Plastic Peril: Credit Card Delinquencies and Charge-offs Surge in December

In the final month of 2023, credit card net charge-offs spiked, and delinquency rates remained stagnant compared to the previous month. This surge reflects the continued resilience of consumer spending habits. The fact that the year concluded without the much-anticipated recession only compounds the shock waves that these statistics have sent through the financial markets.

Zooming out to assess the broader picture, we observe that the average delinquency and net charge-off rates have remained consistently above pre-pandemic levels for several months. Although credit card delinquency and net charge-off rates at three financial giants – namely JPMorgan Chase, Citigroup, and Bank of America – have managed to stay below their December 2019 levels. In a similar vein, American Express’s U.S. consumer card delinquency rate continues to hover below its December 2019 level, while its net charge-off rate has slightly exceeded the pre-pandemic level, as illustrated in the chart below.

Evidently, the credit card issuers most heavily impacted by deteriorating credit quality were Bread Financial Holdings and Capital One Financial. BFH’s net charge-off rate stands over 200 basis points higher than its December 2019 level, while COF’s rate is more than 100 bps higher.

It is crucial to remember that credit card metrics demonstrated unusually robust performance in 2020 and 2021 as the U.S. government provided fiscal stimulus and lenders extended forbearance plans to consumers in the wake of the pandemic-induced economic shock. Since then, both credit card delinquencies and net charge-offs have been progressively climbing towards more conventional levels.

Notably, the data from December also show that borrowing continued to climb. Loan balances at the end of the month surged to $400.6 billion, marking a 2.0% increase from November and a 9.2% increase from December 31, 2022.