US Consumers Tap Out: Credit Card Defaults Surge To 4 Year High And It's Getting Worse

Tyler Durden's picture

Two weeks ago, when JPMorgan launched Q1 earnings season, we noted that while the results were generally good, one red flag emerged: the company's credit card charge offs rose to just shy of $1 billion, the highest in four years.

It wasn't just JPM: all other money-center banks reported similar trends, so we decided to look into it.

What we found was not pretty. According to the latest data from the S&P/Experian Bankcard Default Index, as of March 2017, the default rate on US credit cards had jumped to 3.31%, an increase of 13% from a year ago, and the highest default rate since June 2013.

This is how S&P/Experian explained the recent 5 consecutive month surge in bank card default rates:

The bank card default rate recorded a 3.31% default rate, up nine basis points from February. Auto loan defaults came in at 1.00%, down five basis points from the previous month. The first mortgage default rate came in at 0.75%, up one basis point from February and reaching a one-year high.

 

The National bank card default rate of 3.31% in March sets a 45-month high. When comparing the bank card default rate among the four census divisions, the bank card default rate in the South is considerably higher than the other three census divisions. Upon further analysis to the South's three census regions, East South Central – comprised of Kentucky, Tennessee, Alabama, and Mississippi – has the highest bank card default rate. 

"Currently the debt service ratio for consumer credit – the percentage of disposable income required to service consumer credit debt – is 5.58%, up from its recent low of 4.92% in 2012 but lower than the 6.01% peak seen shortly before the financial crisis.  The higher interest rates that most analysts expect over 2017-2018 are likely to combine with continued growth in consumer credit to push the debt service ratio back towards the 6% level," said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices

Making matters worse, based on the latest credit card data reported overnight from pure-plays Discover and CapitalOne, the deteriorating trends are rapidly accelerating (resulting in the stock of both DFS and COF getting slammed).

Add to this what CoreLogic warned earlier in the day, namely that that stalwart of any viable business cycle, mortgage performance, has finally started to deteriorate...

While loan performance improved across various loan types throughout the first five years of the expansion, over the last year three of the four major types of loans began experiencing a deterioration in loan performance. The exception to the deterioration in credit performance was real estate, which continues to improve. However, a closer look reveals performance is deteriorating, albeit from pristine levels of performance.

 

... While performance for the 2016 vintage is still very good from relative to the last two decades, it is beginning to worsen. Historically, when the mortgage credit cycle begins to deteriorate it continues to do so until the economy bottoms and the credit cycle begins to improve again.

... and it is becoming clear that the US consumer, responsible for 70% of US economic growth, has finally rolled over.

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OrangeyTheAssHat's picture
OrangeyTheAssHat (not verified) Apr 26, 2017 8:23 PM

The last time this happened the market Crashed.

Raffie's picture

We need to barrow M04R moneyz to pay off that debt and all will be ok.

It should work....well, at least this time.

 

Paul Kersey's picture

Credit card defaults, record student loan defaults, subprime auto loan defaults mounting, record number of working age males out of the workforce, and record number of children on food stamps, but the stock market is pushing new highs. Somebody's doing just fine.

PrayingMantis's picture

 

... don't let the credit card usurers screw you .... you have to fight back these credit card companies, legally, of course,  and it's really easy ...

... here's how to do it and it's legit ... no bullfeathers ... really ...

 

... get that first credit card ... interest rate doesn't matter ... buy or pay for an item then pay it immediately (pay the balance preferably online ... some banks will charge a fee for "teller" service) ... do this regularly and the next thing you know, they'll increase your credit limit and your credit rating blooms ... other credit card companies would smell this ..

 

... next, you'll get a few more credit card offers ... limits would be low and interest rate is high, but it's okay ... just get it ... interest rates won't matter ... you'd pay the balance before interest kicks in (this is very important ... otherwise, it wouldn't work) ...

... do this regularly and more credit card offers would come in and your credit rating moves up proportionately yet again and your credit card limits would be adjusted as such (they would even encourage you to take the higher credit card limit ... often by email) ...

... soon you'll have a few cards to monitor ... make sure you pay the total balances before interest rate kicks in (I know this is easy to say, but this is the kicker ... if you pile up your balances, they'd win ... and you'd pay their exorbitant interest rates) ... I know, it would take a lot of will power not to pile up the debt, but you could do it ... just think you're paying cash ... and some credit cards even pay you cash back either by points you could use or actual balance deductions ...

... I know most might say they don't have the money to spend, but each of us would be paying for something whether it's a cup of coffee or some other item you would pay with cash ... just use the credit card and pay it immediately to build up your credit ...

 

... I ended up with six credit cards and eventually, the combined credit limit ballooned to $105K ... and no "actual credit" balances ... who cares for interest rates at this point right?

 

... I mentioned "actual credit" balances because here's the beauty, the card companies sees you have a very good credit rating and they will offer regular "balance transfers" at 1% or .99% interest rate (regardless of your actual credit card posted interest rate) ... this is often good for 6 months to 1 year ... and it repeats regularly ...

 

... since you have no credit card balances, you could still avail of the low interest rates ... call them to send you "credit card checks" ... when they arrive, find out what interest rate you could earn from your regular bank's savings account and deposit perhaps half of the card's limit ... never take the full limit as it has a detrimental effect on your credit rating ... 2 to 3% savings interest from your bank's "deposit" would make you an easy profit off of their money ... 

... online banks or smaller banks and credit unions usually pay up to 3% on a savings account (just to get your business) ... sometimes 4% if you're lucky ...

 

... that's how I deal with my credit card companies and I still have my 6 cards ... and still fighting the system, legally, of course ... it's a win/win for both ... they would collect their 4 or 5% fees from the merchandisers/stores/merchants and I make a little money off of theirs by using their credit checks for my savings account ...

... it works ... seriously ... and it's all legit ...

 

;)

Lost in translation's picture

When you write checks against, say, half the limit on a $20,000 card, you pay the lender interest on that $10,000 you deposited as savings.

What am I missing here?

allgoodmen's picture

1. Deposit the credit card cash advance checks

2. Default

3. Profit

Bubba Rum Das's picture

 

Credit Card Defaults Surge To 4 Year High And It's Getting Worse

Like I give a fuck? Crash & burn, Motherfuckers!

SolidAssets's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

PrayingMantis's picture

 

... lol ;) , that would work too, but you have to liquidate all assets first (real estate especially) before you default or they'd still win grabbing higher valued properties ...

 

 

Technical Difficulty's picture

He is saying you do a balance transfer of that $10k to another card and the rate is typically 0% for 6+ months on the transferred amount. However I think they typically charge you a 3% transaction fee to do the transfer which makes this trade not profitable for most if not all savings accounts.

PrayingMantis's picture

 

... you're right ... >>> However I think they typically charge you a 3% transaction fee to do the transfer

... and that's when you would ignore the offer ...

... the going "transfer fee" in most cases that they charged me was (and still is) 1%  with an enticing 0 or .99 or 1% monthly interest rate for the next 6 to 12 months ... and you'd break-even the first month if the savings rate is 2% ...

 

;)

 

PrayingMantis's picture

 

... sorry, I wasn't quite clear with my end result ... when you deposit 10K and you pay say 1% up front for their transfer fee and 1% interest rate thereafter, for the next 6 or 12 months, that's all you'd pay.  The money you put in savings earns 2 to 4% depending on the institution making you a tidy profit - not for the first month; it's break even - but for the months after that.  Often they'd offered me 0%  monthly interest for 6 to 12 months with a 1% transfer fee  ... that's when I laugh my way to the bank ...

... hope it works for you and others too ...

... and btw, you have to have discipline ... don't touch the deposit so you could pay it back in full before it switches back to the posted interest rate for each card (my posted rates range from a low 7% to a high of 19% with some at 13% ...)  ... or do the merry-go-round ... transfer the maturing balance to another credit card that offers 0 or 1%  ... wash, rinse, repeat ... it works ... cheers!

 

;)

Fizzy Head's picture

There's a bail-in app for that....

JRobby's picture

Ohhhhhhhhh Noooooooooo!

"They" said it was all good! Unemployment under 5%!

Stawks up, houses up

skinwalker's picture

They won't let this market crash, even if they have to burn down civilization to keep it going.

847328_3527's picture

It will crash again on the heads of the middle class. The upper 5% and lower 20% will do just fine like they did last time.

ClowardPiven2016's picture

The last time this happened Orangeytheasshat was giving Soros a rim job

skinwalker's picture

He's got plenty of 14 year olds for that.

14 is a special age for Soros.

Deplorable's picture

"The last time this happened the market Crashed." 

I've been hearing that phrase a lot lately.

yogibear's picture

NY Fed head Willian Dudley is ensuring there is no crash.

SgtShaftoe's picture

Hyperinflation it is then. There is no middle ground when standing on the edge of a knife in a tornado.

Dilluminati's picture

RAISE THE INTEREST RATES!

ARM and markets goto moon!!!

 

gatorengineer's picture

everything is bullshitish..... you should know that by now

Osmium's picture

Good for another 100 points on the NASDAQ?

Scuba Steve's picture

"bullshitish" ?

Haha, havent saw that one ... Nice (golf clap)

ultraticum's picture

Debt must increase, exponentially, forever.

--J.P. Morgan

(that's the real quote that somewhere along thw way got replaced by the 'fake' one about gold being money and everything else being credit).

 

 

bobert727's picture

Since Lehman.......

GatorMcClusky's picture

Coming soon, The Bigger Short?

JRobby's picture

Short the Shit Show

Said Samuel to the Sheep

11b40's picture

....and hurry up! It will only go up!

man from glad's picture

The banks give these credit cards to anyone with a pulse. I guess raping people with a 25% interest rate is plenty profitable enough to offset the losses until it gets really bad. Then the banks know they will get a taxpayer funded bailout anyway. Then bonuses for everyone!

Seasmoke's picture

As soon as you hit your credit limit. Default. Strategic.. It's a business decision. The sooner you default , the quicker you will get your credit cards back.  Rinse. Repeat. 

Seasmoke's picture

Knew a guy who got a credit card that charged 39% !!!! But wait it gets better....They charged and annual fee upfront for $79 and a monthly charge of $8 !!!!! His original $700 limit was already $610 when he got card. He used the $610 the day in came in mail and threw card in garbage card at store. I was impressed. Never paid a penny. 

Scuba Steve's picture

Hey, thats my dream damn it ...

Only I want to go the $100,000 route, I'm working on it.

Buy  the guy a cold one on me ... charge to his credit card and I'll pay him back later.

sinbad2's picture

What's a credit card?

:)

Sky flyer's picture

It's all bullish. These are the easiest times to figure out "markets".

delivered's picture

Hard to believe our fearless leaders can't seem to understand what is happening. When you combine the elevated inflation occuring in the 3 H's (i.e., housing, healthcare, and higher education) along with cramming down extended auto loans on the consumer (as well as having to repay student loans), compared to real income/wage growth that is at best flat and most likely negative, you quickly end up in a situation where the consumer has no discretionary income left. Period. So they use CC's to fund discretionary purchases and of course eventually realize they are in over their heads and begin to default.

The first place consumers default is with CC's and shadow consumer financing agreements (i.e., buy furniture and don't pay any interest until 2050). This is clearly beginning to happen. Then of course autos and student loans which both are showing signs of stress. Finally it will roll over into housing (both mortgage and rental payments) as keeping a roof over your head tends to be protected compared to the other forms of debt. Not sure where defaulting on health/medical bills fits in but I figure that most of the deadbeats on Obamacare have never even considered paying their deductibles.

Looking at this from another perspective, discretionary spending should also be decreasing which we are clearly seeing in the restaurant industry (basically in a recession), the general retail industry (brick & mortar is nothing short of a dissater right now), and autos as well (which look to be struggling to find new customers). So we're seeing consumer stress on both sides of the equation including higher default rates and reducing spending on discretionary items.

So after 8 plus years of massive monetary and fiscal spending, with no real income increases for the average worker, it's no wonder that we're beginning to see the US consumer deflate as they have no other option but to cut back and default. What these dipshits in Washington and Wall Street never understood is that it was never about the quantity of the jobs created but the quality of the jobs created. You simply cannot lay the foundation for long-term economic growth when the only jobs being created are in hospitality, low earnings medical, etc.

Catahoula's picture

Imagine the struggle of monthly cc payments on a 10k balance which is the avg of those with credit cards. More pain ahead 

just the tip's picture

at 30% interest rate, that's interesting.

aloha_snakbar's picture

But at least Barky Obortion is getting 400K to stutter for an hour...

Uh uh uh uh uh uh uh uh Uh uh uh uh uh uh uh uh Uh uh uh uh uh uh uh uh Uh uh uh uh uh uh uh uh Uh uh uh uh uh uh uh uh Uh uh uh uh uh uh uh uh Uh uh uh uh uh uh uh uh Uh uh uh uh uh uh uh uh Uh uh uh uh uh uh uh uh Uh uh uh uh uh uh uh uh Uh uh uh uh uh uh uh uh Uh uh uh uh uh uh uh uh

 

Check please...

milking institute's picture

Yes,life is good for the brown clown!

just the tip's picture

what's in your wallet?

nothing.

or put another way, what's a wallet?

RozKo's picture

Free money ...

CHoward's picture

True happening just today.  I was in a service department and overheard a female worker talking with another femlie co-worker.  The first one said "Oh wow - they raised my credit limits - now I can finally shop again!!"

 

True but sad.

aliens is here's picture

Nothing a war with NK can't fix. 

SantaClaws's picture

Many aren't worried about their debt because -- if they are not judgment proof already -- they assume their debt will eventually be forgiven.  There is talk of student loan debt being forgiven (some already is, for example, if you work for a Congressperson after graduation), mortgage debt has been forgiven, some college tuition may become free in some states, and free health care, housing, and EBT cards seem to be given away like candy.  The only requirement -- don't make the mistake of being gainfully employed.  No need even to be in the country legally.

847328_3527's picture

The middle class working American is a 3rd class citizen in this nation now who gets stuck with all the debt and problems. It's also no wonder the male suicide rate has soared the past 8 years.

Everyone is a self-proclaimed vicitm.

Everyone feels "entitled."

"It's not my fault."

If you disagree, you are either a "raycist" or "sexist."

The protesters sceaming that others are fascist, are the dangerous violent fascists themselves.

Sadly, the third branch of government (judicial) has been so politicized the crazy ones are now running much of the ocuntry. Hopefully, the new supreme court justice adds more balance to the judicial system.

I also hope Trump delivers on middle class tax breaks and abolishment of the Obamacare tax.