Goldman: Credit Card Losses Climbing at Quickest Rate Since 2008

Credit card companies are seeing losses rise at the fastest rate since the Great Recession.

That’s according to a widely shared Goldman Sachs research note published Friday (Sept. 22), which said that losses have been climbing quickly since early 2022, jumping at speeds not seen since the 2008 financial crisis.

“We think delinquencies could continue to underperform seasonality through the middle of next year and don’t see losses peaking until late 2024 / early 2025 for most issuers,” Goldman Sachs analyst Ryan Nash wrote.

He added that these losses are unique in that they aren’t accompanied by a recession, something that happened with three of the last five loss cycles.

“In our view, this cycle resembles the characteristics of what was experienced in the late 1990s and somewhat similar to the ’15 to ’19 cycle where losses increase following a period of strong loan growth and has seen a similar pace of normalization thus far this cycle,” Nash wrote.

The news comes as America is wrestling with historically high consumer credit card debt — recorded at more than $1 trillion last month — leading to concerns about credit insecurity for consumers and providers alike.

And as noted here earlier this month, this insecurity has caused a significant share of consumers to rely on overdrafts to cover short-term financial needs and unexpected expenses and maintain their purchasing power. 

“However, this financial flexibility has come at a steep cost not just for low-income consumers, but for the nearly 70% of high earners who spent more than they had in their accounts and were charged fees,” PYMNTS wrote.

“The Credit Accessibility Series: How Consumers Use Overdrafts,” a PYMNTS and Sezzle collaboration from which that finding is gleaned, found that overdrafts have led to addition financial hardships for consumers, aggravating financial issues against a difficult backdrop of high inflation and rising costs.

In all, 90% of survey respondents who struggle to cover charges to their accounts said they had experienced additional financial troubles, while around 7 out of 10 of overdrafts led to broader credit accessibility issues, the study found.

The research also found that consumers who employed overdrafts to cover charges higher than $400 reported more hardships, including over 41% of consumers who pointed to problems paying bills and affording essentials.

“Similarly, consumers who had at least $400 in charges reported facing credit accessibility issues, including damaged credit scores, challenges with interest payments and having to resort to more loans to cover the cost of repaying debt,” PYMNTS wrote.