Crypto, BNPL May Face Regulations; Inflation causes increase in debt

Americans continue to accumulate more and more debt

American consumers continue to cope with rising prices and prop up the failing economy by using 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 increased by 6.2%, moderating from recent months when the CPI cooled thanks to a fall in energy prices. The consumer debt figures from the Federal Reserve include credit card debt, student loans and car loans, but do not take into account mortgage debt. When you include mortgages, American consumers are buried under more than $16.2 trillion in debt. [Schiff Gold]

CFPB plans to regulate buy now, pay later companies

The US Consumer Financial Protection Bureau plans to begin regulating buy-now, pay-later companies such as Klarna and Affirm over concerns that their fast-growing financing products are harming consumers. The watchdog, which currently does not supervise BNPL companies or products, will issue guidance or a rule to align the sector standards with the credit card companies. The development will be a blow to the sector, which is already under pressure due to rising financing costs and lower US consumer spending amid soaring inflation. [Reuters]

Treasury will warn the White House that crypto needs major regulations

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

The average credit score did not increase 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 is 716, which remains an all-time high but is unchanged from a year ago, according to a new report from FICO. The average credit score has remained stable in part due to an increase in missed payments. As of April, just over 15% of the population had dealt with a 30-day overdue bill in the past year. Then there is the rising level of consumer debt. Average credit card utilization was 31% as of April, up from 30% as of April 2021. And finally, more consumers are getting credit cards, driving new credit activity back to pre-pandemic levels. [Money]

Goldman’s Apple Card Business has a surprising subprime problem

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

Credit card companies will adopt new sales code for gun transactions

US credit card giants said they will implement a new merchant category code for the nation’s gun dealers, which gun control activists say will help flag potential mass shooters and gun dealers. The International Organization for Standardization, based in Geneva, approved the code on Friday. The system would separately categorize sales at gun and ammunition stores, which advocates say could help track suspicious transactions involving firearms and ammunition. Almost all retail items have 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 will not flag which specific items were purchased. Gun rights activists have argued that the code would unfairly police legal gun purchases. [CNN]

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

More than 1,600 merchants, including Walmart and Target, are urging US lawmakers to pass legislation aimed at breaking 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 and lead to a reduction in the fees they pay when accepting credit cards. [The Wall Street Journal]

Zero down payment, no credit check home loans could be coming to a city near you

A mortgage without a down payment? It may 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 such as paying rent and utilities on time. The bank is doing a test run in major cities that are predominantly black and Hispanic. The plan will be rolled out in Los Angeles, Dallas, Detroit and Charlotte. Anyone who lives in these neighborhoods regardless of race can apply. The program is based on how much people earn and their location. [KATU 2]

California says Amazon ruined online shopping, sues it for raising prices

Amazon is again under fire for its policies that allegedly prohibit its online stores from selling their products at lower prices on other websites and retail platforms. Critics say this has led to years of higher prices for consumers rather than letting markets 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 an opinion in support of DC’s case, and shortly after that, DC appealed in August. Now, California Attorney General Rob Bonta has added more pressure, announcing a lawsuit against Amazon for allegedly blocking price competition in California as well. [Ars Technica]

JP Morgan Acquires Payments Fintech to Rival Stripe and Block

In an attempt to fend off its fintech rivals, JP Morgan has acquired payments company Renovite. Through the acquisition, the cloud-based payment fintech will become part of JP Morgan Payments, which combines the company’s treasury services, trade finance and card and merchant services. The bank said the acquisition of the firm will accelerate its ability to roll out new offers 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’s credit chief leaves credit card startup X1

Apple’s head of credit for the Apple card, Abhi Pabba, has left the company. Dad will start at the California-based credit card company X1 starting next week as head of risk. Over the past few years, there have been a number of exits from Goldman Sachs’ consumer business, which handles lending and issuing parts of the Apple Card. But defections on Apple’s part have been less obvious. The tech giant’s goal with the Apple card is not to generate revenue from strong lending decisions, but to make the iPhone more important to its customers. The card is primarily accessible and managed via iPhone. [CNBC]

Lease-to-Own Fintech Startup Kafene Raises $18 Million to Fight BNPL

Kafene, a lease-to-own startup targeting 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 deals are, according to their CEO, debt-free. Another way it differs is that BNPL is often used for more “nice-to-have” purchases, while lease-to-ow is primarily for “must-have” purchases, such as 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 do lease-to-ow as their alternative financing mechanism. [Tech Crunch]