Household debt increased $344 billion over last year to $14.64 trillion. Growth was evident in auto loans (+$8 billion) and student loan balances (+$29 billion), but credit cards saw the “second-largest quarterly decline, “ the NY Fed reported.
First and foremost, the Fed says the CARES Act Worked as Designed. Issuers had several chaotic moments as the dust settled, but the goals were to protect the financial services sector with stability, protect households from a credit crisis, and keep the country moving. By all measures, the strategy was successful.
According to the report:
- Aggregate delinquency rates across all debt products have continued to decline since the beginning of the pandemic recession, reflecting an uptake in forbearances provided by the CARES Act or voluntarily offered by lenders.
- These supportive policy measures continue to be visible in the delinquency transition rates, as the share of mortgages that transitioned to delinquency remained low at 0.5%.
- As of late March, the share of outstanding debt in some stage of delinquency was 1.5 percentage points lower than the rate observed in the first quarter of 2020, just as the COVID-19 pandemic hit the United States.
- About 114,000 consumers had a bankruptcy notation added to their credit reports, a decline from the previous quarter and a new historical low.
The headline grabber for risk managers, however, is in the delinquency decrease. Accounts 90 days or more delinquent tumbled from 5.31% to 3.78% in Q1 2021. With this in mind, consumers and retailers should expect to see loosened credit underwriting to enable credit card issuers to rebuild their portfolios.
According to Seeking Alpha, Chase’s credit card delinquency volumes increased substantially, with a decline to 0.78% in April from 0.89% in March. The exact time last year was 1.27%. Improvements in charge-offs continued at Chase, from 2.03% to 1.97%.
Discover experienced similar improvements, as did Capital One. Discover delinquencies fell in April from 1.85% to 1.69%, with charge-offs declining to 2.55% from 2.71%. At Capital One, delinquencies fell to 1.92% from 2.24.
What Next:
Expect the decrease in volume and decrease in delinquency to spark up credit card lending, higher credit lines, balance transfer offers, and sandboxing low and thin credit file customers.
Overview provided by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group