The WSJ Also Uncovered The Source Of The Next Consumer Debt Crisis

Two weeks after we first brought the market's attention to the crisis quietly unfolding in consumer debt, The Wall Street Journal has caught up, admitting that some say is a sign of the financial fragility of middle-and-lower-income consumers.

As we detailed previously, the Federal Reserve reported most recently that US consumer non-mortgage debt has never been higher: as of December 31, 2017, US households had a record $1.0 trillion of credit card/revolving loans, a record $1.3 trillion of auto loans, and a record $1.5 trillion of student loans.

Among these, credit card and auto loans, in particular, have been experiencing accelerating delinquencies, but the very gradual increase in aggregated Net Charg-Offs has allayed any economist concerns about the state of the US consumer.

But, a modest scratch below the surface, and a startling discovery emerges.

While the larger U.S. banks that dominate credit card issuance have focused on prime and super prime consumers post the Great Financial Crisis (GFC), and have enjoyed a prolonged period of low charge off rates concurrent with the Fed’s almost decade long ZIRP.

As TCW's Chet Melhotra notes, it is America's smaller banks - those not in the Top 100 by asset size - that have experienced in just the recent months a surge in charge off deterioration, which at 7.9% is on par with the last financial crisis!  In other words, to find where the next consumer credit crisis hides - and will erupt next - ignore the big banks and focus on the smaller ones.

And delinquency rates are just as dangerously divided.

Read more detailed breakdown here...

And now The Wall Street Journal has noticed this could be a problem...

Both large and small banks pushed into the credit-card market in the wake of the recession in search of higher yields and an affluent customer base.

As competition intensified, big banks splurged on customers with cash rewards and points that could be redeemed for vacations.

Some smaller banks battled back by loosening credit-score requirements, but that strategy now seems to be backfiring, even though the economy is improving and the unemployment rate is near record lows.

Wages are rising only slowly and some consumers have simply taken on more debt than they can handle.

“There’s almost been a panic in getting their product out there to subprime borrowers,” said John Heath, directing attorney at Lexington Law, a consumer law firm based in Salt Lake City specializing in credit repair.

Some clients struggling to pay back credit-card bills to small banks were earlier rejected by large ones, he added.

And, as the chart above show, the deterioration at small banks has raised some concerns about how much worse losses could get if the economic recovery falters.

The small banks’ experience is “simply a leading indicator of a downturn to come,” said Robert Hammer, founder and chief executive of credit-card industry consultant R.K. Hammer.

In the run-up to the last recession, he noted, losses accelerated for small banks before they did for big ones.

But, but, but... all that dis-saving (and credit-card-debt engorgement) has spiked consumer confidence to near record highs...

Which has never ended well!







TeethVillage88s venturen Tue, 03/06/2018 - 17:40 Permalink

Rico against small banks & credit unions?

Tylers... who is shill author saying small banks are powerful & corrupt.? Is that like watching small banks & public banks in Ecuador get taken out... and saying "well, they had all opportunities and they caused it with no 'turncoats', insider agents, bribes or coercion to make bad deals, and no agents to report their inside deals to bigger powers....

- What do I know, TBTF get bigger & USA only has like 5000 banks after 100 year collapse

In reply to by venturen

lincolnsteffens TeethVillage88s Tue, 03/06/2018 - 18:24 Permalink

Well maybe this is the plan for the larger banks to gobble up the smaller banks. To big to fail may get bigger unless this rinse/repeat cycle isn't ended.

Close the Fed. Res. and issue real money that has limits on its creation.

All this debt is just book entries on balance sheets. It is made up in the mind of man and not backed by anything of tangible value. The supply of fiat is technically unlimited. 

In reply to by TeethVillage88s

Kaiser Sousa Tue, 03/06/2018 - 17:26 Permalink

im sure its nothing...

"As reported by the Wall St. Journal, but curiously absent from Fox Business reporting – both organizations are owned by Rupert Murdoch – Mr. Finer used government-provided GPS coordinates, vehicle information and other travel data to track taxi traffic between the addresses of the New York Fed and major banks. His research pointed to increased traffic between the destinations around lunch and late evening hours, which suggested informal meetings were taking place, Mr. Finer wrote in his paper. He found elevated numbers of rides around Federal Open Market Committee meetings, with most of them coming after the gathering.” (WSJ)…

peippe Tue, 03/06/2018 - 17:41 Permalink

Looks like after being turned down at a 'big bank' some 

people drove out to the sticks & got credit at 'Big Timbers Family Bank'

where the cell reception is a little iffy & they got a charge account because 

no one could check their slow pay/no pay history at TRW?

Sudden Debt Tue, 03/06/2018 - 17:54 Permalink

When I was a child, I saw my father use that plastic card.

I tought that when I grew old, that the bank would also give me a plastic card and I could get all the money from the wall for free!!!




I did grew up... and learned that the plastic card needed to be charged first....



Wakesetter Tue, 03/06/2018 - 19:00 Permalink

Just read the average length of current US car loan is a little over 69 months and that there was a 3.3% increase month over month for 73 to 84 month loans.

Consuelo Tue, 03/06/2018 - 19:26 Permalink

"...if the economic recovery falters."



What's this 'recovery' stuff - I thought we had recovered a long time ago and were in the midst of an unprecedented economic expansion...?

Dragon HAwk Tue, 03/06/2018 - 19:47 Permalink

When the blacks boycotted the Bus companies over segregation the Bus Companies learned that they needed the money the blacks brought to their Business,  in the same way, The American Economy  will eventually Learn, that if they don't  hire an pay the people well, and not tax them to death, it is they themselves that will suffer. The Little man knows how to starve, he does it quite often, The Rich man is in for a Surprise.