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The same problems that dogged the foreclosure of homes — and prompted public outcry and a multibillion-dollar settlement by some of the nation’s biggest banks — are increasingly showing up in the practices of large buyers of bad consumer debt, the New York Times DealBook blog reported yesterday. The companies, which buy huge swaths of soured bills from lenders for pennies on the dollar, are deluging the courts with shoddy lawsuits, according to a review of debt collection lawsuits along with interviews with state judges and prosecutors. As part of an effort to stamp out such practices, New York’s state attorney general, Eric T. Schneiderman, was expected to reach a settlement today with a debt buyer, the Encore Capital Group, over concerns that the company filed thousands of flawed debt collection lawsuits against state residents.

Consumer borrowing in the U.S. increased in November as an improving economy emboldened Americans to take out school and auto loans, Bloomberg News reported yesterday. The $14.1 increase in total credit followed a revised $16 billion gain in October, Federal Reserve figures showed today in Washington, D.C. Revolving debt, including credit card balances, fell by $946 million, the first drop in three months and following a $1.48 billion advance in October, yesterday’s figures showed. Non-revolving credit, which includes car and education loans, gained $15 billion in November after advancing $14.5 billion in the previous month. Federal lending to consumers, which mostly entails school tuitions, increased by $5.8 billion before seasonal adjustments, after rising $5.1 billion in October.

Borrowers who took out auto loans over the past year are missing payments at the highest level since the recession, fueling concerns among regulators, analysts and some in the car industry that practices that helped boost 2014 light-vehicle sales to a near-decade high could backfire, the Wall Street Journal reported today. “It’s clear that credit quality is eroding now, and pretty quickly,” said Mark Zandi, chief economist at Moody’s Analytics. More than 2.6 percent of car-loan borrowers who took out loans in the first quarter of last year had missed at least one monthly payment by November, the highest level of early loan trouble since 2008, when such delinquencies rose above 3 percent, according to an analysis of data by Moody’s Analytics. More than 8.4 percent of borrowers with weak credit scores who took out loans in the first quarter of 2014 had missed payments by November, according to the Moody’s analysis of Equifax credit-reporting data. That was the highest level since 2008, when early delinquencies for subprime borrowers rose above 9 percent.

U.S. officials are taking their first crack at writing rules for payday loans, responding to concerns that the short-term, high-rate debt can trap consumers in a cycle of borrowing they can’t afford, the Wall Street Journal reported today. The Consumer Financial Protection Bureau is exploring ways to require payday lenders to make sure customers can pay back their loans. The bureau is seeking to establish the first federal regulations for the $46 billion industry, which has historically been overseen by states. Consumer-advocacy groups say the loans are deceptive because borrowers often roll them over several times, racking up fees in the process. They also criticize high annual interest rates that can range from less than 200 percent to more than 500 percent, depending on the state, according to research by the Pew Charitable Trusts.

The traditional measures of nonrepayment — delinquencies and defaults — might be fine for most types of loans, but not for outstanding student loans, nearly all of which are held or backed by the federal government, according to a commentary in today’s Wall Street Journal. Lawmakers have provided students with options that let them punt on repayment without triggering delinquency or default. Lately, students have been availing themselves of those options at rising levels, according to the commentary. The forbearance benefit, for example, lets borrowers postpone payments for up to three years. By law, loan-servicing companies have a lot of discretion to grant forbearances, and getting one usually takes only a phone call on the part of the borrower. Some borrowers might have to complete a simple form and meet a payment-to-income test. But overall it is the easiest and fastest way for a borrower to suspend student-loan payments, according to the commentary. (Subscription required.)
http://www.wsj.com/articles/jason-delisle-the-hidden-student-debt-bomb-…

For more information on student debt, ABI’s Graduating with Debt is now available in e-book format for Kindle, iPad and Nook. http://goo.gl/Bu6Uu1

Ally Financial disclosed on Thursday that it had received a Justice Department subpoena as part of an investigation “related to subprime automotive finance and related securitization activities,” the New York Times DealBook blog reported on Friday. The investigation is in addition to an inquiry by the Securities and Exchange Commission. The company, the former finance arm of General Motors, said on Oct. 31 that it had received a request for documents from the SEC in connection with that agency’s inquiry into subprime loans. Ally Financial is the latest company to come under the government’s scrutiny of the booming subprime auto market. Santander Consumer USA and General Motors Financial, the current finance arm of GM, have previously disclosed that they received Justice Department subpoenas as part of the inquiry. Federal prosecutors, led by the office of Preet Bharara, the United States attorney in Manhattan, are looking at how lenders package and sell loans to investors.

According to CoreLogic, a leading provider in real estate data, New Jersey has the highest percentage of foreclosures among mortgaged homes at 5.5 percent, the Asbury, N.J., Park Press reported today. New York and Florida tied for second place at 4.1 percent. New Jersey also had the highest serious delinquency rate at 9.1 percent, according to the report, again surpassing both Florida and New York. However, the foreclosure rate in the United States is dropping: The recent report states that 605,000 homes in the United States were in some stage of foreclosure as of October, 2014, compared to 875,000 homes in October, 2013, a 30 percent decrease.

U.S. families’ debt burdens have settled down to their lowest level in over a decade, putting the economy on a stronger footing relative to global rivals going into 2015, the Wall Street Journal reported today. With home values rising, Americans are beginning to borrow more, a development that could help lift spending and juice the U.S. economy. Total U.S. household debt, when measured as a share of disposable income, has fallen from a peak of 135 percent in late 2007 to 108 percent this year through September, according to a Federal Reserve report yesterday. That’s the lowest sustained level since early 2003 and far below levels among households in Britain, Canada and Japan.

Thirteen U.S. Senate Democrats are pushing Education Secretary Arne Duncan to wipe out federal loans given to students who enrolled in a troubled for-profit college that’s being dismantled amid federal and state investigations, the Wall Street Journal reported today. Sen. Elizabeth Warren (D-Mass.) and 12 other Democrats, sent a letter on Tuesday urging Duncan to “immediately discharge” federal student loans for students at schools owned by Corinthian Colleges Inc., which reached an agreement with the federal government over the summer to dissolve itself. By taking out student loans, borrowers “are making a serious financial decision that will affect them for years to come,” the lawmakers wrote. “If colleges fail to hold up their end of the bargain — if they break the law in ways that bear on their students’ educational experience or finances — students should not literally be stuck paying the price.”

When the education technology company ConnectEDU Inc. sought chapter 11 protection earlier this year, 20 million student records hung in the balance, Education Week reported yesterday. Ultimately, the sale of ConnectEDU occurred without the company abiding strictly to its privacy policy. The "company sale" portion of ConnectEDU's privacy policy opened with: "Information collected through our website is considered a trade secret of ours." In that same policy, ConnectEDU had promised its users that they could delete their personally identifiable records before any sale. The Federal Trade Commission's Consumer Protection Bureau brought this to the attention of the bankruptcy judge in the case in May. It asked the court to have ConnectEDU destroy all personal data; or to notify users that their personal information was about to be sold and that they could have it deleted; or to appoint a privacy ombudsman to ensure protection of the users' privacy. Instead of registrants receiving notice before the sale, it was left to the acquiring companies that bought the failed company's assets — Graduation Alliance of Salt Lake City, and Symplicity Corporation of Arlington, Va. — to carry out the notifications after the records had been transferred. Fewer than 1 percent of those notified by Graduation Alliance requested that their records be destroyed, according to Ray Kelly, the CEO of the company, which was founded in 2007 and has specialized in dropout recovery and prevention.