The rate at which lenders declare credit card loans uncollectible ticked up at four of the six largest issuers in July from the previous month.
Delinquencies held steady, however, according to reports on securitized receivables published this week. Those results broke with the seasonal increase that typically prevails during the summer, and chargeoffs look poised to retreat in the coming months. (Historical and projected data is shown in the graphics below. Interactive controls are described in the captions. Text continues below.)
Overall, credit card loan performance has grooved into a convincing post-crisis recovery, with loss rates dipping below levels that issuers expect to prevail across the economic cycle.
If the recent pace at which early stage delinquencies, or balances that are past due by between 30 days and 60 days, have been translating into chargeoffs holds, loss rates are set to decline at Bank of America (BAC), Citigroup (NYSE:C), Discover Financial Services (DFS) and JPMorgan Chase (JPM) in the coming months. (Chargeoffs are the annualized amount of debt written off as a percentage of outstanding receivables.)
No significant deterioration appears in store for Capital One (COF) or American Express (AXP), whose chargeoff rate has already plummeted to 2%, an astoundingly low level for unsecured credit.
(Including domestic card loans that do not back bonds, Capital One’s chargeoff rate fell roughly a full percentage point from the first quarter to 2.9% in the third quarter. The drop was driven by the addition of $28 billion of receivables the company bought from HSBC Holdings in May; initial losses on the portfolio do not flow into chargeoff measures under fair-value methodology dictated by purchase accounting. Capital One has projected that its chargeoff rate will ultimately settle into a range about 40 basis points to 60 basis points higher than it otherwise would have been.)
Yields, or interest, fees, interchange and other income as a percentage of receivables, increased between June and July at most of the Big Six. In general, revenues have been robust despite price restrictions imposed under the Credit Card Accountability, Responsibility and Disclosure Act.
Payment rates, or the percentage of outstanding principal balances that cardholders pay off each month, also increased at most issuers, extending a climb that has taken hold since a pronounced seasonal dip that appeared late last year.
Payment rates are at 20-year highs, reflecting a shift by issuers toward customers with higher credit scores who tend to pay their bills in full.
That has been good for credit quality, but an obstacle to loan growth. Revolving debt decreased at an annual rate of 5% in June, the most recent date available, to a seasonally adjusted $865 billion, according to the Federal Reserve.