“Buy now, pay never”
For months, economists have warned that consumers faced an affordability crunch, a prediction supported by a lousy first quarter G.D.P. report.
Now, new data suggests that there’s a credit crisis brewing: a rising number of defaults for “buy now, pay later” loans, the typically zero-interest debt used for things like sneaker purchases and DoorDash deliveries.
In the Biden era, the Consumer Financial Protection Bureau warned that pay-later customers would be especially vulnerable if the economy worsened, and called for measures to safeguard them. That’s in jeopardy as President Trump has essentially tried to dismantle the watchdog, Grady McGregor reports.
The context: Pay-later borrowing in the United States has soared rapidly, with American consumers taking out more than $75 billion worth of these loans in 2023. But as household finances deteriorate, buy-now-pay-never fears have grown; late payments were on the rise over the past year.
Democrats on the Senate Banking Committee plan to intervene, some with knowledge of the matter told DealBook. Concerned about rising defaults, they intend to call for more oversight of pay-later lenders, including pushing for more robust reporting on their loan losses.
The consumer bureau did not respond to a request for comment about the Democrats’ plan.
Pay-later lenders see no reason for alarm. That’s despite Klarna, one of the biggest providers, reporting a 17 percent year-on-year rise in credit losses this month. The company — which paused its I.P.O. plans amid tariff-related market volatility — acknowledged that its losses were growing, but said that its default rate rose only marginally and represented a tiny share of its total loans. “There’s nothing troubling or worrisome from this data,” Clare Nordstrom, a spokeswoman, told DealBook.
Affirm, one of Klarna’s rivals, had a similar response: “We really aren’t seeing anything we would label as signs of stress with our borrowers,” said Rob O’Hare, its C.F.O.
Recent data suggests otherwise. In January, in the final days of the Biden administration, the consumer bureau released a study that found that nearly two-thirds of pay-later loans went to borrowers with risky credit scores. “Americans were using ‘buy now, pay later’ as a Band-Aid on top of their credit card debt,” said Julie Margetta Morgan, a former bureau official who is now president of the Century Foundation, a progressive think tank.
“We look at it as a kind of bellwether of risks to the overall economy,” she added.
The Trump administration has upended oversight of the industry. This month, the bureau announced that it would not enforce a Biden-era rule that sought to treat pay-later lenders like credit card companies, such as by requiring them to provide monthly billing statements to customers and to offer protections to customers seeking refunds.
The rule was adopted last year after a lengthy investigation into pay-later lenders. The industry objected, arguing that the loans finance relatively small purchases, and that the rule would confuse customers. A trade association representing fintech companies had sued the bureau last fall, seeking the rule’s withdrawal.
Critics say the lesser oversight comes at a fraught moment, especially as U.S. household finances are worsening.
“Consumers are going to be squeezed and more reliant on these products,” Morgan said, “and the companies are being offered a free pass to construct those products in ways that are the most profitable to them.”
HERE’S WHAT’S HAPPENING
A tax provision in the Republican spending bill is alarming Wall Street. Section 899 of the legislation would give the government leeway to impose an additional tax on foreign investors and companies connected to countries that Washington deems to have hostile tax regimes. The concern is that the move could chill investment in the United States at a time when investors are already rethinking the “buy America” trade amid President Trump’s tariff war.
Inflation is back in focus on Friday. The Personal Consumption Expenditures report for April is expected to show that price increases have cooled somewhat, with economists forecasting that headline inflation grew 2.2 percent on an annualized basis. But even at that level, the Fed is expected to keep interest rates on hold for the foreseeable future — which continues to rankle Trump — as it watches the effect of tariffs on growth and inflation.
Is somebody trying to impersonate Susie Wiles? Federal authorities are reportedly investigating a series of suspicious phone calls and text messages that purportedly came from a person claiming to be the White House chief of staff, according to The Wall Street Journal, citing “people familiar with the matter.” It appears as though Wiles, who has deep connections in Republican circles, had her personal phone hacked, and that the impersonator may have used artificial intelligence to imitate her voice.
C.E.O. gloom
Even as consumer confidence wavered in recent quarters, American business leaders found reason for optimism. That C-suite exceptionalism appears to have faded though as President Trump’s trade war and economic slowdown concerns now predominate.
The latest report by the Conference Board and the Business Council shows one of the biggest drops in C.E.O. confidence on record. The closely followed tally recorded that C.E.O. confidence in the second quarter dropped to 34 — (a score below 50 reflects a pessimistic mood) — from 60 in the previous quarter.
“All components of the measure weakened into pessimism territory,” Stephanie Guichard, a senior economist at the Conference Board, wrote in a statement. “C.E.O.s’ views about current economic conditions led the plunge, registering the largest quarter-on-quarter decline in almost 50 years.”
She added: “Expectations for the future also plummeted, with more than half of C.E.O.s now expecting conditions to worsen over the next six months, both for the economy overall and in their own industries.”
This shouldn’t come as a big surprise. This past earnings season, corporate chiefs told analysts that tariff uncertainty had essentially paralyzed their business plans. A string of companies, including Mattel, Ford and Marriott pulled or lowered their guidance. Walmart said that the levies would most likely force it to raise prices, drawing an all-caps rebuke from Trump.
The upshot: A majority of corporate bosses plan to freeze hiring and reassess investment, the survey found. The share of C.E.O.s expecting to increase their work force declined to 28 percent, from 32 percent. On capital spending, 26 percent plan to revise down those capital expenditures budgets; last quarter, 13 percent said the same.
Perhaps more ominously, 71 percent of respondents said they were bracing for “a brief and shallow U.S. recession” over the next 12 to 18 months.
What’s next for tariffs?
An appeals court on Thursday temporarily preserved many of President Trump’s tariffs, reversing Wednesday’s landmark decision by a trade court. More challenges are likely, however, compounding the trade war uncertainty.
A recap: Trump invoked the International Emergency Economic Powers Act (IEEPA), to impose some of his broadest tariffs, an act that the U.S. Court of International Trade ruled illegal. The issue could ultimately reach the Supreme Court.
In the meantime, Trump has other tools to impose tariffs. They’re narrower than IEEPA, but they could face less legal pushback “than stretching to use IEEPA as a shortcut to imposing tariffs,” Michael Froman, president of the Council on Foreign Relations who was a U.S. trade representative under President Barack Obama, told DealBook.
Trump’s options include:
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Sector-specific tariffs, building on the ones he’s already imposed. Trump’s tariffs on steel and aluminum imports, and cars and auto parts, under Section 232 of the Trade Expansion Act of 1962, are not affected by Wednesday’s court ruling. Trump could add other sectors under 232, such as pharmaceuticals and semiconductors.
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Country-specific tariffs, under Section 301 of the Trade Act of 1974. This would require opening unfair-trade investigations against trading partners. Typically, these would involve public hearings, and take months.
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Temporary broad tariffs under Section 122 of the same 1974 trade law, which allows for the imposition of limited levies of up to 15 percent. After 150 days, these tariffs would expire, unless Congress extends them.
The 301 and 122 options reportedly feature prominently in the White House’s thinking as the administration plots next steps, The Wall Street Journal reports.
Refunds could be on the table, depending on how the litigation pans out. The United States would have to reimburse billions of dollars, plus interest, to companies that have paid the levies. Dan Ujczo, senior counsel at Thompson Hine, said that many of his clients had filed for reimbursements after Trump eased some tariffs on China this month.
Still, “this is going to be a large undertaking to refund anything that came into the door, potentially back to February,” Ujczo told DealBook.
What does this mean for trade negotiations? Treasury Secretary Scott Bessent told Fox News on Thursday that talks with Beijing were “a bit stalled,” and that reviving them may require a conversation between Trump and President Xi Jinping of China.
The legal uncertainty hanging over the tariffs may put the Trump team at a disadvantage, especially if their counterparts decide to drag their feet. “The pressure for big concessions to avoid extreme outcomes has gone down,” Brad Setser, an economist and senior fellow at the Council on Foreign Relations, told DealBook.
“This will be his last day, but not really, because he will, always, be with us, helping all the way. Elon is terrific!”
— President Trump, announcing that he had asked Elon Musk to join him for a kind of send-off news conference on Friday in the Oval Office. It’s a sign that he and his “first buddy” are hardly on the outs as the tech mogul formally ends his government work.
Commencement speech wisdom
Politics weighs heavily on this commencement season. Harvard’s graduation took place on Thursday, amid the Trump administration’s threats to freeze funding and contracts, and suggestions that the school should cap the enrollment of international students.
But the speeches have gone on. Here are some notable ones:
Harvard:
“A part of what makes America great, if I may use that phrase, is that it allows an immigrant like me to blossom here … The greatness of America, the greatness of Harvard, is reflected in the fact that someone like me could be invited to speak to you.” — Dr. Abraham Verghese, a Stanford professor and infectious disease physician.
Emory University:
“Don’t be afraid to wander into space that you don’t understand, as long as you’re bringing passion with you. Be willing to stretch. Be a little unrealistic, be a little delusional, even, in your pursuit of happiness and fulfillment. And at the same time, be patient, be respectful of the process, because life is filled with challenges, and they would either make you or break you. But that’s a choice and that your choice is yours.” — Usher, who received an honorary doctorate.
Princeton:
“Fifty years from now, you’ll want to be able to look in the mirror and know that you did what you thought was right in every part of your life. At the end of the day, our integrity is all we have. Guard it carefully.” — Jay Powell, the Fed chair.
THE SPEED READ
Deals
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Apollo Global Management has reportedly teamed up with major banks, including JPMorgan Chase and Goldman Sachs, to trade private credit, a booming market for Wall Street giants. (Bloomberg)
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Tim Leissner, the former Goldman Sachs banker, was sentenced to two years in prison for his role in the 1MDB bribery scandal. (WSJ)
Tech and artificial intelligence
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Germany is reportedly drafting a digital tax aimed at tech giants, including Meta and Google, a move that could aggravate trade tensions between Europe and Washington. (FT)
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“Meta Fired Palmer Luckey. Now, They’re Teaming Up on a Defense Contract.” (WSJ)
Best of the rest
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Not even tariffs will dent U.S. demand for Japanese toilets, a giant of the industry is betting. (NYT)
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“Anthony Boyle to Play Sam Bankman-Fried Opposite Julia Garner as Caroline Ellison in Netflix’s FTX Series ‘The Altruists’” (Variety)
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Why Vice President JD Vance is far and away the leading candidate to win the White House in 2028. (“Next Up with Mark Halperin”)
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Andrew Ross Sorkin is a columnist and the founder of DealBook, the flagship business and policy newsletter at The Times and an annual conference.
Bernhard Warner is a senior editor for DealBook, a newsletter from The Times, covering business trends, the economy and the markets.
Sarah Kessler is the weekend edition editor of the DealBook newsletter and writes features on business.
Michael J. de la Merced has covered global business and finance news for The Times since 2006.
Danielle Kaye is a Times business reporter and a 2024 David Carr Fellow, a program for journalists early in their careers.
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