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Increased borrowing, declining collection accounts good sign for lenders

Jan 09, 2019 Walt Wojciechowski

Short term lending outlets and other credit providers in the United States may be on the brink of a lucrative period. As more consumers in the U.S. start to gain a better financial footing in the wake of the Great Recession, borrowing trends are improving, which could be a good sign for lenders.

According to insideARM, data recently released by the Federal Reserve Bank of New York (FRBNY) found that the number of Americans involved in debt collection proceedings has declined. The source noted that a recent FRBNY report showed 13.8 percent of Americans had accounts in collection during the third quarter. That was a drop from the 14.6 percent mark recorded in the previous quarter and it was the single largest quarter-to-quarter retreat measured by the FRBNY since it started tracking debt collection data in 1999.

The information should boost lenders' outlook on the national economy as well as the financial capabilities of American consumers. This data is an indication that many borrowers are able to stay current on payments, which may result in decreased risk for lenders. It's been widely reported that subprime lending for auto loans has been on the rise in recent months, proof that lenders are more willing to extend credit to risky borrowers than they were in recent years.

Debt levels spike
Although the number of accounts in collection has dropped, it is not due to Americans cutting back their borrowing habits. In fact, the number of overall levels of debt have increased recently. The Wall Street Journal also recently reported about borrowing figures released from the FRBNY that showed household debt grew during the third quarter.

From July to September, consumer debt increased $127 billion to land at $11.28 trillion. The source stated that it was the largest quarterly growth seen in five years.

Increased debt levels and declining collection accounts show that many Americans are in a better financial state than they were during the economic downturn. As a result, lenders across the country are becoming more likely to extend credit, even to individuals with low consumer credit scores. The development is a significant vote of confidence by lenders regarding the nation's capabilities of staying on top of payments and avoiding loan defaults. If the trend continues, the next several months or years could prove lucrative for credit providers.