Consumer Lenders Worry as Borrowers Struggle With Bills

Americans’ struggles with their bills has reportedly been bad news for consumer lending firms.

Shares in those companies fell last week following warnings from executives about lower-income customers struggling to stay on top of payments, The Wall Street Journal (WSJ) reported Saturday (Sept. 14).

Also concerning were some gloomy comments from banking executives at the Barclays banking conference, unmooring investors already uneasy about the U.S. economy, the report added.

As the WSJ noted, investors have been on guard for a possible recession following two years of steep interest rates. While the Federal Reserve is expected to lower interest rates this week, some investors worry the central bank has waited too long, the report said.

Consumers, meanwhile, are struggling to deal with rising grocery prices and higher credit card interest rates, with Fed data showing the average rate as of May at 21.51%, compared to around 15% five years ago.

That’s left lower-income consumers finding it harder to make payments, with 9.1% of credit card balances entering delinquency in the last year, the highest rate in over a decade, according to a report last month from the Federal Reserve Bank of New York.

“In general, this has been a bigger issue for people in the bottom half of the income spectrum,” Moshe Orenbuch, an analyst at TD Cowen, told WSJ.

The report points to comments from executives at JPMorgan Chase and Discover Financial Services saying that lower-income consumers had grown more cautious, while Bread Financial and Synchrony both reported seeing higher charge-off rates. 

“What that tells you is if people do get behind on their payments in this environment, it’s tougher to get out of them,” Orenbuch said.

Consumers are also having a tough time keeping up with car payments, as noted here last week, with Ally Financial — a major auto lender — reporting that the pressures on its borrowers are leading to delinquencies and charge-offs rising across its loans.

“Our borrower is struggling with high inflation and cost of living, and now more recently, a weakening employment picture,” Chief Financial Officer Russell Hutchinson said at a financial conference last week.

Meanwhile, PYMNTS noted last week that there are signs that caution continues to govern consumer spending, with research showing that most consumers said prices for food and necessities have increased in the last year.