Crypto, BNPL May Face Regulations; Inflation Causing

Americans Continue to Pile on More and More Debt

American consumers continue to cope with rising prices and prop up the sagging economy using their credit cards. Total consumer debt rose another $23.8 billion in July to a record $4.644 trillion, according to the latest data from the Federal Reserve. On an annual basis, consumer debt rose by 6.2%, moderating somewhat from the last few months as the CPI cooled thanks to a drop in energy prices. The Federal Reserve consumer debt figures include credit card debt, student loans, and auto loans, but do not factor in mortgage debt. When you include mortgages, US consumers are buried under more than $16.2 trillion in debt. [Schiff Gold]

CFPB Plans to Regulate Buy-Now, Pay-Later Companies

The U.S. Consumer Financial Protection Bureau plans to start regulating “buy-now, pay-later” companies like Klarna and Affirm due to worries their fast-growing financing products are harming consumers. The watchdog, which does not currently oversee BNPL companies or products, will issue guidance or a rule to align sector standards with those of credit card companies. The development will be a blow for the sector, which is already under pressure due to rising funding costs and lower American consumer spending during soaring inflation. [Reuters]

Treasury Will Warn White House that Crypto Needs Major Regulations

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’s reports will highlight the economic danger of cryptocurrencies in several key areas, including the fraud risks they pose for investors. Treasury’s assessments conclude that cryptocurrencies do not yet pose a stability risk to the broader financial system, but that the situation could change rapidly. [The Washington Post]

The Average Credit Score Didn’t Go Up This Year for the First Time in Over a Decade

Credit scores saw a jump during the first year of the pandemic. Now, amid high inflation and rising consumer debt, they’re holding steady, and that’s not necessarily a good thing. The national average FICO credit score sits at 716, which is still an all-time high but is unchanged from a year ago, according to a new report from FICO. The average credit score has stayed steady in part due to an uptick in missed payments. As of April, just over 15% of the population had dealt with a 30-plus day past-due bill in the past year. Then there’s the rising level of consumer debt. The average credit card utilization was 31% as of April, up from 30% as of April 2021. And finally, more consumers are getting credit cards, taking new credit activity back to pre-pandemic levels. [Money]

Goldman’s Apple Card Business Has a Surprising Subprime Problem

The weakest American borrowers are starting to miss payments and default on their loans, and that is showing up at a surprising place: Goldman Sachs. While competitors like Bank of America enjoy repayment rates at or near record levels, Goldman’s loss rate on credit card loans hit 2.93% in the second quarter. That’s the worst among big U.S. card issuers and “well above subprime lenders,” according to a Sept. 6 note from JPMorgan. More than a quarter of Goldman’s card loans have gone to customers with FICO scores below 660, according to filings. That could expose the bank to higher losses if the economy experiences a downturn, as is expected by many forecasters. [CNBC]

Credit Card Companies Will Adopt New Sales Code for Gun Transactions

U.S. credit card giants said they will implement a new merchant category code for the nation’s gun retailers, which gun control activists say will help flag potential mass shooters and gun traffickers. The International Organization for Standardization, based in Geneva, approved the code on Friday. The system will separately categorize sales at gun and ammunition stores, which advocates say can help track suspicious transactions of firearms and ammunition. Nearly every retail item has a merchant category code. Prior to Friday’s decision by the ISO, gun store sales were classified under a general merchandise or sporting goods category. Merchant codes track where a consumer used a credit card, but won’t flag what specific items were purchased. Gun rights activists have argued the code would unfairly surveil legal gun purchases. [CNN]

Walmart, Target Urge Lawmakers to Pass Bill Taking Aim at Visa, Mastercard Fees

More than 1,600 merchants including Walmart and Target are urging U.S. lawmakers to pass legislation that aims to break the hold that Visa and Mastercard have over 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 over networks other than Visa and Mastercard. In a letter this week to all members of Congress, the merchants said the proposed legislation would increase competition, leading to a reduction in the fees they pay when they accept credit cards. [The Wall Street Journal]

Zero Down Payment, No Credit Check Mortgages Could Be Coming to a City Near You

A mortgage without a down payment? It might now be possible for some. Bank of America is launching a new program to help first-time homeowners in certain neighborhoods. The program offers mortgages with zero down payment, zero 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 doing a test run in major cities that are predominately Black and Hispanic. The plan will be rolled out in Los Angeles, Dallas, Detroit and Charlotte. Anyone living in those neighborhoods regardless of race can apply. The program is based on how much people make, and their location. [KATU 2]

California Says Amazon Ruined Online Shopping, Sues It for Driving Up Prices

Amazon is again under fire for its policies allegedly forbidding its online retailers from selling their products for lower prices on other websites and retail platforms. Critics say this 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 then in April, the Department of Justice issued a statement in support of DC’s case, and shortly after, DC filed to appeal this August. Now, California Attorney General Rob Bonta has piled on more pressure, announcing a lawsuit against Amazon for allegedly blocking price competition in California, too. [Ars Technica]

JP Morgan Acquires Payments Fintech to Rival Stripe and Block

In an effort to stave off its 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 services, trade finance and card and merchant services capabilities. The bank said that acquiring the firm will speed up its ability to roll out new offerings to merchants. Although JP Morgan is the world’s largest provider of merchant services by transaction volume, its fintech competitors, including Stripe and Block, are fast growing and approaching the top 10 acquirers in terms of volume. [Alt Fi]

Apple Card’s Head of Credit Leaves for Credit Card Startup X1

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

Lease-to-Own Fintech Startup Kafene Raises $18 Million to Battle 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 just another form of debt, but packaged differently. Rather, Kafene’s agreements, according to their CEO, are debt-free. Another way it differs is that BNPL is often used for more “nice-to-have” purchases, while lease-to-own is primarily for “must have” buys, like refrigerators or tires, for example. Essentially, Kafene’s model is based on the premise that at the point-of-sale, the prime consumer will probably go with BNPL, while the subprime consumer doesn’t have the credit score to do so and would typically do lease-to-own as their alternative financing mechanism. [Tech Crunch]

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