Bank Card Default Rate Shows Significant Decline

9/25/2017 8:00 AM

While mortgage and auto loan defaults are on the rise, hurricane damage in Texas and Florida are contributing to financial stress for some consumers, according to S&P Experian.


The national bank card default rate declined to its lowest level since December 2016, according to the latest S&P Experian Consumer Credit Default Indices report for August 2017.

Bank cards, compared to auto loans and mortgages, were the only credit type with a decline in the default rate last month, according to the report.

The bank card default rate declined 12 basis points to 3.19 percent in August. Auto loan defaults increased by nine basis points to 0.95 percent while the first mortgage default rate increased three basis points to 0.65 percent, according to the report.

It notes that the auto loan default rate remains low compared to historical levels.

The composite rate for consumer credit defaults increased three basis points from July to August to 0.86 percent.

“Overall, consumer credit defaults show no reason for alarm,” David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices, said in a news release on the report. “Defaults on first mortgages are flat to down while defaults on auto loans have risen slightly in recent months. Consumer credit defaults on bank cards continue their upward creep since the end of 2015 despite a recent drop. The combination of an improving labor market, low inflation, and low interest rates are the principal factors behind currently favorable consumer credit conditions.”

The S&P/Experian report, which also tracks default rates in major U.S. cities, indicated that three of the five major cities discussed experienced an increase in their default rates in August.

New York’s increase was the largest, up 13 basis points from July to 0.95 percent, according to the news release. The Los Angeles rate increased three basis points to 0.66 percent and Chicago’s rate increased four basis points to 0.94 percent.

The rate in Dallas declined three basis points to 0.74 percent and Miami’s rate declined 10 basis points from July to 1.13 percent.

Blitzer shared some insight on the outlook for consumer credit defaults in the months ahead.

“Some future developments could affect consumer credit defaults: Auto sales have fallen since December 2016 and are down 11 percent,” he said. “Declining auto sales and the normal end-of-model year push to make room for new cars may encourage easier credit conditions and raise concerns about future defaults. Hurricane damage in Houston and across Florida is creating substantial financial stress. The impact on mortgages on damaged or destroyed homes is not yet clear. Job losses and rising spending needs could lead to increased consumer credit defaults in coming months.”

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