NEW YORK, Sept 13 (Askume) – The incidence of late payments on U.S. consumer credit cards and other loans has started to fall in recent months after a surge at the start of the year, bankers and industry analysts said this week.
This trend is in contrast to recent data showing forgiven credit card debt has increased across the industry as some Americans get back into a stronger financial position.
“Underwriting tightening following last year’s banking crisis appears to be taking hold and inflation is easing,” said Mark Zandi, chief economist at Moody’s Analytics.
The default rate for all home mortgages fell to 2% in August, compared with about 2.5% in 2019, Zandi said, citing data from consumer reporting agency Equifax.
Equifax data shows that late payments on credit cards, auto loans, personal loans, retail cards and first mortgages fell in August.
The trend could signal a more stable financial situation for Americans who have fallen behind on payments as the pandemic depleted their savings and the cost of living rose.
Bank of America’s net credit card charge-off ratio, or the amount of debt the bank has to collect, fell to 4.82% as customers’ financial position weakened, according to the Federal Deposit Insurance Corporation (FDIC). This is the highest level since 2011.
“Definitions did increase, but they started to peak last quarter, ” Citigroup Chief Financial Officer Mark Mason told investors on a conference call Monday.
Industry executives have for months been describing disparities in customers’ financial situations, saying people with lower incomes and credit scores are having a harder time than wealthier customers.
Mason said customers with lower credit scores are focusing their spending on household essentials rather than other items.
“We are seeing delinquency rates stabilizing on the consumer side, which is good news,” Bank of America Corp (BAC.N) Chief Executive Brian Moynihan said at the same conference.
Consumer delinquency rates could peak if the economy and labor market remain resilient, Zandi said.
Banks also tightened lending standards last year as the commercial real estate market declined and investors became concerned about the possibility of a U.S. recession.
US inflation has slowed in recent months , raising expectations that the Federal Reserve will cut interest rates by at least 25 basis points at its September 17-18 meeting and continue to ease monetary policy.
The rate cut will provide relief to some borrowers with adjustable-rate loans because their repayment obligations could be reduced, said Suzanne Fahey, executive vice president at credit score modeling firm VantageScore.
Wells Fargo (WFC.N) also expects net credit card fees to decline in the third quarter after a slight increase in the first half.
The bank’s net credit card loan charges increased to $72 million in the second quarter compared to $57 million in the first quarter.
“Overall, consumers are feeling good,” Chief Financial Officer Michael Santomassimo told investors this week. He added, “We expect credit card charge-off rates to decline gradually in the third quarter.”
Consumers “remain in a strong position,” said Daniel Pinto, president of JPMorgan Chase (JPM.N) .
