Late credit card payments are increasing slowly but surely over the past five years and setting new records. At the same time credit card users have resumed piling on more debt. These two signs along with other economic and investment metrics point to a downturn in the coming year and most likely through 2020. For consumers, this means lower credit limits will be offered on new credit card offers and lower credit card applications approved.
However, despite the concerns in the credit card business, consumers do make their mortgage and automobile loan payments mostly on time.
According to the S&P/Experian Consumer Credit Default Indices for June, the overall rate in consumer credit defaults has actually headed down by 3 bps (basis points) over the past year. The auto loan default rate declined 6 bps and the first mortgage default rate dropped 4 bps since June 2018. The bank card default rate jumped 19 bps over the same period.
The S&P/Experian research reveals Los Angeles, New York and Chicago showed improvements in overall late payments, while Miami and Dallas showed declines.
Big Card Issuer Delinquency
So far this week, the nation’s top credit card issuers reported early stage delinquency rate, or 30+ day delinquency, for the second quarter declined by 14 bps for Chase, down 12 bps for Bank of America, and up 14 bps for Citibank, compared to the first-quarter of this year, according to figures gathered by CardData.
The average U.S. 30+ day delinquency rate among the Big issuers (Chase [JPM], Capital One [COF], Bank of America [BAC], Citibank [C], Discover [DFS], American Express [AXP]) was 2.18% for 1Q/19, compared to 2.19% for 4Q/18 and 2.10% for 1Q/18.
Over the past four years the average early stage U.S. credit card delinquency ratio for the first-quarter has increased 44 bps. The Big 6 30+ day delinquency rate climbed from 1.74% in 2015, to 1.76% in 2016, to 2.01% in 2017, and 2.10% for last year. It is the highest level in more than five years and the highest first quarter level since 4Q/12, according to analysis by RAM Research.
The uptick in credit card delinquency, however slight, coupled with a potential, long-overdue recession, is giving some top issuers like Capital One pause its subprime marketing. Loan-loss reserves will likely rise throughout 2019 and why U.S. credit card issuers are closely monitoring the 90+ day delinquency ratio, notes Robert McKinley, Senior Analyst for CardData, CardFlash and CardTrak.
Rising Credit Card Debt
U.S. revolving credit, mostly credit card debt, made a sharp rebound for the second consecutive month, jumping by an annual growth rate of 8.2%, after surging 7.9% in April, in the wake of a 2.3% YOY (year-on-year) decline in March. The YOY gain is the highest monthly gain in more than five years.
For April and May, Americans added $14.2 billion in consumer revolving debt (97% credit card debt), with a total increase of $18.2 billion for the first five months of 2019, according to tabulations by CardData.
The sharp increase in both months validate the pent-up credit demand created in the first three months of 2019 including bad weather, government shutdown, trade wars with tax tariffs, and uncertainty with the overall direction of the economy along with interest rates.