Banks Prepare for More Consumers to Miss Loan Payments

At the end of 2022, U.S. banks pulled out their recession-ready playbooks.
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In the fourth quarter, regional lenders and banks with large credit-card businesses continued to profit from borrowers who ran up credit balances at higher interest rates.

However, many of these lenders tightened their lending standards and set aside more money to cover potential loan losses, indicating that they do not expect the good times to continue.
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Capital One Financial Corp. is a leading provider of financial services. The company offers a wide range of products and services, including credit cards, loans, and investment products. Capital One is committed to providing excellent customer service and to helping its customers reach their financial goals.
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American Express has set aside $1 billion to cover potential loan losses in the fourth quarter, a 33% increase from the previous quarter.
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Both companies increased their reserves by more than 25%, setting aside nearly half a billion dollars. A year earlier, both companies had drawn down those rainy-day funds.
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Capital One Chief Executive Richard Fairbank said on a call with analysts this past week that the company is keeping a close eye on the economic environment.
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Consumers have been a bright spot in the economy, continuing to spend at a solid clip in the face of higher inflation. However, they cut back during the holidays and added to their savings. Unemployment remains at its lowest level in decades.
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There are signs that some households are starting to feel the financial pressure. More people are putting purchases on credit cards, but they're paying off the balances at a slower rate. The delinquency rates for credit cards and consumer loans are approaching or hitting the levels they were at before the pandemic. This was when stimulus and lower spending on services allowed consumers to bulk up their savings and pay down debt.
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Delinquency rates have increased significantly in some areas of the consumer-lending industry since the pandemic began. This is likely due to the financial strain that many people are currently under. If you are having trouble making your loan payments, be sure to reach out to your lender and see if there are any options available to you.
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At Ally Financial Inc., we are committed to providing our customers with the best possible experience. We are constantly innovating and improving our products and services to better meet their needs. We are proud to be a leading provider of financial services and we will continue to work hard to earn our customers' trust and business.
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The percentage of car loans that were more than 60 days past due rose to 0.89% in the fourth quarter from 0.48% a year earlier, according to Discover Financial Services.
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According to a recent report, more than 2% of private student loans are now 30 or more days delinquent, a half-percentage-point increase from a year earlier. This is higher than the rates seen in 2019.
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Discover Chief Executive Roger Hochschild believes that there are many potential economic concerns that could arise in 2023, but as of right now, consumers are still doing relatively well due to a strong employment market.
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He said that an increase in demand for products used to consolidate debt could mean that borrowers are under more stress. Discover's personal-loan balances grew by 14% in the fourth quarter compared to the same period last year.
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"We have definitely been tightening our credit standards," Mr. Hochschild said. "We're always looking for signs of financial stress."
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Lenders have to be careful when it comes to the balance of the lending process. If they tighten up too much, it can negatively impact their bottom line.
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According to Gerard Cassidy of RBC Capital Markets, the current situation for banks can be seen as a high-wire act. On the one hand, banks don't want to be too conservative and shut down lending, but on the other hand they don't want their lending standards to fall like they did in 2006.