Study: Consumer credit problems easing

Analysis finds first drop in consumer credit lawsuits since financial crisis

As economic strains on consumers ease and bad debt and home foreclosures begin to roll back, consumer lawsuits about a grab bag of credit-related problems are falling this year for the first time since the financial crisis began in 2008.

A Nov. 6 report released by the Transactional Records Access Clearinghouse (TRAC) at Syracuse University covered federal court lawsuits that involve bad debts, credit reporting, loan costs, telemarketing and other consumer issues.

For the federal fiscal year that ended in September, such lawsuits totaled 9,273 filings, down about 6 percent from 9,826 in fiscal 2011, TRAC co-director Susan Long said. In pre-crisis 2007, the number of consumer credit lawsuits was 3,211.

"It's certainly dropped, but it is by no means back to where we were," Long said.

Cases under the Fair Debt Collection Practices Act, which outlaws harassing and deceptive collection calls, make up the largest slice of the filings. Also included are filings under the Fair Credit Reporting Act, which involves errors on credit reports; the Truth in Lending Act, having to do with disclosures about the cost of mortgages, credit cards and other types of loans; and the Telephone Consumer Protection Act, which restricts tele-sales pitches, among other things.

Reduction seen in lawsuits against debt collectors

Consumers file fewer lawsuits against collectors, but not everyone thinks that abuses are easing.

Experts on debt collection, however, said that cases began to rise years before the economy soured. They attribute the decline this year to factors including tighter legal compliance by lawsuit-wary collectors, as well as a shift to out-of-court resolution. Collection industry group ACA International told that the recovery has not slowed debt collection activity.

But in general, the reduction in overall consumer credit lawsuits follows a drop in economic stress factors. Many Truth in Lending complaints, for example, are connected to problems with home loans that surrounded the foreclosure crisis.

"Certainly consumer credit is getting better; it takes a while to work through the system," said Scott Brown, chief economist for Raymond James & Associates. A drop in consumer credit-related lawsuits makes sense during an economic recovery -- albeit a slow recovery, he said.  

Loan delinquency rates are down, with delinquent payments on credit cards having fallen to an 11-year low recently, according to figures from the American Bankers Association, indicating the increasing health of consumers' pocketbooks.

As for telemarketing, the Federal Trade Commission announced an escalated crackdown last week on what it calls a surge of debt relief scams that use "robocalling" to trick consumers into costly and ineffective services.

Other signs of consumer strain such as bankruptcies are also showing signs of easing. Bankruptcy filings are falling, down 14 percent for the first nine months of the year compared to the same period in 2011.

TRAC's report said that the District of Colorado had the highest level of consumer credit filings per capita in the U.S. in September, repeating its top rank from a year earlier.The Northern District of West Virginia saw a 150 percent increase in the rate of filings over the year, TRAC said, while New Jersey saw filings drop 30.5 percent, the steepest decline.

See related: Though bad debts fall, lawsuits over collection practices rise

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Updated: 01-19-2019