Over the course of the pandemic, something remarkable happened in consumer credit: It got way less risky to lend. At the outset of the crisis, U.S. lenders started setting aside huge reserves anticipating that a surge in unemployment and economic stress could lead many debts to go unpaid. But after stimulus payments and tax credits from the government, private forbearance and restructuring programs, and a drop in nonessential spending, the wave of defaults didn’t come, according to a Wall Street Journal commentary. By the end of last year, U.S. banks’ charge-offs of credit card loans had dropped to the lowest rate since at least the mid-1980s — an annualized rate of 1.57% of balances, according to Federal Reserve data. But that was then. The average percentage of credit-card loans with payments at least 30 days past due — or delinquent, in credit parlance — rose sequentially in each of December, January and February, according to data on big U.S. issuers’ credit card loans tracked by Autonomous Research analyst Brian Foran. Typically delinquencies only jump in January after people have stretched their budgets over the holidays. This delinquency rate is still historically quite low at roughly 2.2%, or about a third below the level it was at going into the pandemic, according to Autonomous. That presents little immediate threat to lenders’ earnings, especially as many are still carrying relatively large set-asides for loan losses on their books. But indicators like these have been enough to mark a turning point in some investors’ minds, since they have been accompanied by a rapid rebound of borrowing and spending.
