but he said they can still use the following five tips if they are on the receiving end of a junk debt suit.


Don’t ignore a lawsuit.

Holland said the most important thing to keep in mind is that more than 90 percent of cases are won by default judgment because the sued party doesn’t appear in court.

Holland, who works with borrowers the University of Maryland’s Consumer Protection Clinic in Baltimore, said one common tactic of creditors’ lawyers is to tell you that you don’t need to show up in court.

“People are too scared to show up and defend themselves,” he said. “Rule No. 1: Show up in court and make them prove their case. File an answer. Don’t ignore it.”


Contact your state attorney general’s office and state bar association.

While many people who have a large amount of debt may not be able to afford to hire an attorney when faced with a junk-debt lawsuit, Holland said many states have other legal services available.

Holland and law students from the University of Maryland provide pro-bono services to the local Consumer Protection Clinic, but he said there were similar services around the country, given the increasing number of junk-debt lawsuits.

“This is the No. 1 case in small claims court. They are clogging the courts across the country. Everybody understands there is rampant fraud in the industry,” he said.


Check for robo-signing.

Holland said borrowers should look for an indication of robo-signing in the junk-debt documentation. Like the foreclosure robo-signing debacle that led to a $25 billion settlement this year, many creditors also use illegal, robo-signing procedures when buying junk debt.

Defendants should even use the Internet to search the names of the people who signed the documents to make sure they are authentic signatures of real people.

“You’d be amazed. I’ve seen five different versions of a person’s signature. The forgery and robo-signing are rampant,” he said.


Read the creditor’s documentation.

The creditor may also claim that borrowers owe more money than their actual debts because a bank has tacked on extra fees that were never agreed upon.

Holland has seen junk debt repurchased from creditor to creditor as many as six times, with lost paperwork along the way.

“If it’s a junk-debt lawsuit, they have to prove a chain of title showing they own it,” Holland said.


Avoid settlements negotiated in the hallway.

Holland said the opposing attorney will sometimes try to cut a deal with defendants in the hallway outside the courtroom if they seem vulnerable or intimidated. But often these settlements are “set up to make you fail,” he said.

“They’ll tell you, ‘I know you don’t want to go before a judge’,” Holland said. Then they will set up an unrealistic payment plan that could leave you liable for the full judgment amount if you miss a payment.

Holland, however, suggests you do communicate with the opposing counsel in case you need to ask opposing counsel for supporting documents. If its documentation or arguments are weak, he said you or your attorney might consider calling opposing counsel to ask it to dismiss, which can have “very quick results.”


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Consumers Fight Big Banks for a Day in Court

Since the economic collapse of 2008, we have begun to see some of the specific ways banks are accelerating the flow of wealth straight upwards.  Credit card banks are especially abusive of their wealth and power.  They erect massive structures of red tape that most American families don’t have the time or money to fight.  The banks profit, and American families lose.
Recently, the New York Times reported that the “Collection of Credit Card Debt [by bill collectors on behalf of credit card companies] Is Riddled With Problems.” The report detailed instances of consumers being massively overcharged and shoddy records being kept by the banks. One judge in Brooklyn, who presides over a hundred of these claims each day, was quoted as saying that “roughly 90 percent of the credit card lawsuits are flawed and can’t prove the person owes the debt.” The banks use their size and power to push people into paying exorbitant fees and overpayments. The victims may not know their rights and lack the resources to get the legal counsel they need.

Even worse for American families was the credit card banks’ practice known as forced arbitration. In past years, forced arbitration was common practice. If you had a credit card dispute, instead of turning to the courts, the fine print required you to go into arbitration. Both sides were legally bound by the findings of the arbitrator. The entire process took place in private. There was no record of public hearings which would reveal what transpired in the arbitration. There were few public records of the arbitration.
On July 22, 2009, the Domestic Policy Subcommittee, of which I was the Chairman, held a hearing on arbitration. The hearing disclosed that the outcome of an arbitration had more to do with the arbitrator than the law.  Arbitrators who routinely ruled in favor of the banks were sent more cases by the banks.  As a result of the 2009 hearing, and more importantly, action by the Minnesota Attorney General, both of the arbitration services that were processing credit card arbitrations on a national basis agreed to stop doing them. My staff followed up with all of the major banks and, over the course of several months, nine of those banks abandoned the practice of using arbitration to collect their credit card debts.
Now that credit card banks are using public courts, we are starting to see the reality which had been hidden by the cloak of arbitration.
The public at large is finally learning about abuses in the credit card banking industry. Over time, the banks may change their policies. But as a consumer, you must learn your rights, and you must insist that your rights are upheld. If you or someone you know is facing a similar situation, contact your Member of Congress. They may be able to help.

Rep. Dennis Kucinich

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