%1

On the heels of another rate hike last week by the Federal Reserve, credit card annual percentage rates are already near 20%, on average, and set to climb even higher. At the same time, more consumers are leaning on credit to afford increasingly expensive necessities, like food and rent. A recent quarterly report by TransUnion showed that total credit card debt was propelled to a record $930.6 billion at the end of 2022, an 18.5% spike from a year earlier. The average balance rose to $5,805 over that same period, TransUnion found. Overall, an additional 202 million new credit accounts were opened in the fourth quarter, led by originations among Generation Z, or adults ages 18 to 25, and the tally of total credit cards hit a record 518.4 million.

A central piece of President Joe Biden’s student-debt reform package could cost as much as $361 billion over the next decade, according to a new estimate from the University of Pennsylvania’s Wharton School, Bloomberg News reported. The changes to income-driven repayment, which the Department of Education formally proposed earlier this month, would cut monthly bills for undergraduate borrowers in half and fast-track eventual forgiveness of the loans. Student loan experts have argued the reforms could prove more significant than Biden’s plan to forgive up to $20,000 in debt per person — and with one-time forgiveness hamstrung by the courts, the new IDR scheme may become the main pillar of the administration’s attempt to tackle Americans’ $1.6 trillion federal student-debt load. Relief, though, comes at a cost: The Department of Education projected a net federal budget impact of $137.9 billion through 2032, while the Wharton estimate of $333 billion to $361 billion is more than double that number. That’s because the government’s calculations assume that IDR enrollment would remain constant at around a third of total loan volume, while the Penn Wharton Budget Model projects the new IDR plan would encapsulate as much as 75% of eligible loans as more borrowers sign up for better benefits.

President Biden plans to announce Wednesday that his administration is proposing a rule that would limit the late fees credit-card companies can charge, bringing penalties down to $8 from as much as $41 for a missed payment, according to the White House, the Wall Street Journal reported. The rule being put forward by the Consumer Financial Protection Bureau could go into effect as early as 2024, administration officials said, and doesn’t require congressional approval. Biden will announce the proposed late-fee cap and other measures that his administration is advocating to reduce fees when he meets with his Competition Council, a group of cabinet members and other administration officials. The CFPB is making a broad push to crack down on what it describes as problematic fees charged by financial institutions. “Many Americans believe these fees are just plain wrong,” CFPB director Rohit Chopra said Tuesday in a preview of the late-fee proposal. Chopra said the CFPB has the authority to amend the rules under the 2009 Credit Card Accountability Responsibility and Disclosure Act. He said the current rules allow credit-card companies to charge high fees and increase them to account for inflation.

The House on Monday passed a bipartisan bill that aims to prevent the financial exploitation of elderly and disabled Americans by scammers amid a surge in such crimes that have impacted one in five senior citizens, FoxBusiness.com reported. Introduced by Rep. Ann Wagner, R-Mo., the Financial Exploitation Prevention Act would allow a registered open-end investment company like those that operate many mutual funds to delay the redemption period of a security if they reasonably believe it was requested through the financial exploitation of a senior citizen over the age of 65 or a person with disabilities who cannot protect their interests. The House passed the bill on a 419-0 vote Monday evening. "Sadly, about one in five senior investors fall prey to financial fraud, and those investors lose an estimated $2.9 billion annually in reported cases," Wagner said in remarks on the House floor. "However, according to the National Adult Protective Services Association, only one in 44 cases is ever even reported." "This legislation would codify both a FINRA and SEC-issued no-action letter from 2018 that permits a mutual fund and its transfer agent to delay the redemption period of a security if they reasonably believe a request was made by exploiting seniors or other vulnerable adults. It does not stop this trade from going through, it just takes a pause while they check with that senior to make sure that there hasn't been fraud or elder abuse," she explained. Under the bill, the company could initially delay redemption for up to 15 days and then an additional 10 days if they determine there was financial exploitation. It would also require the Securities and Exchange Commission (SEC) to make legislative and regulatory recommendations to prevent the financial exploitation of elderly and vulnerable adults.

Banks are whittling down a pile of unsold loans that backed private equity buyouts in the cheap-money era and trying to avoid heavy hits by refinancing the debt or selling chunks in secondary markets, bankers and investors said, Reuters reported. The stock of unsold loans in Europe is now less than 5 billion euros ($5.4 billion) from around 15 billion euros in the third quarter, two bankers estimated. Until the loans are offloaded, banks' capacity to underwrite new large buyout financing is limited, holding back mergers and acquisition (M&A) activity that slumped 27% in Europe last year. Some banks are now selling new loans to investors to repay existing debts that were on their books and linked to M&A deals. This was recently the case with French IT services firm Inetum, acquired by private equity (PE) house Bain Capital last July, one of the bankers, a third banker and an analyst said. Earlier this month, Inetum's banks led by BNP Paribas and Credit Suisse sold a roughly 343 million euro loan to investors to repay an original facility kept on their books, they said. Public debt markets were frozen for much of 2022 due to war in Ukraine and aggressive rate hikes globally, so banks changed the structure of such loans and moved them from their trading to banking books to avoid having to mark down the loans and take a loss.

Regional lenders and banks with big credit-card businesses continued to profit from borrowers who ran up credit balances at higher interest rates in the fourth quarter. But many tightened their lending standards and set aside more money to cover potential loan losses, signs that they don’t expect the good times to last, the Wall Street Journal reported. Capital One Financial Corp. set aside roughly $1 billion to cover potential loan losses in the fourth quarter, a 33% increase from the previous quarter. American Express Co. increased its reserves by more than 25%, setting aside nearly half a billion dollars. Both had drawn down those rainy-day funds a year earlier. Consumers have been a bright spot in the economy. They continue to spend at a solid clip in the face of higher inflation, though they cut back during the holidays and added to their savings. And unemployment remains at its lowest level in decades. But there are signs that some households are coming under pressure. Borrowers have put more purchases on credit cards, but they chipped away at balances at a slower rate. Delinquency rates on credit cards and consumer loans in the fourth quarter approached or hit levels they were at before the pandemic, when stimulus and lower spending on services allowed consumers to bulk up their savings and pay down debt. Delinquency rates have surpassed prepandemic levels in some corners of the consumer-lending business. At Ally Financial Inc., the percentage of car loans that were more than 60 days past due rose to 0.89% in the fourth quarter from 0.48% a year earlier. Discover Financial Services reported that more than 2% of its private student loans were 30 or more days delinquent, a half-percentage-point increase from a year earlier. Both of those rates were higher than in 2019.

Visa Inc. said on Friday the antitrust division of the U.S. Department of Justice had issued investigative demand earlier this month seeking documents and information about U.S. debit card practices and competition with other payment networks, Reuters reported. The probe, which began in early 2021, followed reports the United States was investigating whether the credit card company uses anticompetitive practices in the debit card market. The Justice Department has previously investigated the credit card payments industry but settled with Visa and Mastercard Inc. in 2010 when they agreed to allow merchants to offer consumers incentives to use a low-cost credit card. Visa's regulatory filing late on Friday also said that the European Commission had informed the company in December that it had opened a preliminary investigation into its incentive agreements with clients. Both Visa and Mastercard have faced increasing scrutiny for their dominance in the credit card market. Visa, in 2019, had to settle a European Union antitrust probe over card fees.