Credit card

Credit card delinquency: watch for increases

Before we start celebrating a drop in the inflation rate, which the Bureau of Labor Statistics just recorded at 8.5% in July, down from 9.2% previously, keep in mind that a large part of the benefits come from lower gasoline prices. NPR suggests it’s a supply and demand issue, and fuel consumption has dropped by 9%. The improvement is slight, but food prices increased by 10.92% year-on-year for July 2022, and the price of housing (rental and purchases) increased by 5.7%. Keep an eye on credit card arrears.

Credit card delinquencies remain high but deteriorating

The latest credit card delinquency rate figure for all commercial banks rose to 1.73% in the first quarter of 2022, from 1.63% in the fourth quarter of 2021 and 1.54 in the third quarter of 2021, and the all-time low, which was 1.48% in the second quarter of 2021. The good news is that credit card delinquency is low, but the bad news is that it is on the rise.

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

Look now at the auto delinquencies

Credit bureau TransUnion put a flag on the ground when it reported that Gen Z auto loans now have an arrears rate of 2.21%, down from 1.75% pre-pandemic. 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 more than 30 days past due in Utah, where the average loan repayment is $513, is 4.5% for being 30 days past due. In the nation’s capital, the 30-day delinquency indicator is a whopping 23.4%.

Cox Automotive, an industry trade journal, noted:

  • Loans past due 60 days or more increased 6.1% and 30.7% from a year ago. In June, 1.48% of auto loans were seriously delinquent, compared to 1.40% in May. A year ago, the serious delinquency rate was thirty-six basis points higher.

And the lease payments slip

The National Multifamily Housing Council notes that a White House summit is focused on eviction mitigation, which is a precursor to a coming recession. That’s not a bad idea considering the expiration of protections under the CARES Act and the potential risks associated with uncoordinated budgets.

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

  • Explore July numbers for restaurants and rent is up 7% from June. Forty-five percent of restaurateurs said they couldn’t pay their July rent in full last month. Retailers saw an even bigger jump, up 9% from June, when 44% of them did not have enough cash to cover their rent. Both of these delinquency rates represent all-time highs for 2022.

Everyone hopes for the best for credit card delinquencies, but…

Keep an eye on the budget. Crime begins to emerge. And don’t think inflation is over yet.