NEW YORK–Bad debt in consumer credit cards has jumped to its highest level in nearly seven years, and while some see red flags, at least one analyst believes data “may not paint the full picture.”
The charge-off rate rose to 3.82% in the first three months of 2019, the highest since the second quarter of 2012, according to data compiled by Bloomberg Intelligence. And loans 30 days past due, a harbinger of future write-offs, increased at all seven of the largest U.S. card issuers, Bloomberg reported.
As CUToday.info reported here, at least one credit union regulator has also recently raised concerns over early stage delinquencies on all loans, not just credit cards.
Richard Fairbank, CEO at Capital One Financial Corp., which is the country’s third-largest card issuer, told Bloomberg some customers with negative credit events during the financial crisis are now seeing those problems disappear from their credit-bureau reports.
“We may be looking at data that might not paint the full picture of a consumer’s credit history,” Fairbank said during a conference call with analysts, according to Bloomberg. “Part of the context for our caution has been not only how deep we are in the cycle but, also, this is the time period when there is less information than there once was.”
What Big Issuers Reported
Capital One reported its Q1 U.S. card charge-off rate climbed to 5.04% from 4.64% at the end of 2018. At Discover Financial Services, the charge-off rate increased to 3.5% from 3.23% in the prior quarter.
“Certainly, this has been one of the longest recoveries, so, in general, we have been contracting credit policy at the margin and tightening,” Discover CEO Roger Hochschild said during the call. Hochschild said Discover has been closing inactive accounts and slowing down the number and size of credit-line increases for both new and existing customers, according to Bloomberg.
“The industry’s latest warnings build on developments in January, when fourth-quarter results showed charge-off rates near the lowest in decades were coming to an end,” Bloomberg reported. “Competition for the highest-quality customers remains fierce, leading many issuers to spend more on marketing and rewards to gain market share with that group. But a growing wariness about the potential for a rise in bad debt has led many issuers to tighten underwriting.”
Bloomberg remained that while there has been an increase, overall charge-offs remain not far from historic lows.