Credit Card Defaults, Charge Rates Rise Slightly in January (NYSE:COF)
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January’s credit card metrics show the US consumer gradually returning to more normal spending habits. There are still differences to pre-pandemic trends, but the trajectory points to higher net delinquency and radiation rates.
Looking at average rates from eight major credit card issuers, more and more consumers are falling behind on their credit card payments and banks are beginning to charge a greater proportion of their receivables, as shown the table below.
January’s credit card metrics reflected an “orderly normalization of credit,” continuing the trend seen in recent months as delinquencies edge up, Jefferies analyst John Hecht said in a note to clients.
| 2022 | 2021 | |||||
| Company | Teleprinter | Type | January | December | November | average over 3 months |
| Capital one | COF | delinquency | 2.40% | 2.22% | 2.13% | 2.25% |
| dampen | 2.03% | 1.76% | 1.66% | 1.82% | ||
| American Express | AXP | delinquency | 0.80% | 0.70% | 0.70% | 0.73% |
| dampen | 0.70% | 0.70% | 0.50% | 0.63% | ||
| JP Morgan | JPM | delinquency | 0.70% | 0.66% | 0.66% | 0.67% |
| dampen | 1.02% | 0.99% | 1.05% | 1.02% | ||
| Synchrony | SYF | delinquency | 2.80% | 2.60% | 2.60% | 2.67% |
| adjusted load | 2.30% | 2.40% | 2.50% | 2.40% | ||
| Discover Financial | DFS | delinquency | 1.75% | 1.66% | 1.60% | 1.67% |
| dampen | 1.76% | 1.58% | 1.53% | 1.62% | ||
| Alliance Data Systems | ADS | delinquency | 4.20% | 3.90% | 3.90% | 4.00% |
| dampen | 4.60% | 4.50% | 4.60% | 4.57% | ||
| Citigroup | VS | delinquency | 0.84% | 0.81% | 0.81% | 0.82% |
| dampen | 1.11% | 0.97% | 1.19% | 1.09% | ||
| Bank of America | BAC | delinquency | 0.93% | 0.89% | 0.92% | 0.91% |
| dampen | 1.22% | 1.35% | 1.24% | 1.27% | ||
| Avg. delinquency | 1.80% | 1.68% | 1.67% | 1.72% | ||
| Avg. dampen | 1.84% | 1.81% | 1.82% | 1.82% | ||
The month also featured typical seasonal trends. Loan balances fell, purchases were “modestly better” than Wolfe Research analyst Bill Carcache had expected.
“While many investors worry that the headwinds of credit normalization will come before the normalization of payment rates, this month’s results suggest the two are happening simultaneously,” Carcache said. He expects headwinds from standardization to be offset by lower payment rates, allowing card issuers to generate double-digit growth through the mid-teens in 2022 and 2023.
One point not reflected in credit quality metrics: the costs of attracting new customers and retaining existing customers are rising as credit card issuers sweeten rewards to cardholders. Baird’s George said lenders are also offering slightly longer 0% APR periods and lower transfer fees than in previous years.
During American Express’ fourth quarter earnings call, Chief Financial Officer Jeff Campbell said its new rewards and perks introduced in recent product updates help drive long-term customer loyalty and growth prospects. “It does mean, however, that you’re seeing more year-over-year growth in these variable customer engagement costs,” he said. “Put all of these dynamics together, I would expect variable customer engagement costs to globally reach around 42% of total revenue in 2022.”
In January, US Bank (NYSE:USB) expanded its credit card program that offers cardholders rewards for gas purchases to include matching rewards for electric vehicle charging transactions.