U.S. consumer loan delinquencies are starting to fall, bankers tell Reuters

By Nupur Anand

NEW YORK (Reuters) – Late payments by U.S. consumers on credit cards and other loans are beginning to stabilize in recent months after rising earlier in the year, bankers and industry analysts said this week.

The trend contrasts with recent data showing an increase in canceled credit card loans in the industry as some Americans get back on firmer financial footing.

“Tighter underwriting in the wake of last year’s banking crisis appears to be reaping benefits, as is slowing inflation,” said Mark Zandi, chief economist at Moody’s (NYSE: ) Analytics.

Default rates for all household debt fell to just over 2 percent in August, compared with about 2.5 percent in 2019, Zandi said, citing data from Equifax (NYSE: ), a consumer reporting agency.

Late payments fell for credit cards, auto loans, personal loans, retail cards and first mortgages in August, Equifax data show.

The trend could signal more stable finances for Americans who have fallen behind on payments as their pandemic-related savings dwindle while living costs rise.

As their customers’ finances weakened, U.S. credit card lenders’ net charge-off rates, or the amount banks didn’t expect to collect on loans, rose to 4.82 percent in the second quarter, according to data from the Federal Deposit Insurance Corporation. (FDIC). This was the highest since 2011.

“Delinquencies, obviously, are up, but they’re starting to pick up in the last quarter or so,” Citigroup Chief Financial Officer Mark Mason told investors on a conference call on Monday. “That’s a good sign.”

For months, industry executives have described a divergence in customers’ finances, noting that those with lower incomes and credit scores are struggling more than wealthy customers.

Customers with lower credit scores shifted their spending toward purchases of household products instead of discretionary items, Mason said.

“We’re seeing consistent consumer delinquency, which is good news,” Bank of America CEO Brian Moynihan said at the same conference.

Consumer delinquencies could be close to peaking if the economy and labor market remain resilient, Zandi said.

Banks tightened lending standards last year as the commercial real estate market deteriorated and investors became increasingly concerned about the potential for a US recession.

In recent months, U.S. inflation has slowed, cementing expectations that the Federal Reserve will cut interest rates by at least 25 basis points at its Sept. 17-18 meeting and continue to ease monetary policy.

The cuts would provide some relief to some borrowers whose loans have variable interest rates because their repayment obligations could decrease, said Susan Fahy, executive vice president at VantageScore, a credit-score modeling company.

Wells Fargo also expects its net chargebacks for credit cards to decline in the third quarter after remaining slightly elevated in the first half of the year.

In the second quarter, the bank’s net credit card loan charge-offs increased $72 million from $57 million in the first quarter.

“Overall, the consumer feels good,” Chief Financial Officer Michael Santomassimo told investors this week. “We expect card loading rates to slowly decline in the third quarter,” he said.

JPMorgan Chase (NYSE: ) President Daniel Pinto said the consumer is “still in a solid place.”