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As consumer credit makes sharp gains, the number of people suing creditors also rises

Some experts think consumers are being encouraged to sue by social media influencers who claim to know about the law.
Several VISA and MASTER credit cards are shown
Posted at 2:45 PM, Jul 09, 2024

In a new report issued Monday, the Federal Reserve said consumer credit rose$11.3 billion in May, up from $6.5 billion the previous month — the largest gain in borrowing in three months.

According to Market Watch, the largest gains were in revolving credit, like credit cards, which jumped by a 6.3% annual rate after a rare 0.8 % fall in April.

The report does not include mortgage loans, which account for the largest bulk of household debt.

New data from the litigation tracking website WebRecon also shows lawsuits filed against credit reporting agencies have been rising.

The lawsuits are targeting credit reporting agencies including Experian, Equifax and TransUnion, while financial institutions are experiencing disputes from consumers claiming violations of the Fair Credit Reporting Act.

The report shows claims citing the Consumer Financial Protection Bureau have nearly doubled in the first six months of this year compared to 2023, and claims citing the Fair Credit Reporting Act rose 23.3% in the same period.

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“The sheer number of cases we see that involve unrepresented plaintiffs seems to be much greater than it has been in times past,” said Manny Newburger, an attorney with the firm Barron & Newburger.

Newburger used to represent consumers but now represents the credit industry, and he says the higher number of people representing themselves in court suggests there could be a rise in reporting errors on the side of creditors.

He also points to another cause: social media influencers who purport to know about the law and make consumers think they have a legitimate claim.

“We’ll see lawsuits with identical typos, making identical allegations, filed in different courts in different parts of the state or different parts of the country, and that tells me that the people filing these are getting them from a common source,” Newburger said.

Dennis McCarty is a lawyer on the other side of the aisle, as he represents consumers. He says interest rates could be playing a role in the rise in lawsuits, as people are now looking at their credit reports more often. More borrowing means a higher possibility of errors.

“A 23%-25% rise in lawsuits is not a small number,” said McCarty. “That’s pretty significant. This is a niche area of the law and something’s driving it, and one constant we have is interest rates.”

Newburger says the rise is a lose-lose for everyone, as it bogs down the system and puts consumers and creditors at a disadvantage.

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“I’m really troubled by what I’m seeing,” he said. “I think there are people who may have legitimate cases and lose their opportunities because they get bad advice. But worse, there are some people whose creditors may work with them, and they may be losing those opportunities by making everybody angry by filing these meritless cases.”

According to the WebRecon report, about 42% of all plaintiffs who filed suit last
month had filed at least once before. Newburger says it is unclear whether
these are people trying to "game" the system, adamantly believe they
have a case, or are filing claims against multiple creditors.