Credit Card Delinquencies Creep Up To Highest Levels Since 2012 As Subprime Issuance Soars

Tyler Durden's picture

As Obama's "recovery" rolls along, the Wall Street Journal points out that the delinquency rates of subprime credit cards has surged to the highest levels recorded since 2012.  Moreover, per TransUnion data, delinquency rates on cards issued in 2015 are close to 3%, or roughly double the overall rate, indicating that consumers have grown increasingly dependent on credit cards over the past couple of years to fund daily expenses.

Credit-card lending to subprime borrowers is starting to backfire.

 

Missed payments on credit cards that lenders issued recently are higher than on older cards, according to new data from credit bureau TransUnion. Nearly 3% of outstanding balances on credit cards issued in 2015 were at least 90 days behind on payments six months after they were originated. That compares with 2.2% for cards that were given out in 2014 and 1.5% for cards in 2013.

 

The poorer performance on newer cards pushed up the 90-day or more delinquency rate for all credit cards to 1.53% on average nationwide in the third quarter. That’s the highest level since 2012.

Meanwhile, FRED data reveals that while overall credit card delinquency rates remain at 10-year lows, the trends has been higher over the past several quarters.

CC Delinquencies

Of course, as we've noted before, part of the problem is that credit card companies have been forced to compete with the "peer-to-peer" loan providers whose volume has grown exponentially since tapping into the Wall Street securitization machine in 2015.  Unfortunately, this latest wall street ponzi scheme only serves to ruin the long-term credit quality of borrowers as most people use proceeds to repay credit cards then simply max them out all over again.    

We first noted Wall Street's misguided plan to feed its securitization machine with peer-to-peer (P2P) loans back in May 2015 (see "What Bubble? Wall Street To Turn P2P Loans Into CDOs").  Obviously we warned then that the voracious demand for P2P loans was a direct product of central bank policies that had sent investors searching far and wide for yield leaving them so desperate they were willing to gamble on the payment streams generated by loans made on peer-to-peer platforms.

 

In addition to the pure lunacy of using unsecured, low/no-doc, micro-loans as collateral for a CDO, we pointed out that the very nature of P2P loans meant that borrower creditworthiness likely deteriorated as soon as loans were issued.  The credit deterioration stemmed from the fact that many borrowers were simply using P2P loan proceeds to repay higher-interest credit card debt.  That said, after paying off that credit card, many people simply proceeded to max it out again leaving them with twice the original amount of debt.

 

And, sure enough, it only took about a year before the first signs started to emerge that the P2P lending bubble was bursting.  The first such sign came in May 2016 when Lending Club's stock collapsed 25% in a single day after reporting that their write-off rates were trending at 7%-8% or roughly double the forecasted rate (we wrote about it here "P2P Bubble Bursts? LendingClub Stock Plummets 25% After CEO Resigns On Internal Loan Review"). 

As the WSJ points out, the credit quality of borrowers has declined materially over the past couple of years.  In fact, the volume of subprime card issuance was up 20% year-over-year in 2015 and 56% compared to 2013.  Meanwhile, declining household income related to the oil bust has also led to higher delinquencies.

The recent increase in subprime lending is one of the big contributors. Lenders ramped up subprime card lending in 2014 and have been doling out more of these cards recently. They issued just over 20 million credit cards to subprime borrowers in 2015, up some 20% from 2014 and up 56% from 2013, according to Equifax.

 

Separately, missed payments in states with large oil or energy sectors continue to worsen. The share of card balances that were at least 90 days past due increased 12% in Oklahoma, 10% in Texas and 20% in Wyoming in the third quarter from a year prior, according to TransUnion. The Wall Street Journal reported in April that rising unemployment in the energy sector was pushing up delinquencies on credit cards and auto loans, raising the risk of new losses for banks.

Why do we suddenly have a sinking suspicion that victims of "predatory credit card lending practices" will be the next bailout target of democrats after taxpayers are forced to pick up the tab for outstanding student loan debts?

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813kml's picture

Any remotely competent MBA would raise the CC limit so customers could charge the minimum payment.

Bubble economics ain't rocket science.

PrayingMantis's picture

 

 

... "Credit Card Delinquencies Creep Up To Highest Levels"

 

... blame these guys ... >>> "Gov’t workers rack up $29 billion in credit card charges" >>>  http://watchdog.org/88146/govt-workers-rack-up-29-billion-in-credit-card-charges/  ...

 

 

PT's picture

It appears that the new people have never heard of using their mastercard to pay off their visacard.  I suppose it doesn't matter any more.

Paul Kersey's picture

And here's an even bigger shoe starting to drop:

"DETROIT — Americans are borrowing more than ever for new and used vehicles, and 30- and 60-day delinquency rates rose in the second quarter, according to the automotive arm of one of the nation's largest credit bureaus.

The total balance of all outstanding auto loans reached $1.027 trillion between April 1 and June 30, the second consecutive quarter that it surpassed the $1-trillion mark, reports Experian Automotive.

The average new car loan was $29,880, up 4.8% from the second quarter of 2015, and about $4,000 less than the average new vehicle selling price.

The average monthly payment on those loans was $499, up from $483 a year earlier. A growing portion of those loans are for a longer term, sometimes as long seven years.

Last month, Fitch Ratings issued a report that found that among subprime and deep subprime borrowers (those with a FICO score of less than 600) the percentage that are 60 days or more behind on payments reached 4.59% in July, a 17% increase from a year earlier."

yippee kiyay's picture
yippee kiyay (not verified) Paul Kersey Oct 24, 2016 11:49 PM

America is too far GONE. No turning back.
http://wp.me/p4OZ4v-3z

philipat's picture

Hey yippee kiyay, previously mofio then santafe then Aristotle of Greece then Gargoyle then bleu then oops then lance-a-lot then Loftie then toro. Would appreciate regular ZH contributors please take a moment to help me in my campaign against this idiot and report yippee kiyay to abuse@zerohedge.com.

You are a serial spammer and a serial pain in the ass. Might I politely suggest that you go fuck yourself? And get a life.

PS. You might have noticed that my attempt to expose you for what you are is always the same. That’s because your Spam is always the same (Using fake links to your BS site which has no connection to your comments; which are deliberately dramatic to mislead people into responding or clicking on the fake link) so it seems only fair that my exposure of your crap should also always be the same. An eye for an eye.

Crisismode's picture

 

1) Max out all your credit cards by . . .

 

2) Purchasing Precious Metals on well-known PM websites, then . . .

3) Hide your PMs at the bottom of the nearest lake, and . . .

 

4) default on your credit cards.

 

Easy, Peasy.

 

 

Ban KKiller's picture

The debt was securitized, bundled and sold off to "investors" and dip shit hedge funds. 

Roosevelt Loan Management....FUCK YOU. Stay in NYC if you know what is good for you? Yep, stay in the City. 

Yukon Cornholius's picture

I need a new TV. I think I'm going to get a Best Buy card and get myself a 4k TV on them. I'd like to see them try and get it back after 90 days.

PT's picture

The worrying part is "sold off to investors".  Do you know what your pension fund is doing?

gregga777's picture

Yeah, it's going bankrupt fast. Thanks Obama.

robertocarlos's picture

It costs 800 dollars to watch a bad hockey game live outdoors so we just put it on our cc.

Dragon HAwk's picture

Do you know the banking term for somebody who pays off their balance in full each Month... " Dead Beats "

  yet their insurance company requires that they have a certain amount of those kinds of customers or they are uninsurable.. go figure.

swmnguy's picture

As a confirmed credit card "deadbeat," the only real advantage I get from an 830 FICO score is a reduction in my insurance rates.  I don't want to borrow money, especially not to make everyday purchases of expendables and cappucinos.  

Not that I don't love the cappucino, but it would be a real bitch for a creditor to repossess, so I'd rather just pay for it with money I already have, thanks.  

And no, I don't want to save an extra 5% at the checkout counter to take out a loan from Target to buy the cheap plastic shit made by Chinese slaves.  I know that disappoints the good folks at Target, but if they can't make enough money selling me cheap plastic shit made by Chinese slaves, I don't think their going into the Banking industry and lending me the money to buy that shit is going to save them.

flacorps's picture

They can muddle through without a bailout if they have my book. 

https://www.amazon.com/Debt-Hope-dirty-survival-strategies/dp/1907498524

Boca's picture

as someone in his 50's that has always lived within his means, never carried a CC balance, never defaulted on a loan, never made an insurance claim, I'm really feel it's my turn to fuck the system

willwork4food's picture

I don't blame you Boca. May I suggest something you might want to try out?

Find a hobby or small business that you enjoy, always dreamed about doing and start doing it. Use your good credit to finance it. If business takes off in a few years you're "risk" was rewarded with profit. If not, THEN you default. Don't let your good credit rating terminate from just a few thousand default dollars.

Boca's picture

i'm more thining a few 100 thousands

UnschooledAustrianEconomist's picture

Fuck it hard, whatever way you prefer, both of you deserve it.

Atomizer's picture

Can validate this. Called my neighbor who collects my mail in Charleston, SC. 5% was legit. The other was credit card companies trying to entice me to latch onto new debt. Fuck you 2% marketing firms. 

My neighbor is golden. He knows the difference between bulk and first class mail. We don't need a credit card. 

Desperation is evident. We need more spending debt bitchez. Why are you assclowns out spending money with are new credit card campaign??

You homey's can't buy fine retail clothing on your EBT. Use your child's Social Security number to get one of this motherfucking credit cards 

/sarc

Seasmoke's picture

They pretend to give us money. We pretend that we will pay it. 

shovelhead's picture

Wait until my dogs find out both of them are 90 days DQ on their maxxed out credit cards.

They'll be hiding under the porch.

SgtShaftoe's picture

Don't worry.  They'll bail out the banks, not the debt holders.  The government is far too corrupt and fucked to let off the debt holders.  They'll attempt to make them permanent debt slaves and it may well be the end of them because of it. 

PT's picture

Both govt and banks have exactly ZERO interest in making the numbers add up.  They just want everyone to be eternal debt slaves.  They are not thinking any harder than that.  It's not about money.  It's about CONTROL.  If the entire population earnt $1000 per week, which they then used to borrow $10000 per week just so they could buy groceries for that week, and everyone has million+ debts that keep growing every week, both govts and banks are happy with that.  Why?  Because then even the sensible people are either carrying debt or starving to death.  You can not compete against an idiot with his "free" money.  They're not looking for repayments.  They're looking for "legal justification" to steal all of your stuff whenever they feel like it.

PT's picture

When the Economy is sooooo fucked that sensible people don't dare borrow, all you got left is lending to the "other" people. 

In any other business, if you can't make a profit then the generally accepted wisdom is that you should quit that industry and look for work where the profits are.  Peak banksters?  Oh, sorry, I forgot.  They've got special privileges.

JailBanksters's picture

Was in the Mall the other day and this guy pulled out his wallet,

all he had in it was plastic cards. About 20 of them !!, goes through all of them an finally decides on Lunch with this one.

I don't know if they were real or fake or ATM or Credit Cards, but 20 cards !

I've seen people with ~8 cards, and I thought they were crazy

 

 

Boca's picture

educate yourself on manufacture spending and maybe this guy is a lot smarted than you think, he was probably looking for the 5% back on dining card

 

JailBanksters's picture

He looked like he could be a stand in for the Tele-Stubbies, seemed to speak the same language as well.

 

 

ajkreider's picture

So, subprime lending is now a gauge of the overall health of the economy?  Please, back away from the computer before you hurt yourself.

Mena Arkansas's picture

"And Jesus went into the temple of God, and cast out all them that sold and bought in the temple, and overthrew the tables of the moneychangers, and the seats of them that sold doves, And said unto them, It is written, My house shall be called the house of prayer; but ye have made it a den of thieves."

https://en.wikipedia.org/wiki/Cleansing_of_the_Temple

looseal's picture

After that it didn't end well.

JOvite's picture

I cannot be the only one that sees this as a logical consequence of the Wells Fargo type forced cross-selling of products, regardless of the customers ability to serivce. All for the profit of management, and the eventual ruination of the shareholders.

 

RadioFlyer's picture
RadioFlyer (not verified) Oct 25, 2016 6:23 AM

Local sign at Tire King: 0% interest for 6 months.
Local sign at Sofa King: 0% financing.

Zeusky Babarusky's picture

It's almost if some have figured out that we are at war with the money lenders? Seems some folks have applied for all the credit cards they can, are maxing out the cards, and then defaulting? What a novel idea. Wish I'd have thought of that. Oh, my bad, I did. Don't give a rat's about credit score anymore. Use all cash for necessities. Now, we just need more folks to come along with this kind of thinking. If enough follow this plan there is no way they can come after everyone, and even if they do, it will also cost them lots of money. It's win/win baby.

Paul John Smith's picture

Up until 6 months ago, I was there ... nothing on my CC. Then all it took was meeting 2 really crappy people, being taken, and now I have 20K+. I think I'm with you. I will service it, as long as I have a job. I will never pay it back.

cornflakesdisease's picture

Here's what I do.  I pay my various insurances in full with a 2% credit card (RV, Auto, etc), but save 10% not having to pay the monthly service fees by parking it on a CC teaser check. 

 

I also buy business inventory with a Citi card paying 2% cash reward, then park it on a Chase 2% credit card check, thus buying inventory for 18 months, at 0%. 

 

Been doing this for sometime.