U.S. Interest Rates Raised to Highest Level in 16 Years
The U.S. central bank has raised interest rates to the highest level in 16 years as it battles to stabilize prices. The Federal Reserve increased its key interest rate by 0.25 percentage points, its 10th hike in 14 months. That pushed its benchmark rate to between 5% and 5.25%, up from near zero in March 2022, although the Fed hinted the rise may be its last one for now. The European Central Bank has also raised rates again, although by a smaller amount than in previous months. [BBC]
Credit Card Delinquencies Test Multi-Year Highs as Job Market Faces Material Worsening
As Americans load up on debt in the face of high interest rates, credit card giant Capital One is cautioning the bank’s profits will likely take a hit in the coming months as growing delinquencies start translating into expected losses—echoing warning signs that mounted before the Great Recession. Capital One CEO Richard Fairbank pointed out the delinquency rate for customers at least 30 days late on payment rose 134 basis points from one year earlier to 3.66%, reaching the highest level since March 2019. [Forbes]
Why Spending Less May Be Good News for Card Companies
Card companies of course earn more fees when cardholders spend, and earn more interest if they then carry a balance. But one reason that a spending slowdown doesn’t appear to be worrying investors is what it might mean for another important metric: credit risk. Consumers curbing their 2022 splurge and even spending a bit less now might mean they aren’t overextending themselves at a time of economic uncertainty—and in turn, that late payments and loan losses won’t go much above their normal, prepandemic levels. [The Wall Street Journal]
Biden Administration Warns Consumers to Avoid Medical Credit Cards
The Biden administration on Thursday cautioned Americans about the growing risks of medical credit cards and other loans for medical bills, warning in a new report that high interest rates can deepen patients’ debts and threaten their financial security. In its new report, the CFPB estimated that people in the U.S. paid $1 billion in deferred interest on medical credit cards and other medical financing in just three years, from 2018 to 2020. The interest payments can inflate medical bills by almost 25%, the agency found by analyzing financial data that lenders submitted to regulators. [NPR]
Buy Now, Pay Later Online Purchasing Programs Are Taking Off But Providers Aren’t Reporting Growing Debts to Credit Bureaus
Most “buy now, pay later” loans are not being reported to credit bureaus and a new report warns this could lead to bank-loan delinquencies and chronic overborrowing by consumers. Since most BNPL providers don’t report their accounts to credit bureaus, the true amount of debt that consumers are taking on—between BNPL options, credit cards and other types of loans—is not being accurately tracked. A March report from the World Economic Forum and Deloitte warns that this is one factor that could create broader risks in the banking system and lead to unsustainable levels of consumer debt. [The Toronto Star]
Mastercard Faces DOJ Antitrust Probe Over Debit Practices
Mastercard said the US Department of Justice is investigating whether the company has acted in an anticompetitive manner in its debit card business, a signal that the agency has widened a probe that previously centered on rival Visa. Mastercard said it received a civil investigative demand from the department last month seeking documents regarding a potential violation of certain sections of the Sherman Act, a sweeping law meant to protect competition. The probe focuses on the firm’s US debit program and competition with other networks and technologies. The move comes nearly two years after the Justice Department began a similar inquiry into Visa’s practices. [Bloomberg]
Amazon’s Credit Cards Are Getting an Upgrade
If you’re a frequent Amazon shopper, you might be considering one of Amazon’s credit cards, or even already have one in your wallet. Either way, Chase, the cards’ issuer, has some excellent news. The Amazon Prime Rewards Visa Signature Card and Amazon Rewards Visa Signature Card have been renamed Prime Visa and Amazon Visa. With the simpler names, the cards also got sleek new looks, and most importantly, new benefits. [CNBC]
Ex-Mastercard CEO Ajay Banga Confirmed as World Bank Leader
Former Mastercard CEO Ajay Banga, an Indian army officer’s son with decades of corporate experience, was confirmed Wednesday to lead the World Bank for a five-year term that starts next month. The U.S.-nominated business veteran succeeds David Malpass, a Donald Trump pick who is ending his tenure early at the 189-nation global poverty-fighting institution after coming under pressure for declining to say whether he agreed with the scientific consensus on climate change. [Associated Press]
The U.S. Banks With the Most Uninsured Deposits
Today, there is at least $7 trillion in uninsured bank deposits in America. This dollar value is roughly three times that of Apple’s market capitalization, or about equal to 30% of U.S. GDP. Uninsured deposits are ones that exceed the $250,000 limit insured by the Federal Deposit Insurance Corporation, which was actually increased from $100,000 after the Global Financial Crisis. They account for roughly 40% of all bank deposits. [Visual Capitalist]
Why Consumers Are Moving Deposits to Credit Card Issuers—For Now
Even before deposits abruptly exited Silicon Valley Bank, First Republic Bank and other troubled institutions in March, consumers were already moving their funds into companies that are best known as credit card issuers, like Discover and Capital One. Due to higher interest rates and the convenience of online account access, several of the nation’s largest credit card issuers began to see an unprecedented rise in deposits beginning late last year, with momentum building during the first three months of 2023. Discover’s consumer deposits rose 17% in the first quarter over the same period a year earlier to $75 billion; Synchrony also recorded a 17% boost in deposits during the first quarter, and Capital One’s deposits during the quarter rose 12%. [American Banker]
President Biden Proposes 30% Climate Change Tax on Cryptocurrency Mining
The White House is trying to persuade Congress to pass a 30% tax on the electricity used in cryptocurrency mining in the next federal budget in order to minimize the nascent industry’s impact on climate change. [Yahoo News]
Mastercard to Implement Sustainable Payment Cards by 2028
Global technology company Mastercard has announced the acceleration of its initiative to eliminate first-use PVC plastics from its payment cards by 2028. The initiative represents a step into Mastercard’s efforts to bring accessibility to a more sustainable card offering for customers, as a way to reduce and eliminate the environmental impact that their wallet currently has. The company’s global issuing partners will be supported through the transition away from virgin PVC. The Sustainable Card Program was launched in 2018, and currently over 330 issuers across 80 countries have signed up voluntarily for it. [The Paypers]
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