By Pradeep Saran
16 September 2023, 01:14 PM
Bank of America has observed a concerning trend among its customers, with more of them falling behind on their credit card payments. While the bank’s BA Master Credit Card Trust II has seen increases in both the net charge-off rate and the delinquency rate in August, it’s important to note that these figures still remain lower than they were in the pre-pandemic year of 2019.
In August, the net charge-off rate for the trust stood at 2.13%, up from 1.89% in July but still below the 2.49% recorded in August 2019. Similarly, the trust’s delinquency rate rose to 1.26% in August, compared to 1.24% in July, but remained below the 1.57% level observed four years earlier.
Despite these increases in credit card payment issues, the bank’s lending activity has shown little change, with principal receivables outstanding at $13.8 billion in August, similar to the previous month.
Until recently, consumers were diligently paying off their credit cards and loans. However, recent economic headwinds may alter this behavior, as previously reported in July.
Before July, banks had maintained manageable levels of charge-offs and write-offs. However, this trend shifted, with the country’s six largest banks reporting the highest rates of loan loss since the onset of the pandemic, particularly in the realm of credit card repayments.
Capital One’s Chief Financial Officer, Andrew Young, noted in a July earnings call that “credit continues to normalize,” with CEO Richard Fairbank adding that past charge-offs would impact future recoveries, which were expected to be unusually low in the short to medium term.
Elevated bank charge-off rates can serve as a warning sign, suggesting that consumers are increasingly struggling to meet their monthly payment obligations.
These rising credit concerns coincide with a challenging economic backdrop. Consumers are grappling with surging costs and interest rates, while wages struggle to keep pace with inflation, and supplemental benefits have been reduced.
PYMNTS Intelligence has also identified the significant impact of financially damaging life events on consumers’ personal finances. Even among consumers considered “credit-secure,” 16% reported that such life events had made it difficult for them to obtain new lines of credit. This data underscores the broader implications of financial challenges facing individuals across the United States.