Consumer Payment Card News

Financial Obligations & Debt Service Ratios Edge Up a Skosh

Financial Obligations & Debt Service

Financial obligations and debt service ratios are both up six ticks, respectively in the first three months of this year, compared to the same period one-year ago. However, there will likely be more upticks in the face of a nasty trade war set to tax Americans bigly this fall, slowly shrinking job growth, and God forbid a Mid-East war. The economic dance may come to end sooner than prognosticated.

The FOR (Financial Obligations Ratio) posted at 15.38% for the first-quarter (1Q/19), compared to 15.35% in the prior quarter, and 15.32% for 1Q/18. The DSR (Debt Service Ratio) reported at 9.91% for 1Q/19, compared to 9.89% for 4Q/18, and 9.85% for the first-quarter of last year, according to seasonally-adjusted figures released yesterday by the Federal Reserve.

The household DSR is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.
The FOR is a broader measure than the DSR. It includes rent payments on tenant-occupied property, auto lease payments, homeowners’ insurance, and property tax payments.

The FOR peaked at 18.13% in the fourth quarter of 2007. Since peaking at 13.22% in the fourth quarter of 2007, the beginning of the Great Recession, the DSR has declined steadily since, dipping into single digits for the first time in the fourth quarter of 2012 (9.83%).

Credit Card Debt Service

With full employment, credit card debt growth has been slowing over the past four years.

The year-on-year (YOY) growth rate of consumer revolving debt (97% credit card debt) for April posted at +7.9%, compared to a revised -2.3% YOY for March, and a revised +3.6% YOY for February, according to figures released by the Federal Reserve earlier this month.

Total revolving consumer credit outstandings stood at $1064.5 billion for April, compared to a revised $1057.5 billion for March, and a revised $1059.5 billion for February. Non-revolving credit increased at an annual rate of 4.2% in April. Total consumer credit, at the end of April, stood at $4069.8 billion, after crossing the $4 trillion milestone in November.

The Big 6 U.S. issuers (Chase [JPM], Capital One [COF], Bank of America [BAC], Citibank [C], Discover [DFS], American Express [AXP]), posted $573.2 billion in 1Q/19 U.S. End-of-Period (EOP) credit card outstandings, compared to $599.0 billion in the prior quarter, and $547.1 billion for 1Q/18 based on figures gathered by CardData.

The Big 6 U.S. peer group is growing in EOP outstandings at a four-year CAGR (compound annual growth rate) of 5.56%, or an average YOY gain of 5.60% since 1Q/15. The Big 6 expanded by 4.7% YOY between 1Q18 and 1Q/19, 6.6% YOY for 2017 period, 9.6% YOY for the 2016 period, and 1.5% for the 2015 period according to analysis by RAM Research.

Consumer Forecast Debt Concerns

Despite the near historically low FOR and DSR data, there are growing concerns about the uptick in credit card late payments (delinquency) and loss (charge-offs) notes Robert McKinley, Senior Analyst for CardTrak, CardFlash and CardData.

If short-term interest rates hold and employment remains strong it is likely the delinquency rate will mirror 2018, rising by 16 bps at the end of 2019. However, if politically motivated rate short-term interest rate cuts are made, in the face of a robust economy, and employment rates erode, suggested by mounting anecdotal evidence, credit card delinquency could easy rise 25 bps for 4Q/19.

First-quarter card losses among the Top 4 U.S. bank credit card Issuers are on a path to top 4.00% within the next 12 to 15 months. Charge-offs among the Top 4 domestic credit card issuers rose sharply as loan loss reserves build. Credit card charge-offs among the nation’s Top 4 credit card issuers rose 34 bps (basis points) sequentially in the first-quarter (1Q/19), and up two bps year-on-year (YOY).

FOR DSR Report

Complete Full Report on U.S. Consumer Financial Obligations & Debt Service Ratios for 2015-2025


Source: Chase; Bank of America; Capital One; Citibank; Discover; American Express; Federal Reserve; RAM Research; CardData; CardTrak; CardFlash

NOTE: All FOR/DSR Figures Revised & Updated as of 06/20/19; All Revolving Credit Revised & Updated as of 06/07/19