Subprime Lending News 8/1/17:
How your spouse’s credit could affect your financial life, why banks are stressing about late credit card payments, and the ongoing fight over the Consumer Financial Protection Bureau.
By Caroline Thompson
Today’s subprime news roundup includes a potential threat to banking profits, a tale of unfair lending practices for workers in the legal marijuana industry, and a primer on why you should always know your partner’s credit score.
Banks fear major losses from late credit card payments.
According to Fitch Ratings, credit card charge-offs, or the percentage of outstanding consumer debt that banks deem unlikely to ever be collected, have risen to their highest level in four years, currently sitting around 3.29 percent. While this is still relatively low compared to the 10 percent charge-off rate hit in 2010, this trend is causing trouble for big banks. These losses mean suppressed bank earnings, and, if they continue going up, it will increase the potential for stunted corporate growth and profits. The increase in late payments is partially due to a switch in lending policy, which happened in 2014. After the losses garnered by the 2010 charge-off rate, most lenders lent only to people with good credit. But in 2014, many lenders began making riskier loans to people with bad credit, as subprime borrowers tend to bring in higher yields. This move boosted credit card spending overall, but also led to a spike in late or missing payments, which may never be collected.
Workers in the legal marijuana industry denied loans based on employment.
While marijuana has been legalized by several states, it still remains an illegal substance in the eyes of the federal government. This can make things difficult for the 20,000 Americans currently working in the industry in states where marijuana is either medically or recreationally legal. Regardless of their credit scores, their debt-to-income ratios, or their borrowing history, many workers in the legal marijuana industry are finding it difficult–if not impossible–to take out loans in their everyday lives. From car loans to mortgages, the vast majority of banks will simply refuse anyone working in the marijuana industry for fear of getting wrapped up in a messy fight with the federal government. This puts employees of this industry at a net disadvantage, forced to either lie about their employment on a loan application, or being unable to finance things that would normally be easy to attain. There’s a non-partisan effort in Congress to address these kind of banking issues in states where marijuana is legal, but it may not pick up much steam unless the federal government reverses its policy on marijuana, something which seems unlikely given the current political climate.
Trump advisor suggests gutting the Consumer Financial Protection Bureau.
Republicans have been battling with the Consumer Financial Protection Bureau since its inception in 2011. In recent weeks, they’ve pushed back against a rule issued by the Bureau, which would have banned banks and credit card companies from using fine-print arbitration clauses to stop consumers from filing class-action lawsuits. Now Corey Lewandowski, an advisor to the president, is calling for Trump and his new chief of staff to fire Richard Corday, who oversees the CFPB and is currently running for governor in Ohio. “It’s my recommendation to the president of the United States to fire Richard Cordray, and if he wants to run for the governor of Ohio, go do it, but my concern is, you’ve got an unelected bureaucrat sitting in an office right now, and I hope that the new chief of staff looks at him moving forward and saying it’s time to act decisively,” said Lewandowski on a recent episode of NBC’s “Meet the Press.”
Your spouse’s bad credit could affect you more than you think.
Love conquers all, but it still might be a good idea to ask your future spouse about their credit score. While it’s a myth that credit scores merge after marriage, couples who want to jointly buy a house, car, or take out a loan to start a business might find it more difficult when one of their credit scores is less than stellar. According to Katie Ross, Education and Development Manager for American Consumer Credit Counseling, lenders usually decide creditworthiness based on the lower of the two scores. “If one person has terrible credit, they more than likely will need to be left off the credit application, which can mean their income is not considered as well. This can be a real burden if the purchase in consideration is a large one, such as a home or car.”