Issuer Earnings Show Consumers Struggling With Timely Credit Card Payments

The general tone of earnings season has been cautiously optimistic, as banks and payment networks have pointed to the willingness of consumers to keep spending.

But some trends bear watching, particularly the delinquency and charge-off trends of those same firms.

Delinquencies are a useful harbinger of charge-offs, as issuers deem debt uncollectible after a set amount of time, write the debt off, and there’s a ripple effect: The collections efforts ding consumers’ credit reports, and banks tighten their lending practices, which winds up making credit less available to the economy at large.

PYMNTS Intelligence has noted that carrying credit card debt is a fact of life for a large majority of the population. Research detailed late last year that fully three-quarters of consumers had card debt; the percentage skews higher for cardholders who state they live paycheck to paycheck.

Bit of Pressure?

And as for how those same consumers are keeping up with their payments, as shown in the chart below, some metrics remain steady: The share of consumers who paid all of the monthly balance due stood at about 55% at the end of last year, which is actually a bit better than the roughly 52% seen during the summer. But the share of consumers paying only the minimum amount due ticked up, to 12.9% into December.

At the same time, we’ve seen the percentages of those cardholders paying “most” or “half” of the monthly balance decline a bit. The share of those paying none of what’s owned was indicated at about 3.3% at the end of the year, continuing a bit of a lumpy trend through the past few months, but above the 1.9% that had been measured in April.

Separately, in aggregate fashion, the St. Louis Federal Reserve has estimated that as of the end of the third quarter, delinquency rates on credit card loans, as measured across all commercial banks  was 3.3%, up from 2.1% that had marked the third quarter of 2022.

As seen in the chart below, for the latest reported data from the Fed headed into the summer but still showing the trends, we see that the charge-off rates on cards (again, debt that’s been written off) was north of 4.6%, leagues above the 1.7% at the beginning of 2022.

There have been some bright spots of note. Discover Financial’s fourth quarter results, for instance, indicated that the charge-off rates on card loans were a bit more than 5%, which was actually about 0.25% better than the third quarter, though above the 4.7% for the fourth quarter of the previous year. Delinquency rates were just about flat quarter over quarter.

Discover Financial Service’s SEC filings (such as for the third quarter, the most recent available) estimate that about 20% of its credit card loans are held by customers with a 660 or lower FICO score, so the data demonstrate that consumers card payment activity has been better in the fourth quarter than the third, but worse than last year.

Conversely, Bank of America, which has an average FICO score of 778 across its own card portfolio reported a net charge-off ratio of 3.79%, which is better than the larger trends from the Fed, while above the 3% charge-off rate of a year ago.

Elsewhere, Capital One, as PYMNTS reported late last month, reported that the 30-day-plus delinquency rate improved. The 30-day-plus delinquency rate at the end of December was 4.53%, down 0.08% basis points from the prior year. The reported net charge-off rate was 6%, up from last year’s 5.3%.