Credit-Card Losses Hit a Four-Year High
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This is Your Money Matters from The Wall Street Journal. Welcome to Your Money Matters. I'm Charlie Turner in New York. Credit card losses are climbing and that's a development that could be a warning sign for markets and the broader economy. Fitch Ratings says the average net charge-off rate for large U.S. card issuers... which is the percentage of outstanding debt that card companies write off as a loss, hit a four-year high during the second quarter. It was also the fifth straight quarter of year-over-year increases for the charge-off rate. Joining us is Wall Street Journal credit card reporter Anna Maria Andriotis. First, Anna Maria, tell us what the latest charge-off percentage number is.
So the latest charge-off rate is 3.29%.
What charge-off rate did Fitch report for Q2 and why does it matter?
And what we're seeing is a turnaround in credit card performance, moving from a six-year trend of declining losses to what we've seen playing out over the last five quarters of year-over-year increases. And that is signaling that there is some type of credit deterioration that's going on.
And this is the average charge-off rate. Did all major issuers report increases?
That's correct. So the 3.29% is for the eight largest U.S. credit card issuers, and all eight of them did report increases in the second quarter from a year prior.
And we're talking about companies like JPMorgan Chase, Citigroup Capital One.
Discover as well, yes. And then you also have even companies where their performance is among the healthiest, like American Express, for example, where those losses are also up year over year.
Didn't banks point to this as a worry in their most recent earnings reports? These were closely watched. I did several interviews with some bank reporters from The Wall Street Journal, and they mentioned this.
This has been very closely watched because what's been playing out over the last few quarters is you have had a number of banks where they have been reporting increases in charge-offs. They have also been reporting increases, quite large ones for several of them, in the dollar amount of money that they are putting to the side to cover for future loan losses. You've also had several card issuers during the first half of this year increase projections for full year losses that they're expecting. So they keep revising those numbers and they're revising them upwards, signaling that there is a turn coming. that we're basically at an inflection point in the credit card market. This market has been really performing at record levels for several years now.
Losses have been declining since early 2010. And many say, lenders and analysts in the industry say that, look, losses were abnormally low for a while. So part of what we're seeing is this sort of normalization where we're just getting – up to more normal levels of charge-offs. But there are also some worrying signs that are being shown at the same time.
I'm speaking with Ana Maria Andriotis, credit card reporter for The Wall Street Journal, and you're listening to Your Money Matters. Thanks for listening, everyone. Ana Maria, have consumers just been taking on too much debt after lenders started loosening underwriting standards a few years ago?
That is correct. In fact, if you look across the board at auto loans, at student loan debt, credit card debt, all of these numbers have been on the rise. And when you remove mortgages and you look at consumer debt payments as a share of people's after-tax income figures, That ratio is actually rising and is at the highest level since 2009. So that's according to an analysis by Barclays. And so there are some signs. Also, when looking at some of the card issuers' numbers, what you're seeing is that some companies, their balances, their credit – their outstanding balances are rising at a faster clip than the purchase sales happening on those cards. So, for example, we're seeing that with Synchrony, which is the largest U.S.
store credit card issuer. We're also seeing that with cities' retail cards. That suggests that, OK, so balances are rising faster.
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