Bank of America (NYSE:BAC) reported recently, on March 17, 2025, about the state of its credit card delinquency and net charge-off rates, which have been rising as lending activity slows, nearing pre-pandemic levels. This is particularly noteworthy as these metrics are considered bellwethers for consumer financial health and economic stability.
According to the filing by Bank of America, its credit card delinquency rates climbed, indicating potential challenges for borrowers. While specifics on absolute figures weren't disclosed, the trend suggests consumers may be struggling to keep up with payments following increased inflation and economic pressures.
On the other hand, American Express Company (NYSE:AXP) also revealed its delinquency statistics the same day, indicating steady trends underlining the financial behavior of its cardholders. The company's U.S. consumer delinquency rate held at 1.4% for February, unchanged from January but with net charge-offs drifting higher.
Brian Foran, an analyst at Truist Securities, commented on the overall delinquency trends across the industry. "Some would say it is outdated data, but at the very least the fact...delinquencies have improved four months in a row now shows nothing changed during February, and the consumer did not fall off a cliff," he noted, highlighting the importance of this stability amid significant volatility elsewhere.
Looking at the broader market, reports from Capital One, Discovery, and Synchrony revealed improvements with 30-day credit card delinquencies averaging 4.33% in February, down slightly from 4.39% the previous month. This marked decline came on the heels of similar drops over the last three months, after peaking earlier.
Foran’s description of the trends provides cautious optimism, especially since the data noted delinquencies rising just before these drops started. Indeed, November 2023 saw delinquencies rise 11 basis points, with the situation improving month on month through February.
Some industry experts argue these transitions reflect consumer behaviors returning to healthy norms post-pandemic. "This is actually in keeping with banks' hypothesis all along...delinquencies were going to go up from their artificial pandemic lows," asserted Ted Rossman, Senior Industry Analyst at Bankrate. Rossman highlighted the changes within the lending environment since the pandemic, where the flood of stimulus money initially lowered delinquencies but also made recovery challenging once those supports were lifted.
One notable factor affecting delinquencies is the tightening of credit by banks and credit card companies, which has drastically altered borrower access. The rejection rate for credit applications has soared, and the share of discouraged borrowers now stands at 8.5%, the highest since 2013. This statistic signifies potential difficulty for consumers seeking credit, issuing quietly rising fears about their long-term financial health.
Banks' tightening of credit availability, especially to more vulnerable borrowers, appears to be contributing to lower delinquency metrics. The upward trend of net charge-offs among lenders, such as American Express which saw increases, complicates the outlook, even as delinquency rates stabilize. For American Express, the consistent delinquency rate of 1.4% for consumer loans, combined with the small business loans holding steady at 1.6%, paints a more complex view of consumer debt management.
American Express's adjustments include reclassifying $758 million of loans related to its Lowe’s small business cobrand portfolio, indicating its dynamic approach to managing risk within its portfolios.
The economic backdrop—marked by swirling inflation, still elevated but easing from its peak, coupled with rising interest rates—has influenced lending patterns considerably. Banks now approach lending with caution, weighing risks against potential returns. With inflation having peaked at 9.1% last year, the Federal Reserve has adjusted interest rates as they seek to control economic conditions moving forward.
This situation presents banks with challenging decisions about how to manage their credit risk without stifling consumer access to necessary financial products. The balance between profitability and consumer trust is another nuanced aspect of the credit card market's evolution.
Looking to the future, analysts predict stabilization could continue if current economic conditions hold. Rossman suggests, "We're talking relatively small moves, but I would expect continued stabilization or slow decline in the months to come." Adjustments at the regulatory level, coupled with fortifying consumer financial positions through education and awareness, may also influence these trends positively.
To summarize, as the credit market navigates through turbulent waters, the contrasting trends from Bank of America and American Express juxtaposed with broader delinquency data present a snapshot of the current state of consumer finance. The outlook remains cautiously optimistic as consumers and lenders alike adapt to this new economic reality, establishing expectations rooted firmly within current circumstances.
