Interest rates at 16-year high; Rising payment arrears on credit cards


US interest rates raised to highest level in 16 years

The US central bank has raised interest rates to their highest level in 16 years in an effort to stabilize prices. The Federal Reserve raised its key interest rate by 0.25 percentage point, the 10th hike in 14 months. That pushed its reference rate to between 5% and 5.25%, up from near zero in March 2022, though the Fed hinted the hike could be its last for now. The European Central Bank has also raised interest rates again, albeit by a smaller amount than in previous months. [BBC]

Credit card backlogs test multi-year highs as the job market faces material deterioration

As Americans pile on debt in the face of high interest rates, credit card giant Capital One is warning that the bank’s profits are likely to take a dent in the coming months as growing delinquencies begin to translate into expected losses – echoing warning signs that occurred before the Great Recession. Richard Fairbank, CEO of Capital One, pointed out that the payment delay rate for customers who were at least 30 days late in paying increased 134 basis points from a year earlier to 3.66%, marking the highest level since March 2019. [Forbes]

Why spending less can 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 a spending slowdown doesn’t seem to worry investors is what it could mean for another key metric: credit risk. If consumers curtail their splurges in 2022 and actually spend a little less now, it could mean they aren’t overextending themselves in a time of economic uncertainty – and in turn, payment delays and loan losses won’t rise much above their normal, pre-pandemic levels. [The Wall Street Journal]

Biden administration warns consumers to avoid medical credit cards

The Biden administration on Thursday warned Americans about the growing risks of medical credit cards and other medical bill loans, warning in a new report that high interest rates could deepen patients’ debts and jeopardize their financial security. In its new report, the CFPB estimated that people in the US paid $1 billion in deferred interest on medical credit cards and other medical loans in just three years, from 2018 to 2020. The interest payments could drive up medical bills by nearly 25%, the agency found by analyzing financial data that lenders submitted to regulators. [NPR]

Buy now, pay later Online buying programs are taking off, but providers fail to report growing debts to credit bureaus

Most “buy now, pay later” loans go unreported to credit bureaus, and a new report warns that this could lead to bank loan delinquencies and chronic over-borrowing by consumers. Since most BNPL providers do not report their accounts to credit bureaus, the actual amount of debt consumers take on – between BNPL options, credit cards and other types of loans – is not accurately tracked. A March report from the World Economic Forum and Deloitte warns that this is a 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 investigation over debit practices

Mastercard said the U.S. Justice Department is investigating whether the company acted in an anti-competitive manner in its debit card business, a signal the agency has expanded an investigation previously focused on rival Visa. Mastercard said it received a civil inquiry request from the department last month to seek documents related to a possible violation of certain parts of the Sherman Act, a sweeping law designed to protect competition. The research focuses on the company’s US debit program and competition with other networks and technologies. The move comes nearly two years after the Justice Department launched a similar investigation 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. Anyway, Chase, the card 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 a sleek new look and, above all, new benefits. [CNBC]

Former Mastercard CEO Ajay Banga confirmed as leader of the World Bank

Former Mastercard CEO Ajay Banga, the son of an Indian army officer with decades of business experience, was confirmed Wednesday to head the World Bank for a five-year term starting next month. The US-nominated business veteran succeeds David Malpass, a Donald Trump pick who is ending his tenure at the 189-nation global institution for poverty alleviation after coming under pressure for refusing to say whether he agreed with the scientific consensus on climate change. [Associated Press]

The US banks with the most uninsured deposits

Today in America there is at least $7 trillion in uninsured bank deposits. This dollar value is about three times Apple’s market cap, or roughly equivalent to 30% of US GDP. Uninsured deposits are deposits that exceed the Federal Deposit Insurance Corporation insured limit of $250,000, which was even increased from $100,000 after the global financial crisis. They account for about 40% of all bank deposits. [Visual Capitalist]

Why consumers are moving deposits to credit card issuers – for now

Even before deposits abruptly left Silicon Valley Bank, First Republic Bank and other troubled institutions in March, consumers were already moving their money to companies best known as credit card issuers, such as Discover and Capital One. Due to higher interest rates and the ease of online account access, several of the country’s largest credit card issuers began seeing unprecedented increases in deposits from late last year, with momentum building into the first three months of 2023. Discover deposits rose 17% in the first quarter over the year-earlier period to $75 billion; Synchrony also recorded a 17% increase in deposits during the first quarter, and Capital One’s deposits were up 12% during the quarter. [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 electricity used in cryptocurrency mining in the next federal budget, to minimize the impact of the nascent industry on climate change. [Yahoo News]

Mastercard will implement sustainable payment cards in 2028

Global technology company Mastercard has announced the acceleration of its initiative to eliminate first-use PVC plastics from its payment cards by 2028. and eliminate the environmental impact their wallets currently have. The company’s global issuance partners will be supported in the transition from virgin PVC. The Sustainable Card program was launched in 2018 and currently more than 330 issuers in 80 countries have volunteered for it. [The Paypers]