More Consumers Turn To Buy Now, Pay Later; Signs The Economy Will Struggle

Out of Cash, Many Americans Add to Their Credit Card Debt During the Holidays

Once flush with additional savings from the pandemic, many consumers have exhausted that excess cash due to ongoing inflationary pressures and are now turning to credit cards to fund their holiday spending. The average rate on a credit card is now 19.55%, according to the latest Bankrate data, the highest it’s been. At the start of the year, the average rate on a credit card was 16.3%. Balances jumped 15% year-over-year in the third quarter. That’s the largest annual increase in more than 20 years. In fact, among Americans who carry credit card debt from month to month, 60% have been revolving this debt for at least a year, according to CreditCards.com. This is up from 50% last year. [Yahoo Finance]

Car Repossessions Are on the Rise in Warning Sign for the Economy

A growing number of consumers are falling behind on their car payments, a trend financial analysts fear will continue, in a sign of the strain soaring car prices and prolonged inflation are having on household budgets. Repossessions tumbled at the start of the pandemic when Americans got a boost from stimulus checks and lenders were more willing to accommodate those behind on their payments. But in recent months, the number of people behind on their car payments has been approaching pre-pandemic levels. Industry analysts worry the trend is only going to continue into 2023 with economists expecting unemployment to rise, inflation to remain relatively high and household savings set to dwindle. At the same time, a growing number of consumers are having to stretch their budgets to afford a vehicle; the average monthly payment for a new car is up 26% since 2019 to $718 a month. [NBC News]

Americans Relied on Buy-Now-Pay-Later More This Year as Inflation Rose

As inflation crushed budgets in 2022, Americans turned to buy-now-pay-later financing for the biggest shopping seasons of the year. An Ally Bank survey showed that double the number of Americans used BNPL services in December compared with just four months ago. A TransUnion survey earlier this year found that 37% of Americans leaned on BNPL for the other big shopping event of the year, back-to-school shopping, up from just 2% in 2021. The common concern among shoppers then and now: inflation, as a growing number of American families shift their spending habits to stretch their budgets, making them more vulnerable to potential late payments and fees. [Yahoo Finance]

Credit Card Delinquency Data Hints at Paycheck-to-Paycheck Pressures

Reports from banks and payment networks show credit card delinquency rates are on the rise. Connect the dots, and the data hints at trouble ahead in the paycheck-to-paycheck economy. Data from the St. Louis Federal Reserve showed that the delinquency rate on credit cards for all banks at the end of the third quarter stood at 2.1%, up from 1.9% in the second quarter and up from 1.6% a year ago. The Fed released data in November that showed that credit card balances had risen by $38 billion, a 15% year-over-year increase and the most outsized jump in 20 years. [PYMNTS]

Young Adults Are Particularly Vulnerable to Delinquencies

Americans across the board are struggling with credit card debt. Those just starting out are particularly vulnerable. With limited financial resources, lower wages and shorter credit histories, young adults are struggling to manage high-interest debt more than other age group, according to a new report by Urban Institute. Nearly one in five adults between the ages 18 and 24 with a credit record in the U.S. currently have debt in collections. Overall, credit card balances are surging, up 15% in the most recent quarter, the largest annual jump in more than 20 years. At the same time, credit card rates are now over 19%, on average, an all-time high, and still rising. But for new applicants for credit, APRs are typically even higher, as much as 30%. [CNBC]

Wells Fargo Ordered to Pay $3.7 Billion for Illegal Activity

Federal regulators fined Wells Fargo a record $1.7 billion on Tuesday for “widespread mismanagement” over multiple years that harmed over 16 million consumer accounts. The CFPB said Wells Fargo’s “illegal activity” included repeatedly misapplying loan payments, wrongfully foreclosing on homes, illegally repossessing vehicles, incorrectly assessing fees and interest and charging surprise overdraft fees. The CFPB ordered Wells Fargo to pay the $1.7 billion civil penalty in addition to more than $2 billion to compensate consumers for a range of “illegal activity.” CFPB officials say this is the largest penalty imposed by the agency. [CNN]

AMC Theatres Hopes Its Next Gold Mine Is a Credit Card

AMC Theatres has found its next investment to appease its retail investors. The movie theater chain is set to launch an AMC Entertainment Visa Card in early 2023 in partnership with Visa and Deserve, a digital credit card platform. Credit card holders will be able to earn additional AMC Stubs Rewards points when making purchases at the theater, as well as purchases outside of the theater chain. The card is only available to AMC Stubs members. [The Hollywood Reporter]

Sluggish Holiday Sales Could Bring Huge Last-Minute Discounts

Retailers across the U.S. are seeing significant drops in holiday sales as shoppers who spent early tighten their wallets in fear of a deepening recession despite a recent cooling. Data from the Commerce Department seems to confirm our forecast – that too much inventory would lead to “overstock shedding” and smaller profits for retailers – and the gloomy retailer outlooks, including that of online giant Amazon. [Kiplinger]

50 Important Credit Card Terms You’ll Find in a Cardholder Agreement

If you’ve ever read through a cardmember agreement, you may have thought the bank was speaking a foreign language. The credit industry has its own nomenclature and tends to speak in acronyms. What follows is a guide to many of the credit-related terms and acronyms that you will likely see in a credit card’s terms and conditions. [CardRates]

Who Pays For Credit Card Rewards?

You know that those credit card rewards aren’t free, but who’s really paying for them? A new study concludes that the costs are borne by some of the card holders. Some card holders benefit while others pay for those benefits. The difference depends on how carriers manage their card purchases and balances. The economists say what they call sophisticated consumers benefit while naïve consumers pay. The points systems induce more spending. Sophisticated consumers pay off the card balances regularly and capture the rewards at little or no cost. Naïve consumers don’t pay down their balances as often. The interest and fees they pay for carrying balances more than offset the reward benefits. [Forbes]

As China Pushes its Digital Currency Plans, the U.S. Falls Behind

China’s digital yuan project, a blockchain-based cryptocurrency for consumer and commercial finance, can no longer be considered a pilot. That’s the assessment by economic and cryptocurrency experts. Those experts have been monitoring efforts in China and other countries developing and piloting central bank digital currencies with the aim of establishing a blockchain-based virtual cash that is cheaper to use and faster to exchange, both at home and across international borders. To date, the People’s Bank of China has distributed the digital yuan, called e-CNY, to 15 of China’s 23 provinces, and it has been used in more than 360 million transactions totaling north of 100 billion yuan, or $13.9 billion. [ComputerWorld]

Merchants Face Steep Prep Ahead of New Credit Card Routing Rules

Deadlines loom in the United States as credit network exclusivity is set to end next year. Those rules, which take effect in early 2023, will allow/require merchants to choose between (at least) two unaffiliated networks for electronic transactions. Legislation that would put similar processes in place for credit card transactions (through the latest Durbin amendments on Capitol Hill) remains an unknown at the moment. [PYMNTS]