Credit card charge-offs are skyrocketing at small banks.
According to media reports, charge-off rates have hit 7.2 percent on average during the fourth quarter for banks with $10.4 billion or less in assets. That level is up from 4.5 percent one year ago.
The average charge-off rate for smaller banks is near an eight-year high, while large banks have an average charge-off rate of 3.5 percent, well below the 10.6 percent seen in 2010.
Alliance Data Chief Executive Ed Heffernan told The Wall Street Journal he isn’t worried, citing the fact that many riskier consumers got shut out of credit during the recession and now have returned.
The company is capturing more households, which have a higher tendency to write off after a period marked by unusually low losses, he said.
But Robert Hammer, founder and chief executive of credit-card industry consultant R.K. Hammer, said the losses could be more indicative of what is to come.
In the run-up to the last recession, losses accelerated for small banks before they did for big ones, he said.
The overall credit card borrower-level delinquency rate increased modestly from 1.79 percent in the fourth quarter of 2016 to 1.87 percent in the fourth quarter of 2017, according to TransUnion’s insights report from the fourth quarter of 2017.
“While most indicators point to a fluid consumer credit economy, we are monitoring the market closely for any potential shifts,” Matt Komos, vice president of research and consulting at TransUnion, said in a statement. “Material upticks in delinquency, interest rate increases beyond what is expected, or other unanticipated economic shocks could certainly impact the market adversely.”
WalletHub last year projected that the U.S. would end 2017 with more than $50 billion in new credit card debt, meaning total credit card debt would exceed $1 trillion. The company also reported last year that the Fed’s four rate hikes since December 2015 have cost credit card users an extra $6 billion in interest in 2017, and that the figure was supposed to swell by $1.46 billion when the Fed raised its target rate again last December.
