On November 16, 2018, the Federal Reserve Bank of New York (New York Fed) released its quarterly household debt and credit report. The report used a nationally representative sample of individuals as well as anonymized credit data from Equifax. In the third quarter of 2018 (Q3), total household debt increased by $210 billion. According to the New York Fed’s press release, this is the seventeenth consecutive quarter of increase.

For outstanding non-mortgage debt, student loans remain the behemoth. As of Q3, the student loan balance is $1.44 trillion, an increase of $37 billion since last quarter. Auto loans followed with a balance of $1.27 trillion, an increase of $27 billion since last quarter. Credit cards trailed with a balance of $844 billion, an increase of $15 billion since last quarter.

The release also includes the chart below, which shows the annualized shares of balances that transitioned into serious delinquency (90 days or more). Student loans had the highest rate of increase in serious delinquency since last quarter.

Of particular interest to the ARM industry, the report shows a continuation of the trend that the percentage of consumers with third party collections on their credit reports is decreasing, and has been since 2012. Despite this, the average amount in collections has increased in the last two years.  

insideARM Perspective

The significant drop in percentage of consumers with third party collection items on their credit reports may be attributed to the implementation of the National Consumer Assistance Plan (NCAP). In a blog post that accompanied last quarter’s report, the New York Fed believed this decrease in reported collection accounts to be temporary while collection agencies get accustomed to the new requirements. According to the most recent report, this has not yet happened.  


Another possible explanation for the sharp decrease is the current legal climate. Since FCRA lawsuits are on the rise, third party debt collectors might be choosing to no longer credit report. The industry noticed the mass mailing of largely identical dispute letters by credit repair organizations, which appears to be a new tactic to get tradelines deleted or to drum up FCRA lawsuits against (and, thus, settlements from) debt collectors. This opens up another can of worms. Mass disputes made in such manner take away from legitimate disputes consumers may have. Finding a legitimate dispute amid the volumes of mass disputes from credit repair organziations is like finding a needle in a haystack. On a larger scale, if companies are not credit reporting delinquent items due to fear of unwarranted FCRA backlash, how accurate of a gauge is a consumer’s credit report in determining his or her creditworthiness? These are discussions for another day, but discussions that need to occur.

Edit (3:13PM): An industry source provided a third possible reason why this report shows a sharp decrease in collection accounts appearing on consumer's credit reports. The report indicates that it pulled anonymized credit report data from Equifax. Many companies ceased reporting to Equifax after last year's data breach, which came to light right around the time that the chart above shows a sharp decline. To paint a more accurate picture, it would be helpful to see similar data from the other two large credit bureaus.

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