Happy Sunday,

Congress is poised to reach a debt ceiling deal. Borrowers may (finally) resume paying their student loans. OneMain hit with NYDFS, CFPB cases. Comerica under fire for handling of Direct Express program. Overdraft revenue down 50% from 2019. Rent reporting platform Boom raises $4.5Mn. Klarna cuts losses in half. Cross River and Paymints team up. JPMC bets big on AI. Monzo reaches “monthly profitability.”

In case you missed it, we just released our Q1 Consumer Lending Review. Catch up on the latest trends emerging in the consumer lending space: we see credit tightening slowing origination volume, but helping delinquencies, and MPL’s new issue volumes rebounding.

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Congress Poised to Raise Debt Ceiling

As of the time of writing, the House has passed a deal to lift the debt ceiling until early 2025 and avert default. The measure is expected to pass the Senate. Once resolved, the lifting of the debt ceiling will impact the composition of the Fed’s balance sheet, as the Treasury will need to replenish its account at the central bank.

The Treasury’s account has dwindled from over $570Bn to less than $50Bn as the country approaches the “X date.” When it is able to raise new funds, the Treasury will do so by issuing T-bills. The impact on the banking system will depend if those T-bills are bought by bank depositors, causing a decrease in reserves, or money market funds, driving a decrease in the overnight reverse repo program.

Another impact of the debt ceiling deal? Borrowers may have to finally resume repayments on their federal student loans. The bill requires payments to resume 60 days after June 30th. The measure will impact some 43Mn borrowers who owe over $1T in student loans.

OneMain In Trouble With NYDFS, CFPB

Subprime lender OneMain is in trouble with New York regulators over its cyber security policies. NYDFS fined the lender $4.25Mn for practices that included allowing employees and vendors to use default passwords on accounts to access private customer information. NYDFS also said the company failed to manage access privileges, maintain a security development policy, or manage the risks posed by third-party providers, in violation of New York regulations on the matters. OneMain has suffered numerous data breaches and security incidents in recent years, including four reported incidents in 2018 alone.

The New York matter wasn’t the only bad news for OneMain last week. The company also reached a $20Mn settlement with CFPB, comprised of $10Mn worth of refunds and a $10Mn fine. The bureau alleges OneMain failed to process refunds for customers who were entitled to them and deceived borrowers into purchasing add-on products.

Comerica Violated Contract With Treasury, Documents Reveal

Comerica Bank has been outsourcing handling of fraud complaints for a federal benefits program it administers to a vendor in Pakistan, in violation of its contract with the government, a recent American Banker story reveals. Comerica contracts with the Treasury Department to administer the Direct Express program, which funds benefits onto prepaid cards for recipients that do not have a bank account. The program serves some 4.5Mn Americans and allows them to get their benefits more quickly and securely vs. receiving a paper check.

The terms of the contract require that all services “shall be performed in the United States or its territories.” But Comerica routinely transferred sensitive customer information to vendor i2c, which, in turn, handled data and complaints through its office in Pakistan.

Overdraft Revenue Down By 50% vs. 2019

Banks’ overdraft revenue is down by nearly 50% vs. three years ago, newly released data from the CFPB shows. The reduction comes after a concerted campaign by regulators and some legislators to push banks to rein in service fees, as well as competition from fintech neobanks with no or low fees. In the last three months of 2022, banks reported $1.6Bn in revenue from overdraft fees, a drop of 48% vs. the same quarter in 2019. For the entire year of 2022, banks reported a total of $7.7Bn in overdraft and NSF revenue combined, a drop of 35% from 2019.

The bureau continues to monitor service fees ahead of a rulemaking that could move to treat overdraft fees as “finance charges.” Such a change would require overdraft fees to be computed and disclosed as an APR and would likely run into issues with state usury limits.

Boom Raises $4.5Mn

Boom, a rent reporting platform, announced it has raised a $4.5Mn seed round. The round was led by Starting Line, with participation from Gilgamesh Ventures, Clocktower Ventures, and Company Ventures. Plaid co-founder Zach Perret also participated in the round. Boom charges $2 a month to facilitate reporting users’ rent payments to all three major credit bureaus. The company claims it is approaching a $1Mn revenue run rate. Boom has partnerships with various national property management companies, as well as Apartment List and Progressive.

Klarna Halves Losses

Klarna, the one-time BNPL darling, is making progress on returning to profitability. The company embarked on a major cost-cutting drive after the market turned, and it appears to be paying off. Klarna cut its net loss in half in the first quarter, posting a loss of about $120.7Mn for the period. Its net operating income was also up 22% year over year. The results were driven by improvements to credit losses and growth in new sources of revenue, like marketing. Klarna CEO Sebastian Siemiatkowski has said the company plans to achieve profitability in the second half of 2023.

Cross River and Paymints Team Up

Cross River and Paymints.io announced a partnership to enable real-estate payments through the automated clearing house. Paymints is a SaaS provider for real-estate payments. The new service enables stakeholders in a transaction to move funds between stakeholders’ bank accounts and escrow accounts. Users of the platform are able to verify transactions and track funds in real time, helping to reduce fraud.

Paymints CEO Jason Doshi stated, “Our partnership with Cross River enables us to continue to build the modern payment experience the real-estate industry so desperately needs to make the transfer of funds as safe, convenient, and secure as possible.”

JPMorgan Chase Invests in AI

JPMorgan Chase is betting big on AI. The U.S.’ largest bank by assets is investing some $15Bn in tech initiatives this year, including AI, with the goal of driving $3Bn in cost savings. JPMC expects that its investments in AI and analytics to improve client insights and consumer personalization will drive $1.5Bn in impact by the end of 2023. The bank hopes to realize another $1.5Bn in savings over the next three years through its infrastructure modernization efforts. Its four key investment areas include cybersecurity, data analytics and AI, developing strong products and customer experiences, and strengthening core infrastructure.

Monzo Reaches Profitability

U.K. neobank Monzo has released its FY2023 annual report and claims it has reached “monthly profitability.” The company reported net operating income of $266.1Mn, which is nearly double year over year. Monzo has expanded its offerings from a current account (checking) to include BNPL and unsecured personal loans. Its growing loan book has been key to getting to profitability, though loan losses have also grown substantially. The news is all the more notable, given that, at one point, Monzo’s auditors issued a warning about the bank’s ability to remain a “going concern.” Monzo appears to be on track to be a viable, sustainable business, something that remains an open question for American neobanks that have pursued business models more heavily reliant on interchange income.

Hi all, Cole here. If you’ve made it this far, thank you for being a loyal subscriber to the PeerIQ newsletter. Looking for an archive of updates on the companies covered during earnings season? Join my Discord server for exclusive access to updates, including bullet notes on important info from earnings releases, key quotes from earnings calls, and relevant slides from decks.

In the News:

Banks Borrowed More to Pad Liquidity than they Lost in Crisis: N.Y. Fed (American Banker, 5/30/2023) Banks borrowed so heavily from the Fed and other liquidity providers that inflows outpaced the decline in deposits.

OCC Targets Big Banks with ‘Persistent Weaknesses’ (Banking Dive, 5/30/2023) The OCC said that large banks that failed to correct “persistent weaknesses” might be required to reduce their operations, divest subsidiaries, or exit from one or more lines of business.

Tabby Expands BNPL Offering With $350 Million Debt Facility (PYMNTS, 5/31/2023) The Dubai-based fintech announced it had closed a new funding round that more than doubled the size of its debt facility.

Winklevoss Twins Attempt Pivot After Gemini Loses Money and Employees (Bloomberg, 5/29/2023) The SEC is suing Gemini, its market share has shrunk, and a banking partner wants to break up.

The Impact Of ChatGPT And Open Banking Cannot Be Underestimated (Forbes, 5/27/2023) AI and open finance have the potential to change retail financial services beyond measure.

How a $13 Billion Fintech That Angered Jamie Dimon Won Over Banks (Bloomberg, 5/31/2023) What’s next for Plaid, the plumbing for over 8,000 of today’s most popular financial apps.

Worldpay Makes Affirm BNPL Tech Available to Merchants (Finextra, 5/31/2023) The companies announced a multi-year partnership that will make Affirm’s Adaptive Checkout available to all eligible Worldpay merchants.

Lighter Fare:

Pterosaur Bones Found in Australia Reveal World’s Oldest Flying Reptile Lived there 107 Million Years Ago (CNN, 5/31/2023) The Australian specimens were discovered during an excavation at Dinosaur Cove in the 1980s.