Crypto, BNPL may face regulations; Inflation leads to an increase in debt

Americans continue to go deeper and deeper into debt

American consumers continue to deal with rising prices and support the declining economy by using their credit cards. Total consumer debt rose another $23.8 billion in July to a record $4.644 billion, according to the latest data from the Federal Reserve. On an annual basis, consumer debt rose 6.2%, slightly less than in recent months as the CPI cooled on the back of lower energy prices. Federal Reserve consumer debt figures include credit card debt, student loans and auto loans, but exclude mortgage debt. When you include mortgages, American consumers are buried under more than $16.2 trillion in debt. [Schiff Gold]

Inflation continues to drive large increases in consumer debt

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CFPB plans to regulate companies that buy now and pay later

The US Consumer Financial Protection Bureau plans to start regulating “buy now, pay later” companies like Klarna and Affirm over concerns that their fast-growing finance products are hurting consumers. The watchdog, which does not currently oversee BNPL companies or products, will issue guidelines or a rule to align industry standards with those of credit card companies. The development will be a blow to the sector, which is already under pressure due to rising financing costs and falling US consumer spending during soaring inflation. [Reuters]

Treasury to Warn White House Crypto Needs Major Regulation

The Treasury Department will warn the White House that cryptocurrencies could pose significant financial risks that outweigh their benefits unless the government rolls out major new regulations, according to two people familiar with the matter. Treasury reports will highlight the economic danger of cryptocurrencies in several key areas, including the fraud risks they pose to investors. Treasury assessments conclude that cryptocurrencies do not yet pose a risk to the stability of the broader financial system, but that situation could change quickly. [The Washington Post]

The average credit score has not increased this year for the first time in more than a decade

Credit ratings surged in the first year of the pandemic. Today, in an environment of high inflation and growing consumer debt, they are holding up, and that is not necessarily a good thing. The average national FICO credit score sits at 716, which is still a record high but is unchanged from a year ago, according to a new FICO report. The average credit score remained stable in part due to an increase in missed payments. In April, just over 15% of the population had had to pay a bill that was overdue for more than 30 days in the past year. Then there is the rising level of consumer debt. Average credit card usage was 31% in April, down from 30% in April 2021. Finally, more consumers are getting credit cards, bringing new credit activity back to pre-pandemic levels. [Money]

Goldman’s Apple Card Business Has a Surprising Subprime Problem

Weaker US borrowers are starting to miss payments and default on their loans, and it’s showing up in a surprising place: Goldman Sachs. While competitors like Bank of America are enjoying repayment rates at or near record highs, Goldman’s loss rate on credit card loans hit 2.93% in the second quarter. It’s the worst among major U.S. card issuers and “well above subprime lenders,” according to a Sept. 6 memo from JPMorgan. More than a quarter of Goldman’s card loans went to clients with FICO scores below 660, according to filings. This could expose the bank to greater losses if the economy slows, as many forecasters predict. [CNBC]

Credit card companies to adopt new sales code for gun transactions

US credit card giants have said they will implement a new merchant category code for gun retailers nationwide, which gun control activists say will help flag potential mass shooters and gun traffickers. The Geneva-based International Organization for Standardization approved the code on Friday. The system will separately categorize sales at gun and ammunition stores, which proponents say can help track suspicious gun and ammunition transactions. Almost every retail item has a merchant category code. Prior to Friday’s ISO decision, gun store sales were categorized as general merchandise or sporting goods. Merchant codes track where a consumer used a credit card, but do not indicate what specific items were purchased. Gun rights activists have argued that the code would unfairly police legal gun purchases. [CNN]

Walmart and Target urge lawmakers to pass bill targeting Visa and Mastercard fees

More than 1,600 merchants, including Walmart and Target, are urging U.S. lawmakers to pass legislation to break Visa and Mastercard’s stranglehold on the credit card market. The bill, which Sen. Richard Durbin (D., Ill.) and Sen. Roger Marshall (R., Kan.) introduced in July, would give merchants the right to route many credit card payments to networks other than Visa and Mastercard. In a letter this week to all members of Congress, merchants said the proposed legislation would increase competition, leading to a reduction in the fees they pay when accepting credit cards. [The Wall Street Journal]

No down payment, no credit check mortgage could happen in a city near you

A mortgage with no down payment? This might now be possible for some. Bank of America is launching a new program to help new homeowners in select neighborhoods. The program offers mortgages with no down payment, no closing costs and no minimum credit score. Instead of a credit check, it considers other factors like paying rent and utilities on time. The bank is testing in large, predominantly black and Hispanic cities. The plan will be rolled out in Los Angeles, Dallas, Detroit and Charlotte. Anyone living in these neighborhoods, regardless of race, can apply. The program is based on people’s income and location. [KATU 2]

California Says Amazon Ruined Online Shopping, Sues It for Raising Prices

Amazon is again under fire for its policies allegedly prohibiting its online retailers from underselling their products on other websites and retail platforms. Critics say it has led to years of higher prices for consumers instead of allowing markets to determine fair prices. Last year, the District of Columbia sued Amazon for the same reason and lost in court in March 2022. But in April, the Justice Department released a statement supporting DC’s case, and shortly thereafter, DC appealed in August. Now, California Attorney General Rob Bonta has pushed harder, announcing a lawsuit against Amazon for allegedly blocking price competition in California as well. [Ars Technica]

JP Morgan acquires Payments Fintech from Rival Stripe and Block

In an effort to stave off fintech rivals, JP Morgan has acquired payments company Renovite. Through the acquisition, the cloud-native payments fintech will become part of JP Morgan Payments, combining corporate treasury, trade finance, and card and merchant services capabilities. The bank said acquiring the business would accelerate its ability to roll out new offerings to merchants. Although JP Morgan is the world’s largest merchant services provider by transaction volume, its fintech competitors, including Stripe and Block, are growing rapidly and are closing in on the top 10 acquirers by volume. [Alt Fi]

Apple Card Credit Manager Leaves for X1 Credit Card Startup

Apple’s credit manager for the Apple Card, Abhi Pabba, has left the company. Pabba will join California-based credit card company X1 starting next week as chief risk officer. Over the past few years, there have been a series of exits from the consumer business of Goldman Sachs, which handles the lending and issuing parts of Apple Card. But Apple’s defections have been less apparent. The tech giant’s goal with the Apple Card isn’t to generate revenue from solid lending decisions, but to make the iPhone more essential to its customers. The map is primarily accessed and managed through the iPhone. [CNBC]

Fintech startup Kafene raises $18 million to fight BNPL

Kafene, a lease-to-own startup aimed at underbanked consumers who don’t have access to traditional credit, raised $18 million in a Series B funding round. Many argue that BNPL is only another form of debt, but presented differently. On the contrary, the Kafene Accords, according to their CEO, are debt-free. Another difference is that BNPL is often used for more “nice to have” purchases, while leasing is mainly for “must have” purchases, like refrigerators or tires, for example. Essentially, Kafene’s model is based on the premise that at the point of sale, the prime consumer is likely to go with BNPL, while the subprime consumer does not have the credit score to do so and would typically lease. as an alternative funding mechanism. [Tech Crunch]

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