U.S. households have been cutting back on credit card debt, with slower increases in revolving debt, likely due to banks becoming pickier about who they lend to. This is linked to concerns about borrowers being able to repay as high interest rates impact household budgets, prompted by the Federal Reserve’s moves to curb inflation that bite into the job market. The CFPB has recommended that consumers consider credit cards from smaller issuers, as they tend to offer better terms than larger companies, with lower interest rates. The allure of rewards credit cards may not be rewarding for everyone, as the pursuit of rewards can lead to increased spending and debt if balances are not paid off in full each month.
Klarna, a major player in the “buy now, pay later” sector, has introduced a new card offering in the U.S. that allows for in-store and online payments, but missing payment deadlines can result in penalties and harm users’ credit scores. Mastercard has joined forces with U.S. banking giants to develop tokenized payments using distributed ledger technology to improve cross-border payments’ efficiency and reduce fraud. However, economists have highlighted the issue of “phantom debt” from buy now, pay later schemes, where payments over time are not reported to credit agencies, creating a black hole in credit information.
The CFPB’s report has highlighted consumer frustrations with credit card rewards programs, noting problems such as rewards being devalued or denied after meeting program terms, and companies focusing marketing efforts on rewards rather than low interest rates. Wells Fargo has launched a new business credit card that offers 2% cash back on purchases, with no annual fee, targeting small business owners. The company has also flagged a significant increase in global mobile banking malware attacks, particularly targeting Android users, highlighting a growing threat to digital financial assets. Retail shoppers are shown to pay by debit card in stores but by credit online, showcasing different consumer payment preferences in different shopping environments.
Overall, Americans cutting back on credit card debt may be attributed to a variety of factors, including changes in lending practices, concerns about repayment, and a shift in consumer behavior towards more prudent financial management. While credit card rewards can be enticing, consumers should be wary of the potential pitfalls and consider cards from smaller issuers for better terms. With the rise of new payment technologies and increased risks of cyber threats, it is essential for consumers to stay vigilant and protect their financial information.
