In a recent report released on Monday, the Federal Reserve announced that consumer credit increased by $11.3 billion in May, up from $6.5 billion the previous month – marking the largest borrowing increase in three months.
According to Market Watch, the biggest gains were seen in revolving credit, such as credit cards, which rose at a 6.3% annual rate following a rare 0.8% decline in April.
The report does not include mortgage loans, which make up the majority of household debt.
New data from the litigation tracking website WebRecon also reveals a rise in lawsuits filed against credit reporting agencies.
These lawsuits are aimed at credit reporting agencies like Experian, Equifax, and TransUnion, with financial institutions facing disputes from consumers alleging violations of the Fair Credit Reporting Act.
The report indicates that claims involving the Consumer Financial Protection Bureau have nearly doubled in the first half of this year compared to 2023, while claims under the Fair Credit Reporting Act have increased by 23.3% during the same period.
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“We are seeing a significant number of cases involving plaintiffs without legal representation, more so than in the past,” said Manny Newburger, an attorney at Barron & Newburger.
Newburger, who previously represented consumers but now represents the credit industry, suggests that the increase in self-represented individuals in court may indicate a rise in reporting errors on the part of creditors.
He also mentions another factor: social media influencers who claim expertise in the law, leading consumers to believe they have valid claims.
“We see lawsuits with identical typos and allegations filed in different courts across the state or country, indicating that the filers may be getting information from a common source,” Newburger explained.
Dennis McCarty, a lawyer representing consumers, acknowledges that interest rates could be contributing to the surge in lawsuits as individuals are now monitoring their credit reports more closely. Increased borrowing raises the likelihood of errors.
“A 23%-25% increase in lawsuits is significant. This area of law is niche, and something is driving this surge, with interest rates being a consistent factor,” McCarty noted.
Newburger views the rise in lawsuits as a negative outcome for all parties involved, as it clogs the legal system and disadvantages both consumers and creditors.
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“I’m troubled by what I’m witnessing. Some individuals may have valid cases but lose out due to poor advice. Even worse, some creditors who may be willing to work with them could become unwilling due to the influx of baseless claims,” he said.
According to the WebRecon report, about 42% of plaintiffs who filed suits last month had filed at least once before. Newburger speculates whether these individuals are attempting to manipulate the system, genuinely believe they have a case, or are filing against multiple creditors.
