January 25, 2022
Paving the Payments Future
Americans pay $120 billion in credit card interest and fees each year

At almost a trillion dollars outstanding, credit cards are the largest consumer lending product by number of users – over 175 million consumers have at least one credit card – and one of the largest sources of consumer debt.1 From 2018 to 2020, the CFPB estimates that Americans paid roughly $120 billion per year in credit card interest and fees.2 That works out to about $1,000 per year for every American household. During the pandemic, credit card debt started to decline as many households reduced their borrowing and paid down more. But, as the economy has improved, credit card debt is on the rise again.

While the credit card market is enormous, it is among the more consolidated markets for consumer financial products. Just eight big financial players control 70% of the total balances of the market—and the credit card business is often a significant contributor to their bottom line.4 Compared to other forms of widely accessed credit, credit cards have interest rates that are relatively expensive for consumers. Indeed, from 2015 to 2019, the average assessed interest rate on credit cards increased by more than 20% (from 13.7% to 16.9%).5

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H&R Block launches challenger bank aimed at underbanked consumers

Tax-preparation chain H&R Block is returning to the banking business. On Thursday, the 66-year-old company launched Spruce, a no-fee account that includes a debit card and connected savings account where money is held at its partner bank, MetaBank.

Spruce is designed to entice the company’s 8 million or so customers identified as underbanked, those who have a bank account but still rely on alternative financing options, such as payday loans or check-cashing services. Spruce is what is known in the industry as a challenger bank, meaning it’s not a bank — it’s a tech company that partners with a bank to offer digital financial services.

H&R Block ditched its bank charter in 2015 but didn’t stop offering financial services to consumers — including a prepaid card for depositing tax refunds.

What Does It Mean To Be Unbanked?

Being unbanked means that no one in the household has a checking or savings account at a financial institution, such as bank or credit union. Believe it or not, being unbanked isn’t exactly rare either. An estimated 7.1 million U.S. households were classified as unbanked in 2019, according to the Federal Deposit Insurance Corporation’s most recent survey of Household Use of Banking and Financial Services.

But why would someone choose to be unbanked, and what are the pros and cons? Here’s what you need to know.

Why Might Someone Choose To Be Unbanked?
Dana Sitar, owner and executive editor at Healthy Rich, said that most people who are unbanked in the U.S. aren’t in the position by choice.

“They might not have access to a bank account because of previous banking history that makes them ineligible, or they might not have bank branches in their community or reliable internet access to open an online account,” she said

New Mexico: Industry stalls payday loan caps

It has become a cycle of despair for low-income residents with poor credit scores: They take out a high-interest installment loan to tide them over in tough times and soon accumulate an unmanageable load.

They pay off old debt with new loans at rates of up to 175 percent.

For years, state lawmakers have introduced legislation capping the interest rate for such loans at 36 percent. Their efforts at passing the bills have failed repeatedly. An attempt last year to forge a compromise — with a 99 percent cap on the smallest loans, of up to $1,100, and 36 percent on higher amounts — stalled in the House of Representatives.

The nonprofit New Mexico Ethics Watch released a report this week on a study exploring the possible effects of the industry’s lobbying efforts — both money and messaging — on ensuring the cap isn’t lowered. What the study found, said Kathleen Sabo, executive director of Ethics Watch, is lobbyists’ arguments in opposition to a drop in the interest-rate cap have been even “more effective” than campaign donations when it comes to influencing lawmakers.

NAFCU, other trade groups urge CFPB to conduct more research on overdraft fees before making policy

A group of trade associations, including the National Association of Federally-Insured Credit Unions (NAFCU), are urging the Consumer Financial Protection Bureau to conduct more research before making any policy recommendations related to overdraft fees.

The groups sent a letter to CFPB Director Rohit Chopra following two reports issued by the bureau last month regarding the amount of overdraft and non-sufficient fees (NSF) received by credit unions and banks.

“As expected, these reports have stimulated policy discussion about overdraft, but we are concerned that the reports lack important facts about overdraft services—namely, information about the consumers who use and value the product,” the group wrote.

The associations stated that credit unions and banks have evolved the way they provide overdraft services offering a variety of overdraft programs that seek to fairly and transparently respond to consumer needs, as well as promote free choice. Plus, several banks and credit unions have recently announced they would no longer charge overdraft fees or eliminate returned item fees when the customer has insufficient funds in the account. Further, many credit unions and banks also offer several ways for customers to check their account balances via text or email alerts or through mobile apps.

CFPB official says pay advance products may be loans

(Reuters) - A U.S. Consumer Financial Protection Bureau official signaled the agency is rethinking its Trump-era guidance on pay advance companies, saying that some of their products may be loans.

Acting General Counsel Seth Frotman said in a letter to consumer advocates on Tuesday that the legal opinion exempting some earned wage access (EWA) products from a lending regulation has created "significant confusion." The products let employees cash out wages they have earned ahead of payday.

Some EWA companies work with consumers directly, others offer their services via employers including Walmart and PayPal. The companies describe themselves as a sustainable alternative to high-interest payday loans and bank overdrafts.

The CFPB said in 2020 that products offered for free through an employer should not be regulated as consumer credit under the Truth in Lending Act. Consumer advocates have called for the opinion to be rescinded, arguing that regulating the products as credit will protect consumers.

75% Of Gen Z Americans Are Stressed Out About Finances, TIAA Finds

When it comes to overall financial wellness, Americans feel challenged on numerous fronts.

But employer-provided information and financial-wellness programs go a long way in helping many employees keep their financial lives on track and feel more confident about their finances, according to the 2022 TIAA Financial Wellness Survey.

The study was conducted online from Oct. 22 to Nov. 3, surveying 3,008 Americans ages 18 and over on a broad range of financial-management issues and topics.

Six in 10 Americans reported that they are stressed about their finances, including a quarter with “a great deal” of stress. Seventy-five percent of Gen Z (along with 74% of millennials) report feeling financially stressed.

CFPB Issues Bulletin to Prevent Unlawful Medical Debt Collection and Credit Reporting

New Law Limits Surprise Medical Bills

WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) today released a bulletin reminding debt collectors and credit bureaus of their legal obligations in light of the No Surprises Act, which protects consumers from certain unexpected medical bills. Companies that try to collect on medical bills that are prohibited by the No Surprises Act, or who furnish information to credit bureaus about such invalid debts, may face significant legal liability under the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA). The bulletin advises credit bureaus that the accuracy and dispute obligations imposed by the FCRA apply with respect to debts stemming from charges that exceed the amount permitted by the No Surprises Act.

The CFPB will investigate claims and take action against companies that attempt to collect or report or furnish consumer information about debts stemming from charges that exceed the amounts permitted under the No Surprises Act.

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