Americans Are Racking Up 'Phantom Debt' that Wall Street Can't Track​​​

It's hard enough for central bankers and Wall Street traders to make sense of the post-pandemic economy with the data available to them, but some economists are particularly spooked by the “phantom debt” that they can't see, Bloomberg News reported. That specter lurks behind buzzy “Buy Now, Pay Later” platforms, which allow consumers to split purchases into smaller installments. The major companies that provide these so-called “pay in four” products, such as Affirm Holdings Inc., Klarna Bank AB and Block Inc.’s Afterpay, don’t report those loans to credit agencies. Time and again, they’ve resisted calls for greater disclosure, even as the market has grown each year since at least 2020 and is projected to reach almost $700 billion globally by 2028. That’s masking a complete picture of the financial health of American households, which is crucial for everyone from global central banks to U.S. regional lenders and multinational businesses. Consumer spending in the world’s largest economy has been so resilient in the face of stubbornly high inflation that economists and traders have had to repeatedly rip up their forecasts for slowing growth and interest-rate cuts. Still, cracks are starting to form. First it was Americans falling behind on auto loans. Then credit card delinquency rates reached their highest level since at least 2012, with the share of debts 30, 60 and 90 days late all on the upswing. There are signs that consumers are struggling to afford their BNPL debt, too: A recent survey conducted for Bloomberg News by Harris Poll found that 43% of those who owe money to BNPL services said they were behind on payments, while 28% said they were delinquent on other debt because of spending on the platforms. Read more.

SF Fed Study: U.S. Pandemic Savings Have Finally Been Spent​​​

U.S. households have exhausted the piles of cash they squirreled away during the pandemic, according to research from the Federal Reserve Bank of San Francisco, Bloomberg News reported. “The latest estimates of overall pandemic excess savings remaining in the U.S. economy have turned negative, suggesting that American households fully spent their pandemic-era savings as of March 2024,” San Francisco Fed economists Hamza Abdelrahman and Luiz Oliveira said in a blog post published Friday. The duo have been updating their estimates regularly over time, and last year they flagged that the U.S. savings surplus was lasting longer than previously expected, helping to hold up spending. Pandemic-era excess savings — the difference between actual savings and the pre-pandemic trend — swelled to $2.1 trillion from March 2020 to August 2021. From that point, households drew on those savings at an average monthly pace of $70 billion, and that spending accelerated to $85 billion per month last fall before dropping to -$72 billion in March, according to the researchers. Americans were able to build up extra savings while stuck at home during the pandemic, in part due to extraordinary government support. The reserves are widely thought to have helped the U.S. economy continually defy forecasters’ expectations for a downturn, even as the Fed implemented a historically rapid interest rate-hiking cycle. As long as Americans can keep up their spending through other means — like continuous employment or wage gains, other savings or more debt — the exhaustion of pandemic cash is unlikely to result in a drop in consumer spending overall, Abdelrahman and Oliveira wrote. Read more.

Medical Debt Shows Up Less Often on Credit Reports​​​

The share of Americans with unpaid medical bills tainting their credit files has fallen in the two years since the major credit reporting agencies — Equifax, Experian and TransUnion — changed how that debt was reported, a federal watchdog agency said last week, the New York Times reported. But even with the changes, some 15 million people — many of them living in low-income communities and in the South — still have medical bills in their credit files, the Consumer Financial Protection Bureau reported. Rohit Chopra, the bureau’s director, said in a statement that “further reforms” were needed to scour medical debt from credit histories. The bureau is considering a rule to ban medical debt from consumer credit files. The bureau estimated in a 2022 report that well over half the debt that appeared on credit reports as being in collection was medical debt. Having unpaid medical bills on your credit report can make it hard to qualify for loans and credit cards, get cellphone service, rent an apartment or even secure a job, since landlords and employers also check applicants’ credit history. Yet the bureau’s research suggests that medical debt is a less useful measure of a borrower’s creditworthiness than other types of debt, largely because of the complexities of the American health care system. Read more.

Hospitals Are Refusing to Do Surgeries Unless Patients Pay in Full First​​​

For years, hospitals and surgery centers waited until after they performed procedures before sending bills to patients. That often left them chasing after patients for payment, repeatedly sending invoices and enlisting debt-collectors. Now, more hospitals and surgery centers are demanding that patients pay in advance, the Wall Street Journal reported. Advance billing helps the facilities avoid hounding patients to settle up, yet it is distressing patients who must come up with thousands of dollars while struggling with serious conditions. Those who can’t come up with the sums have been forced to put off procedures. Some who paid up discovered later that they were overcharged, then had to fight for refunds. Among the procedures that hospitals and surgery centers are seeking prepayments for are knee replacements, CT scans and births. Federal law requires hospitals to take care of people in an emergency. Hospitals say they don’t turn away patients who need medical care urgently for lack of prepayment. Some 23% of what patients owe is collected by hospitals before treatment, according to an analysis of first-quarter data this year from 1,850 hospitals by Kodiak Solutions, a health care consulting and software company. For the same period in 2022, that figure was 20%. (Subscription required.) Read more.

Analysis: Gen Z Sinks Deeper into Debt​​​

Young Americans are starting out with more credit card debt than generations before them, and that financial burden can have long-lasting effects, according to a Wall Street Journal analysis. The rising debt load largely reflects a surge in prices for food and shelter at the start of their careers, coupled with a larger percentage of Gen Z who graduated with student loans. The average credit card balance for 22- to 24-year-olds was $2,834 in the last quarter of 2023, compared with an average inflation-adjusted balance of $2,248 in the same period in 2013, according to new data from credit-reporting agency TransUnion TRU. Younger people with higher debt are more delinquent on credit card payments and need to rely on family for help if they lose their jobs, say economists and financial advisers. They also often delay life milestones, including homeownership and marriage, say the economists. “This is a generation that is feeling financial stress in a more acute way than millennials did a decade ago,” said Charlie Wise, head of global research at TransUnion. The median annual wage for recent college graduates was $60,000 in 2023, little changed from $58,858 in 2020, according to the Federal Reserve of New York. At the same time, rent, which typically takes up at least one-third of the average worker’s monthly paycheck, has soared. The median rent in the U.S. was $1,987 as of January, a nearly 22% increase over the past four years, according to research from Rent, an online rental marketplace. About one-third of households rent, and tenants tend to be either young professionals or lower-income families, said Scott Fulford, a senior economist at the Consumer Financial Protection Bureau. (Subscription required.) Read more.

U.S. Weekly Jobless Claims Hit Highest Level Since August​​​

The number of Americans applying for unemployment benefits jumped to its highest level in more than eight months last week, another indication that the red-hot U.S. labor market may be softening, the Associated Press reported. Unemployment claims for the week ending May 4 rose by 22,000 to 231,000, up from 209,000 the week before, the Labor Department reported Thursday. Though last week's claims were the most since the final week of August 2023, it's still a relatively low number of layoffs and not cause for concern. The four-week average of claims, which softens some of the weekly volatility, rose by 4,750 to 215,000. Last month, U.S. employers added just 175,000 jobs, the fewest in six months and another sign that the labor market may be loosening. The unemployment rate inched back up to 3.9% from 3.8% and has now remained below 4% for 27 straight months, the longest such streak since the 1960s. Read more.

Two Upcoming ABI Webinars to Provide Real Estate Outlook and Examination of Boy Scouts of America's Chapter 11​​​

Leading experts will be participating in two key webinars this month:

- May 22: ABI's Real Estate Committee will host a commercial real estate economic outlook presentation featuring Martin Lavelle, senior business economist with the Federal Reserve Bank of Chicago, to provide important market intelligence. Lavelle’s research topics include construction and real estate, consumer spending, rural economic development and more. Complimentary registration.

- May 23: The second program in ABI's Strategies and Perspectives webinar series will discuss the Boy Scouts of America chapter 11, a case that demonstrates the complexity and confluence of differing stakeholder positions. Experts will discuss the intricacies of this case, including the goals of the debtor, the large group of plaintiffs and the insurers. Complimentary registration.
 

Pick Up Your Copy of Driving the Recovery Bus​​​

Make sure to pick up your copy of Driving the Recovery Bus: Augmenting Creditor Recoveries Through Claims Brought by a Litigation Trustee, written by Gordon Z. Novod. The book is not only for litigation trustees, but also for creditors who serve on official committees of unsecured creditors, attorneys and other professionals who frequently represent official committees of unsecured creditors, and others with a general interest in pursuit of causes of action by litigation trustees. Get your copy of Driving the Recovery Bus.

Application and Nomination Period for ABI’s 2024 “40 Under 40” Class Open Through June 30 ​​​

The ABI "40 Under 40" annual program continues to highlight the best up-and-comers in the industry. If you are, or know of, a dynamic insolvency professional who is committed to growth and excellence both professionally and in your community, this is one opportunity not to be missed! Nominations and applications are due June 30. Click here for more information and to submit a nomination or application. 

Get Your Copy of The Purdue Papers to access Amicus Briefs and Commentaries Related to Purdue Pharma Case!​​​

A petition by the U.S. Trustee regarding the case of Purdue Pharma L.P. is currently being considered by the U.S. Supreme Court. Regardless of how the Court rules, the case has already generated a mountain of commentary in the form of amicus briefs, petitions and other related background material. ABI, guided by editor David R. Kuney (who represented one group of amicus filers), has gathered together all of this material in a fully searchable form — more than 3,000 pages worth! This collection will be updated with the final Supreme Court decision — expected later in 2024 — as well as a final commentary by ABI Editor-at-Large Bill Rochelle, who writes Rochelle’s Daily Wire. This collection is an invaluable resource for anyone working in the area of third-party releases, either as a practitioner, an academic or just an interested party. Get your digital copy for only $25!

Have an Idea for a Topic for an ABI Conference Session? Submit Your Proposal via ABI’s “Call for Abstracts” Page!​​​

ABI has launched an online portal for professionals to submit proposals for educational sessions at future ABI conferences. Submitters can describe their proposed topic, outline the session’s focus and learning goals, suggest speakers, and provide contact information via the portal’s detailed form. The portal can be accessed here.

All submissions will be reviewed by an internal Education Committee, which will contact the submitter to ask questions as needed and to discuss the status of the proposal. Submissions will be reviewed on a rolling basis.

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