Late card payments headed down a skosh in July as car loan payments and mortgage payments nudged up a tad. The numbers for credit card payments are a bit skewed as cardholders piled on debt bigly in April and May.
Nonetheless, there are still concerns among the nation’s top credit card issuers the overall trend for 2019 is up and as economic signs weaken the big card issuers are beefing-up credit card loss reserves.
According to the S&P/Experian Consumer Credit Default Indices for July, the overall rate in consumer credit defaults headed up by 2 bps (basis points) over the past year. The auto loan default rate rose 2 bps and the first mortgage default rate nudged up 3 bps since July 2018. The bank card default rate declined 13 bps over the same period.
The S&P/Experian research reveals Los Angeles, New York, Chicago and Dallas showed increases in overall late payments, while Miami showed a decline.
Big Card Issuer Delinquency Dips
Second-quarter card delinquency among the nation’s top credit card issuers dipped from the prior quarter, due to seasonality and increasing balances. However, over the past five years, the second-quarter delinquency ratio has been on an upward trend, rising 35 bps (basis points) from the second-quarter of 2015. It is the highest second-quarter ratio for more than seven years notes RAM Research.
Early stage credit card delinquency (30+ days) for the second-quarter (2Q/19), among the nation’s Top 4 issuers, decreased 18 basis points (bps) sequentially, and rose 11 bps year-on-year (YOY).
The average rate among the Top 4 issuers (Chase [JPM], Capital One [COF], Bank of America [BAC], Citibank [C]) was 2.18% for 2Q/19, compared to 2.36% for 1Q/19 and 2.07% for 2Q/18. For the second-quarter of 2015, the Top 4 reported a U.S. credit card delinquency rate of 1.83%, according to figures collected by CardData.
Credit Card Consumer Debt Roller Coaster
Consumer revolving debt lost some steam in June following a U.S. credit card spring spurt wherein Americans added $14 billion over the prior two-month period. However, the spring credit card bubble mirrors consumer behavior of ten years ago, shortly before the Great Recession.
U.S. revolving credit, mostly credit card debt, edged down by 0.1% or 10 bps (basis points) in June, compared to a revised 8.4% year-on-year (YOY) gain in May and a revised 7.6% YOY increase in April. The monthly gains for April and May were the highest in more than five years.
If short-term interest rates hold and employment remains strong it is likely the delinquency rate will mirror 2018, rising by 23 bps at the end of 2019. However, if rate short-term interest rate cuts are made, in the face of a unraveling economy, and employment rates erode, suggested by mounting technical evidence, credit card delinquency could easy rise 35 bps for 4Q/19.
Additionally, the current trade tariff war and currency devaluation producing a full-blown, long-overdue global recession could send all credit card metrics off the map in 2020, says Robert McKinley, Senior Analyst of CardData, CardFlash and CardTrak.