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With few avenues for spending and big purchases on hold, many Americans are saving more and paying off debts, helped by loan deferrals and relief aid, according to a New York Times analysis. Forced into lockdown mode by the coronavirus, people put big purchases on hold and scaled back their spending. Around the same time, mortgage lenders, student loan collectors and other creditors offered struggling borrowers a break on payments. Since April, consumer savings have increased, credit scores have surged to a record high and household debt has dropped. The billions of dollars that banks set aside at the start of the crisis to cover anticipated losses on loans to customers have been largely untouched. “Everything was upside down,” said John Hecht, an analyst at the investment bank Jefferies. Usually, in times of distress and unemployment, more people find themselves with deteriorating credit and are forced to seek high-interest, or subprime, loans, Hecht said, but not this year. The pain may still be coming. Banks and other consumer lenders are bracing for financial stress next year, as millions of people remain out of work and the labor market’s rebound shows signs of stalling. A third surge of coronavirus cases has taken hold in the U.S., and lawmakers in Washington, D.C. are mired in fights about the terms of additional stimulus. The number of people in America living in poverty has grown by eight million since May — though their financial woes often aren’t captured by credit and loan data because they’re out of the financial mainstream. And longer-term consequences like wage stagnation, reduced entrepreneurship and the accumulated cost of interest-bearing debt could linger for decades. But for now, households are weathering the turmoil largely because of the unusual nature of the current downturn. Read more.

In related news, consumers are spending money as if the coronavirus recession is over. But they are also paying down old debts and avoiding new ones in case the pandemic lasts a while, the Wall Street Journal reported. That is the discordant picture of the U.S. economy that emerged from third-quarter earnings reports from some of the country’s largest credit-card issuers. Capital One Financial Corp., Discover Financial Services DFS and Synchrony Financial SYF reported last week that, starting in September, the volume of purchases made by their customers increased from the relevant period a year earlier, a first since the coronavirus forced swaths of businesses to close their doors in March and a severe recession took hold. The buying continued well after laid-off workers stopped receiving $600 a week in extra unemployment benefits at the end of July. Although retail spending accelerated at the end of the third quarter, consumers still shied away from borrowing to finance everyday expenses and shopping binges. End-of-September credit-card balances at Capital One, Discover, Synchrony and American Express Co. were below their 2019 levels. Late-payment and defaults rates also decreased at those banks from prior quarters, even after programs that gave borrowers a reprieve on repayments ended, suggesting that consumers are willing and able to get out from under existing debt. Read more. (Subscription required.) 

New bipartisan legislation to expand retirement saving options for workers is one of the few policies that has a chance of moving through Congress no matter who wins next week’s presidential election, Bloomberg News reported. Representatives Richard Neal (D-Mass.) and Kevin Brady (R-Texas), the top Democrat and Republican on the House Ways and Means Committee, introduced legislation yesterday to help workers save more for retirement and encourage employers to offer retirement plans. The bill would automatically enroll employees in their company’s 401(k) retirement plan, increase a tax credit for low-and-middle income individuals who save for retirement, and allow individuals who are at least 60 years old to save more for retirement in tax-favored accounts. Bipartisan support for the proposal means it could pass both chambers and be signed into law even if Democrats and Republicans continue to split control of the White House and Congress next year. The legislation offers new incentives to older savers. It would raise the age at which individuals are required to start drawing on their retirement accounts to 75 from 72. The bill would also make it easier for savers to make charitable donations from funds in their individual retirement accounts. 

The state of New Jersey sued Navient on Tuesday, alleging that the student loan servicing company forced borrowers to pay and owe more money than necessary through misleading and deceptive practices, The Hill reported. In a lawsuit filed by New Jersey’s attorney general and division of consumer affairs, the state accused Navient of steering borrowers into loan forbearance — a temporary pause in payments due on a loan — and away from income-driven repayment plans, which typically extend the term and reduce the monthly payment owed. New Jersey also says that Navient failed to inform borrowers about their requirement to recertify that they are eligible for an income-driven repayment plan and gave them inaccurate information about balances due and cosigner obligations. Navient is responsible for collecting and processing student loan payments from more than 400,000 borrowers who received federal loans from the Department of Education. The company has faced a flurry of lawsuits from the Consumer Financial Protection Bureau (CFPB) and state attorneys general alleging similar mistreatment of borrowers.

Lenders are worried the days of a business-friendly Consumer Financial Protection Bureau are numbered, the Wall Street Journal reported. Mortgage lenders and financial-technology firms negotiating with the agency over potential settlements are pushing to resolve their cases quickly. Their thinking is that penalties and enforcement will be much harsher if Joe Biden becomes president in January. A Biden administration is expected to embrace a more aggressive role for the CFPB, which in many ways has grown less forceful during President Trump’s time in office. For the financial sector, a reinvigorated CFPB could be one of the most immediate impacts of a Biden presidency. Under a new CFPB director, “you will see some pretty big changes pretty quickly, both on the enforcement and rule-making side,” said Dennis Kelleher, chief executive at Better Markets, an advocacy group that lobbies for tighter financial regulations. “It’s one of the very few places where you could easily see a 180-degree turn.” The Biden team expects the agency would issue more fines, try to recover more money for consumers and give priority to protecting people hurt by the coronavirus recession. For example, Biden’s team wants to make sure lenders who have let borrowers temporarily skip mortgage payments don’t rush to foreclose on them next year.

Two new studies have found that after an ambitious expansion of the safety net in the spring saved millions of people from poverty, the aid is now largely exhausted and poverty has returned to levels higher than before the coronavirus crisis, the New York Times reported. The number of poor people has grown by 8 million since May, according to researchers at Columbia University, after falling by 4 million at the pandemic’s start as a result of a $2 trillion emergency package known as the CARES Act. Using a different definition of poverty, researchers from the University of Chicago and Notre Dame found that poverty has grown by 6 million people in the past three months, with circumstances worsening most for Black people and children. The recent rise in poverty has occurred despite an improving job market since May, an indication that the economy had been rebounding too slowly to offset the lost benefits. And now, the economy is showing new signs of deceleration, amid layoffs, a surge in coronavirus cases and deadlocked talks in Washington, D.C., over new stimulus.

Landlords, apartment owners and housing industry groups have unleashed a barrage of legal challenges against the Trump administration’s order protecting renters from eviction, leaving millions of families once again facing the risk of homelessness in the middle of a deadly pandemic, the Washington Post reported. Over the past month, an array of lawyers and lobbyists have inundated federal, state and local courts. They have sought to stop renters from invoking the federal ban, and in some cases, they’ve tried to quash the policy altogether, arguing that the government did not have the authority to issue it in the first place. The flurry of lawsuits has created a wave of legal uncertainty, exposing millions of Americans once again to the sort of hardships the Trump administration initially sought to prevent. Federal officials tried to clarify some of the ambiguity in policy guidance issued late Friday night. But the update instead appeared to give landlords a clearer green light to start eviction proceedings against some cash-strapped renters, even though a moratorium remains in place until the end of the year.

U.S. unemployment claims, which have surged during the coronavirus pandemic, are amplifying a compliance risk for financial institutions: unemployment insurance fraud, the Wall Street Journal reported. The Treasury Department’s Financial Crimes Enforcement Network issued an advisory yesterday, alerting banks to red flags that could indicate illicit activity, including emerging schemes exploiting vulnerabilities created by the pandemic. In particular, U.S. authorities and financial institutions have spotted instances of fraud related to unemployment payments, according to FinCEN. Unemployment insurance is a prime target for fraudsters, given the high volume of people who have lost their jobs due to the pandemic, according to Raymond Dookhie, a managing director at compliance advisory firm K2 Intelligence LLC. “The financial systems that are set up to monitor fraud in this current environment are being overloaded,” he said. Smaller financial institutions, which often have less sophisticated monitoring systems or fewer resources to investigate suspicious activity, are particularly vulnerable, Dookhie said. Pandemic-related unemployment fraud could include the use of fake or stolen identities, misrepresentation of income, false claims of having worked for a legitimate company or, in some cases, for a fictitious one, using falsified employee and wage records, FinCEN said.

U.S. consumer borrowing unexpectedly fell in August as credit-card balances declined for a sixth consecutive month, with the coronavirus pandemic continuing to limit some purchases amid elevated unemployment, Bloomberg News reported. Total credit decreased $7.2 billion from the prior month after an upwardly revised $14.7 billion July gain, Federal Reserve figures showed yesterday. The median estimate in a Bloomberg survey of economists called for a $14 billion increase in August. The drop in revolving credit to a three-year low indicates that the pace of consumer spending growth is moderating after outsize gains immediately following the gradual lifting of restrictions on businesses and individuals. The expiration of a $600 weekly supplemental benefit for the unemployed may have also played a role in the drop in consumer charges. The absence of additional government financial support to the millions of unemployed Americans is seen as limiting the consumer expenditures that make up the largest share of gross domestic product. Revolving credit fell $9.4 billion, the most in three months. The decrease left outstanding revolving credit at $985.3 billion, the lowest since June 2017. Non-revolving debt, which includes auto and school loans, rose $2.2 billion, though the increase was the smallest since a decrease in April. Lending by the federal government, which is mainly for student loans, increased almost $15 billion before seasonal adjustment. Total consumer credit for the month fell an annualized 2.1 percent after growing 4.3 precent in July. The Fed’s report doesn’t track debt secured by real estate, such as home mortgages.