Ford ILC Charter; Swipe Fee Legislation; Equifax Score Errors

PeerIQ Analytics Platform
10 min readAug 8, 2022



Rates likely need to stay higher for longer. Americans turning to dollar stores. Ford seeks ILC charter. Congress on overdraft, swipe fee bills. Parafin raises $60Mn for embedded lending. BNPL rewards. Late payments rise. Equifax score errors.

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Higher Rates for Longer Likely Needed

St. Louis Fed President Bullard expects another 1.5% points of rate hikes this year. He argued the Fed will probably need to hike higher for longer to tame inflation. But, despite two quarters of negative GDP growth, Bullard doesn’t think we’re in a recession. He pointed to flat unemployment at just 3.6% to justify his position.

Meanwhile, consumers are feeling the inflation pinch. More Americans are shopping at discount and dollar stores. Spending on groceries at such chains rose 71% from October 2021.

Ford Presses Forward with ILC Application

Industrial loan companies are back in the spotlight. Ford recently filed an application in connection with its quest for the unique type of bank charter. It isn’t Ford’s first go-around. The automaker applied for the same kind of charter in 2008, but ultimately withdrew its application.

Such arrangements aren’t unheard of. Toyota and BMW both own industrial banks as part of their businesses.

Still, there may be reluctance from FDIC regulators to open the window for ILC charters. It potentially could invite tech or retail companies, like Google, Apple, Amazon, and Walmart, to seek such charters.

While Ford’s application should be less controversial than one from a tech or retail company, industry experts think the likelihood of it succeeding is low. Current FDIC board members, who would weigh in on the application, include OCC head Michael Hsu, CFPB director Rohit Chopra, and FDIC chair Martin Gruenberg. None of them have signaled openness to an application like Ford’s.

Legislators Clash on Overdraft Bill, Ready Swipe Fee Legislation

The House Financial Services Committee took up a bill that would regulate overdrafts last week. The bill is the most recent sign of heightened scrutiny of bank overdraft practices.

The Overdraft Protection Act would require consumers to opt-in to overdraft programs and set a limit to the number of times fees could be charged.

Democrats on the committee were supportive of the bill. They argued it protects consumers from “abusive” policies.

Republicans on the committee argued it would force many banks to shut down overdraft programs altogether. The result would be, they said, that consumers would have less access to credit and would push consumers to use “unaffordable payday products.”

It’s unclear if or when the Senate may take up the bill.

Meanwhile, a bipartisan bill that would give merchants the power to process many credit card transactions on alternate, cheaper networks was introduced in the Senate. The goal of the bill is to create more competition in how merchants process payments, in theory driving processing costs lower. The requirement would apply only to cards issued by banks with more than $100Mn in assets.

Image: Wall Street Journal

Robinhood Vets Raise $60Mn

Parafin, founded by former Robinhood staffers, announced it has raised $60Mn in new funding. The company offers embedded financing through marketplaces and platforms like DoorDash and Mindbody. Parafin simplifies the process of those companies making loans available to their users.

Investors in the business include Thrive and Ribbit Capital. The company has also secured a $150Mn debt facility from Atalaya Capital Management and Jeffries.

Can Rewards Revive BNPL?
With challenges mounting to BNPL, some companies are hoping new rewards programs can become a competitive advantage.

Afterpay’s Pulse program lets users earn 10 points for on-time payments. Zilch is offering as much as 2% cash back. Affirm also offers cash back on certain purchases that are paid in full at the time of purchase.

Rewards could be successful at attracting new users to try BNPL and encouraging existing users to make such services their default payment option.

Still, the programs aren’t without cost. How the costs are shared between merchants and BNPL providers vary, but are likely to negatively impact providers’ economics. Use of rewards to attract new users could also lead to adverse selection and increase default or fraud rates.

Late Payments Rise Among Lower-Income Borrowers

COVID-era government stimulus is long gone. Rising prices, particularly for food and energy, are putting pressure on consumers’ budgets. And late payments are starting to rise, particularly for lower-income borrowers. A new report from the NY Fed highlights that the uptick in delinquency rates is from “extremely low” pandemic-era levels.

The share of credit card debt in lower-income areas that became delinquent increased to 2.38% in Q2 from 1.92% in the same period last year. Still, that’s below pre-pandemic credit card delinquency rates of around 2.67% for lower-income borrowers.

Image: American Banker

Equifax Sent Inaccurate Credit Scores

A “technology coding issue” caused Equifax to send lenders inaccurate credit scores for millions of applicants. The issue occurred back in mid-March and lasted approximately three weeks, the company said. A company rep said that of those customers that did have an erroneous score sent, “only a small number of them may have received a different credit decision.”

The issue impacted banks large and small as well as non-bank lenders. People applying for mortgages, auto loans, and credit cards were affected.

The error leaves lenders struggling to figure out what to do. Some applicants may have been erroneously denied or given a higher interest rate than they should have been. Conversely, some applicants may have been granted credit when they otherwise should not have been.

The glitch is the latest black eye for Equifax. The company notably suffered a massive data breach in 2017, which exposed sensitive data on approximately 150Mn Americans. The new incident is likely to draw fresh scrutiny from the CFPB.

Volatile Week for Markets and Earnings

This week, we saw SoFi (+28.4%), Robinhood (+11.7%), and PayPal (9.3)% pop on cost-cutting and positive business developments, while Green Dot (13.4)%, Rocket Companies (3.6)%, and Block (2.4)% fell on earnings.

Source: PeerIQ

While SoFi’s total originations slipped (4)% from the first quarter to $3,203Mn, the company reported very strong personal loan origination growth +22% from the first quarter. Student and home loan originations (QoQ decline of (60%) and (6)%, respectively) dragged down overall origination volume.

SoFi was able to maintain strict credit standards for its personal loans, attracting quality borrowers, who had a weighted average income of $160k and weighted average FICO of 748. CFO Chris Lapointe reported that, “Our on-balance sheet delinquency rates and charge-off rates remain extremely healthy and are still approximately 50% below pre-COVID levels.”

Student loan originations continue to struggle due to the student loan moratorium, but SoFi management expects this to end sometime in 2023.

SoFi announced that its bank charter has been particularly beneficial in not only driving deposits, but by providing a lower cost of funding for loans.

PayPal’s stock has taken a dive the past year, but the company is making moves to reassure shareholders. The fintech announced an addition of $15Bn towards its stock buyback program, and committed to work with Elliott Investment Management, a hedge fund and major shareholder, on a comprehensive evaluation of capital return alternatives.

PayPal reported a +5% increase in its total payment volume from the first quarter, to $339.8Bn, with Venmo processing $61.4Bn in the first quarter, a +6% increase.

During the quarter, PayPal broadened its Pay Later offerings, launching Pay Monthly in the U.S., a longer-term installment loan offering. PayPal has found success in its BNPL offerings, announcing that, “In the second quarter, we processed $4.9 billion in volume, up 226% year over year with over 22 million consumers using our Buy Now, Pay Later services over 100 million times since launch.” PayPal management reiterated that it does not charge merchant fees or late fees to consumers for using its Pay Later products, rather, it makes money from the “halo impact” that this service provides. PayPal estimates 21% in additional business from when someone uses BNPL.

Since completing its acquisition of Afterpay, Block has continued to expand its BNPL product, enabling in-person BNPL in May for sellers in the U.S. and Australia. Afterpay recently announced a new omnichannel partnership with beauty retailer Sephora. The partnership is particularly relevant, as the health and beauty vertical has accounted for 11% of total Afterpay GMV over the past 12 months.

Block CEO Jack Dorsey announced that, “We’re rolling out a new Discover tab to the main navigation, making it easier for customers to find and use brands and products that can save on with Boost and paying with installments with Afterpay…we believe that Cash App ultimately can drive a ton of discovery for merchants all around the world but especially around local merchants.” The move to rollout a Discover tab highlights Block’s potential strategy to become more of a venue for e-commerce. Other BNPL players, such as Klarna and Affirm, have also leaned into the idea of becoming venues for e-commerce.

In addition to BNPL, Block offers Cash App Borrow, allowing consumers to take out short-term loans up to $600. These loans average less than $200 and are paid back in less than a month on average. The loans can be paid back either in installments or as a percentage of inflows into Cash App. Consumers who use the product brought 4x more inflows to Cash App than single product users. CFO Amrita Ahuja reported, “In the second quarter, over half of these loans [Borrow] were used to fund transactions on Cash App Card or peer-to-peer transfers.” Block has seen recent success, increasing the number of Cash App Borrow Actives to over 1Mn for the first time.

Source: Block Earnings Presentation

Robinhood reported earnings, just after announcing an additional round of layoffs, this time to ~23% of its staff. On the positive side, net cumulative funded accounts ticked up 100k users to 22.9Mn and average revenue per user improved to $56 from $53 in Q1. However, monthly active users continued to fall at a concerning rate, to 14Mn users from 15.9Mn in Q1, and assets under custody fell 31% to $64.2Bn, though this was primarily due to lower market valuations.

Robinhood has been working on its product offerings, adding options trading in cash accounts and raising withdrawal limits from $3,000 to $5,000 per day. The company plans to launch a noncustodial crypto wallet later, as well as advanced charting and screening tools, later this year.

Additionally, Robinhood announced that it faced additional requests from the SEC during the second quarter into its adherence to Regulation SHO and matters related to securities lending and fractional shares.

Despite the mortgage industry experiencing a down cycle, Rocket Companies continued to grow partnerships. In July, Rocket signed new partnerships with Santander and Q2. Rocket will originate mortgages for Santander, who had exited the U.S. mortgage market, and through the Q2 partnership, will enable regional banks and credit unions to offer mortgages — without the need to manage their own mortgage operation.

Rocket did see its closed loan origination volume (purchase loan + refinancings) dive (59)% YoY and (36)% QoQ, with refinancings hampered by rising rates and home buying impacted by affordability, inventory, and consumer confidence.

Green Dot continued to feel the effects of the end of government stimulus, with gross dollar volume under its consumer services segment down (30)% YoY and (14)% QoQ. Additionally, consumer services active accounts of 2.78Mn marked a significant decline from 3.97Mn a year prior and 3.04Mn a quarter prior.

In the News:

CFTC Would Become Primary Crypto Regulator Under New Senate Committee Plan (CoinDesk, 8/3/2022) The proposed bill would create a definition of a “digital commodity” (that would include crypto like bitcoin and ether).

FDIC Warns Banks of Risks Posed by Crypto Partners (American Banker, 7/29/2022) The FDIC is concerned with crypto partners that overstate the protections afforded by deposit insurance.

Powell Says Rate Hikes Aren’t a Stability Risk. Others Are Less Convinced. (American Banker, 7/29/2022) Some are worried that the rapid pace of hikes could cause economic stagflation, and could heighten the risk of defaults on loans and other financial instruments.

Robinhood’s Crypto Division Fined $30M by New York Financial Regulator (CoinDesk, 8/2/2022) The fine was no surprise, with Robinhood announcing a year ago that it had expected the $30Mn.

Digital Bank Grasshopper Raises $30.4m (Finextra, 8/1/2022) The U.S. digital bank serves SMEs and entrepreneurs.

Super Apps Aren’t Going To Make It In America (Forbes, 8/1/2022) A one-stop shop may be too limiting for most U.S. consumers., CEX.IO to Support Visa Direct Off-Ramps (Crowdfund Insider, 7/31/2022) Crypto exchange CEX.IO has appointed as its preferred global payment processor, which uses Visa Direct to “provide real-time off-ramps for its customers”.

Why Is JPMorgan Chase Building A Travel Agency? (Forbes, 8/2/2022) JPM has bought a booking system, restaurant review company, luxury travel agent, and is building its own airport lounges.

Splitit Signs Agreement with Goldman Sachs for Reduced Interest Rates (The Paypers, 8/1/2022) The move is forecast to save the company up to $5.3Mn across a 2-year period.

Lighter Fare:

It’s “Sweater Weather” on the Moon in Some Locations, Scientists Discover (Boing Boing, 8/1/2022) The moon has pits and caves where temperatures can stay ~63 degrees, making human habitation a possibility.



PeerIQ Analytics Platform

PeerIQ, a Cross River company, offers online Software as-a-Service risk analytics for owners and operators of consumer credit risk.