A new report by the New York Federal Reserve Bank seems to be saying that America’s household credit and debt are about as uneven as the nation’s economic recovery. A new economic analysis<https://www.ny.frb.org/householdcredit/2014-q4/data/pdf/HHDC_2014Q4.pdf> found fewer foreclosures, bankruptcies and credit card delinquencies. However the rates of delinquent auto and student loans are worse than before.
For most consumers, debt may seem like a constant companion – not a friend but somehow lurking near. How consumers manage their debts can also trigger financial stress. In December 2014, the nation’s consumers collectively carried $710 billion of debt. Of this amount, $570 billion was 90 days or more delinquent.
It should also be noted that from mortgages to car loans, credit cards, auto financing and more – the high costs of predatory lending unnecessarily raise the costs of a wide range of products. In two specific lending areas – student and auto loans – both the amount of debt and delinquencies are rising.Both areas have also been under scrutiny by regulators and researcher alike as evidence mounts on predatory loan practices.
For the first time since before the recession started in 2007, the 90-day delinquency rate for auto loans (3.5 percent) is now greater than that of mortgages (3.1 percent). Auto loan balances continued to increase this quarter by $21 billion, and is larger than any time in history. That growth also comes with greater financial risk.
“Underwriting standards have steadily weakened in auto lending,” says Chris Kukla, senior vice-president with the Center for Responsible Lending (CRL). “Dealers are pushing borrowers into longer loans and routinely making loans that are more than the car is worth. When dealer interest rate markups are allowed, the interest rate for compensation and other risky practices are added on top of the loans. CRL is concerned that these losses will continue to mount.”
Student loan debts in this same period rose to a new total of $1.16 trillion. In comparing student loan balances between 2013 and 2014, the New York Fed found the yearly increase to be $77 billion. Further, student loan delinquencies and defaults were even more than double that of auto lending at 11.3 percent and may actually understate the full delinquency rate due to deferments, grace periods, forbearance that are not included in the repayment cycle.
“Although we’ve seen an overall improvement in delinquency rates since the Great Recession, the increasing trend in student loan balances and delinquencies is concerning,” said Donghoon Lee, research officer at the New York Fed. “Student loan delinquencies and repayment problems appear to be reducing borrowers’ ability to form their own households.”
“Student loan debt can be a great financial tool for many borrowers to obtain a valuable college degree,” said Maura Dundon, a CRL senior policy counsel. “Sharply rising balances coupled with slow repayment and high delinquency rates may indicate that student loan debt is beginning to drain Americans economically. A disproportionate share of defaulters attended for-profit colleges, which are in urgent need of reform.”
Mr. Lee’s observation on the slowdown of new households is also shared by a number of other policy experts who also view that growing student debts have delayed home purchases for many who are just beginning their careers. New mortgage loan originations totaled $355 billion, a historically low figure according to the New York Fed.
At the same time, mortgage delinquencies continued to decline, balances on home equity lines of credit dropped by $2 billion and fewer consumers are filing for bankruptcy. In the last quarter of 2014, nearly 20 percent fewer bankruptcies were filed than at the same time last year: 268,000.
Before making a decision on a major purchase or finance, try to learn as much as you can about the range of products and finance options available. The Internet offers a wealth of information from governmental office like the Consumer Financial Protection Bureau, the Federal Trade Commission and the Department of Education.
CFPB offers the opportunity to file<https://www.consumerfinance.gov/complaint/> or check the status of formal complaints or blow<https://www.consumerfinance.gov/blog/the-cfpb-wants-you-to-blow-the-whistle-on-lawbreakers/> the whistle on businesses suspected of violating laws.
Similarly, the FTC’s web accepts consumer complaints <https://www.ftc.gov/faq/consumer-protection/submit-consumer-complaint-ftc> including identity theft or adding your phone number to the nation’s Do Not Call Registry <https://www.ftc.gov/faq/consumer-protection/list-number-national-do-not-call-registry>.
Consumers can also request free copies of their credit report <https://www.ftc.gov/faq/consumer-protection/get-my-free-credit-report>.
Additional consumer lending information is al so available on CRL’s web<https://www.responsiblelending.org/> .
And always remember: When it comes to lending, if a deal sounds too good to be true, it probably is.
(Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at Charlene.firstname.lastname@example.org)
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