Borrowing Is Back as Sign-Ups for Auto Loans, Credit Cards Hit Records

Borrowing Is Back as Sign-Ups for Auto Loans, Credit Cards Hit Records

July 8, 2021

ABI Bankruptcy Brief

Borrowing Is Back as Sign-Ups for Auto Loans, Credit Cards Hit Records​​​​​​

Americans are borrowing again, in some cases at levels not seen in more than a decade, the Wall Street Journal reported. Consumer demand for auto loans and leases, general-purpose credit cards and personal loans was up 39% in April compared with the same period last year, according to credit-reporting firm Equifax Inc. It was also up 11% compared with April 2019, according to Equifax, which measured how often lenders checked consumers’ credit reports to make loan decisions. Lenders are meeting the moment. Equifax said lenders extended a record number of auto loans and leases in March, the latest month for which data are available. They also bumped up credit card originations, issuing more general-purpose credit cards than any other March on record. Equifax’s data goes back to 2010. It is quite the reversal from 2020, when many people shunned credit cards, personal loans and other types of debt. Some didn’t need to borrow because stimulus checks, expanded unemployment benefits and a surging stock market padded their checking accounts. But many didn’t want to spend money when they were worried about getting laid off, and others, stuck at home, had nothing to buy. Now, with vaccinations readily available in the U.S. and the economy reopening, many Americans are splurging on cars, vacations and eating out. Higher prices, especially for cars and trucks, have also stoked loan demand. (Subscription required.)​​

Commentary: Credit Markets Might Not Be So Forgiving Post-Pandemic

Rock-bottom interest rates, a reopening economy and yield-starved investors mean that all but the most troubled businesses have managed to borrow their way out of trouble. However, credit markets might not be so friendly if the projections underlying that borrowing prove too rosy once post-COVID results come out, according to a Bloomberg News commentary. The pile of distressed debt outstanding, which totaled almost $1 trillion at the height of the pandemic, has sunk to about $60 billion, data compiled by Bloomberg show. By one measure, the proportion of high-yield bonds outstanding that is trading at distressed levels is the lowest since the run-up to the 2008 financial crisis. The first half of 2021 saw the fewest large bankruptcies in the U.S. since 2018, according to data compiled by Bloomberg. Just 75 firms with at least $50 million of liabilities sought court protection from creditors as of June 30, compared to 129 in the same period last year and 79 in 2019. “The confluence of liquidity, reemerging economic activity and continued patience on the part of the creditor community has resulted in a lull in bankruptcy filings,” said Aaron Javian, a partner at law firm Reed Smith who advises on restructurings. “The willingness of new lenders to lend into distressed situations has enabled companies to kick the can down the road a ways,” he added.​​​

‘Financially Hobbled for Life’: The Elite Master’s Degrees that Don’t Pay Off

Lured by the aura of degrees from top-flight institutions, many master’s students at universities across the U.S. took on debt beyond what their pay would support, a Wall Street Journal analysis of federal data on borrowers found. Recent Columbia film alumni had the highest debt compared with earnings among graduates of any major university master’s program in the U.S., the Journal found. At New York University, graduates with a master’s degree in publishing borrowed a median $116,000 and had an annual median income of $42,000 two years after the program, the data on recent borrowers show. At Northwestern University, half of those who earned degrees in speech-language pathology borrowed $148,000 or more, and the graduates had a median income of $60,000 two years later. Graduates of the University of Southern California’s marriage and family counseling program borrowed a median $124,000 and half earned $50,000 or less over the same period. “NYU is always focused on affordability, and an important part of that is, of course, to help prospective students make informed decisions,” said spokesman John Beckman. Northwestern spokeswoman Hilary Hurd Anyaso said the university’s speech-language pathology program is among the best in the world, leading to a “gratifying career path that is in high demand.” USC spokeswoman Lauren Bartlett said that providing students financial support and employment opportunities was a priority for the school. Undergraduate students for years have faced ballooning loan balances. But now it is graduate students who are accruing the most onerous debt loads. Unlike undergraduate loans, the federal Grad Plus loan program has no fixed limit on how much grad students can borrow — and that money can be used for tuition, fees and living expenses. (Subscription required.)​​​

Weekly Jobless Claims Tick Up Slightly to 373,000

New weekly applications for jobless benefits rose unexpectedly last week, according to data released today by the Labor Department, The Hill reported. In the week ending July 3, the seasonally adjusted number of initial claims for unemployment insurance totaled 373,000, rising 2,000 above the previous week’s revised total of 371,000. Another 99,001 people applied for Pandemic Unemployment Assistance (PUA), a program created in March 2020 to expand jobless aid to gig workers, contractors and others who don’t qualify for traditional unemployment benefits. Twenty-six states have pulled out of the program, which expires in September. As of June 19, the most recent week for which data is available, there were more than 14.2 million Americans on some form of jobless aid. That number has declined drastically from 33.2 million a year ago, but has fallen at a much slower rate in recent weeks.​​​

Hospitals Often Charge Uninsured People the Highest Prices, New Data Show

A Wall Street Journal study of thousands of prices at hundreds of hospitals revealed that many charge top prices to patients who must pay cash out of pocket, compared with the prices the hospitals have negotiated with insurance companies. Those rates — and wide pricing differences — were confidential until Jan. 1, when a new federal rule required hospitals to make prices public. The newly public prices allow for the first time a comparison of what deep-pocketed insurers pay hospitals versus rates that hospitals set for patients who pay cash. Time and time again, the Journal’s analysis revealed, cash payers are charged the highest prices. Patients typically pay these cash prices either because they are uninsured or because some services aren’t covered by their health plans. Hospitals generally offer financial aid, but policies vary widely and can be poorly promoted, leaving many uninsured, who are often low-income, to struggle with unmanageable bills. (Subscription required.)​​​

Democrats Race to Push Bipartisan Infrastructure Bill Through Senate

The White House’s long-sought-after bipartisan infrastructure deal could hit the Senate floor as early as the week of July 19, according to multiple House and Senate Democratic sources with knowledge of the conversations, Politico reported. White House legislative affairs director Louisa Terrell and deputy legislative affairs director Shuwanza Goff told Hill Democrats on a call Wednesday that the administration is working alongside the Senate to have the bipartisan infrastructure bill ready for floor consideration as early as the next two weeks. But some Democrats cautioned that the bill’s substance remains fluid and that leaders and the White House are navigating a delicate situation as they try to appease Democrats eager for a big Democrat-only reconciliation package. “As [Senate Majority] Leader [Chuck] Schumer has said, he wants to move on both the bipartisan plan and the budget resolution during the upcoming July/August Senate session,” a White House official said in an email. “Our understanding is that the process could begin as early as the week of 7/19, given that committees are still finalizing legislative text for both the budget resolution and the bipartisan bill.” Senate Majority Leader Chuck Schumer has vowed that if there is a bipartisan bill to consider, it will happen before the Senate leaves for August recess. The group of more than 20 senators that pieced together the framework for the infrastructure deal — consisting of centrists in both parties — is laboring to turn its proposal into legislative language over the current recess. They have split into specific sub-groups focused on pieces of policy, like broadband or financing, and are moving rapidly to turn that into legislative language.​​​

Panels at Next Week’s #ABINortheast Virtual: Post-Pandemic Debt Zombies, Subchapter V Demystified, Wellness Issues Facing Insolvency Professionals and More!

Leading insolvency professionals from the Northeast region will join seven judges to present their insights on a variety of important and timely topics pertaining to both consumer and business bankruptcy practice at ABI’s 2021 Northeast Virtual Bankruptcy Conference and Consumer Forum. Sessions for the Northeast Virtual Bankruptcy Conference and Consumer Forum include:

• Hot Topics in Evidence
• Wellness Issues Facing Insolvency Professionals • Consumer Practice Legislative Potpourri
• The Walking Dead: How (and When) to Address Post-Pandemic Debt Zombies
• Great Debates: The Circuit Split Edition
• Subchapter V Demystified
• Where Federal Statutes Collide: What § 363 Does Not Clear Out

While the conference is being hosted virtually, there are optional in-person networking events available to attendees in the Northeast region, including a golf tournament sponsored by Zeisler & Zeisler, P.C. at Granite Links Golf Club in Quincy, Mass., and a cocktail reception at the Hardshore Distilling Company in Portland, Maine, sponsored by Bernstein, Shur, Sawyer & Nelson, P.A. Click here to register!

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New on ABI’s Bankruptcy Blog Exchange: CFPB and Georgia AG Settle with Debt-Relief Company

The CFPB and the Georgia Attorney General’s Office on June 29 settled with a debt-relief and credit-repair company and its owners for allegedly deceiving consumers into hiring the company to lower or eliminate credit card debts and improve consumers’ credit scores, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

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