Brewing Credit Card Delinquency: Watch for Increases

Credit Cards

Before we start getting excited about a drop in the inflation rate, which the Bureau of Labor Statistics just clocked at 8.5% in July, down from 9.2%, keep in mind that much of the benefit comes from a decrease in gasoline prices. NPR suggests it is a supply and demand issue, and that fuel consumption is down 9%. The improvement is slight, but food prices are up 10.92% YOY for July 2022, and the price of shelter (rental and purchases) is up 5.7 percent. Keep an eye on credit card delinquency.

Credit Card Delinquency is Remains Strong but is Deteriorating

The latest number for delinquency rates on credit cards for all commercial banks rose to 1.73% in Q1 2022, up from 1.63% in Q4-2021, and 1.54 in Q3-2021, and the historic low, which was 1.48% in Q2 2021. The good news is that credit card delinquency is low, but the unwelcome news is that it is on an incline.

The first crucial factor is that the top one hundred banks are doing much better than the other three thousand smaller financial institutions. In Q1 2022, top bank delinquency was only 1.53%. However, those not in the top one hundred list showed a 5.04% delinquency rate, more than three times higher than top banks.

Now Look at Auto Delinquencies

Credit Bureau TransUnion put a flag on the field when they reported  Gen Z auto loans now show a past due rate of 2.21%, up from a pre-Pandemic rate of 1.75%.  Their millennial breather shows a similar increase, from 1.66% to 2.21%.

The numbers get ugly when you look at Experian’s delinquency rates by state.  The percentage of consumers ever showing 30+ delinquency in Utah, where the average loan payment is $513, is 4.5% for 30-day delinquency. In the nation’s capital, the 30-day delinquency indicator is a whopping 23.4%.

Cox Automotive, an industry trade journal noted:

And Rental Payments are slipping

The National Multifamily Housing Council notes that a White House Summit Focuses on Eviction Mitigation, which is a forerunner to an upcoming recession.  This is not a bad idea when considering how protections under the CARES Act expire and the potential risks associated with uncoordinated budgets.

Small businesses feel the pain also, as Franchising.Com, another trade journal, points out:

Everyone Hopes for the Best for Credit Card Delinquencies, But…

Keep an eye on the budget. Delinquency is starting to brew. And do not think inflation is over yet.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

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