Many measures of credit performance for things such as credit-card or auto loans are moving in the wrong direction, like the percentage of payments that are late, or the share of debts being written off, the Wall Street Journal reported. For example, in Discover Financial Services latest quarterly report, the lender guided toward a jump in net charge-offs from 3.42% in 2023 to a range of 4.9% to 5.3% in 2024. Discover shares tumbled more than 10% on Thursday. At the same time, though, there are many other indicators suggesting strong consumer health, such as buoyant spending numbers. And the biggest banks, with detailed insight into the day-to-day finances of millions of people, haven’t sounded alarm bells, either. “The consumer still has plenty of firepower,” Bank of America Chief Financial Officer Alastair Borthwick told reporters. Higher net-charge offs in 2024 may in part be a reflection of a unique growth in credit that happened in the aftermath of the COVID-19 pandemic. During the pandemic, some Americans saw improved finances. They spent less, received government stimulus and enjoyed forbearance on some payments. Measures of creditworthiness improved. According to Charlie Wise, senior vice president of research and consulting at TransUnion, “many consumers migrated to better risk tiers during the period from 2020-2022.” As the economy reopened, lenders were eager to tap into the surge of potential spending, sending out waves of credit offers. In the period from June 2021 to June 2023, just over 12 million additional consumers who before that didn’t have a credit card got access to one or more, according to Wise.
