Bloomberg Intelligence compiled data about consumer debt and recently disclosed its findings. A key gauge of bad debt, the charge-off rate, has jumped to its highest level in almost seven years.
The charge-off rate is the percentage of loans that credit card companies have decided they will never collect. This rate rose to 3.82 percent in the first three months of 2019. Loans that are 30 days past due also increased at all seven of the largest credit card issuers in the United States. Loans past due at this juncture signal future write-offs.
At Capital One, the third-largest credit card issuer in America reported that its charge-off rate increased to 5.04 in the first quarter of 2019 compared to 4.64 at the end of 2018. As more and more credit card companies become wary of bad debt’s continued rise, they may tighten underwriting and limit the amount of credit available to all Americans.
The market for high-quality customers is also tightening, which inevitably forces them to spend more money on rewards and marketing to gain market share within the group. As Discover CEO, Roger Hochschild, remarked: “If you think about lending products, there are always people who want to take your money. You’re going for people who have many choices—they have existing cards, they could get any card they want.”