February Default Rates Up

Composite consumer default rates rose in February, the S&P/Experian Consumer Credit Default Indices reported yesterday.

The report noted the overall composite rate rose by two basis points to 0.94 percent in February. The first mortgage default rate rose by two basis points to 0.74 percent. The bank card default rate rose by one basis point to 3.22 percent, matching a rate not seen since July 2013. Auto loan defaults fell to 1.05 percent, down by one basis point.

The report noted the five major cities surveyed showed mixed results in February with two higher default rates, two lower and one unchanged. Dallas saw the largest increase to 0.83 percent, up eight basis points from January. New York reported 0.94 percent for February, rising six basis points from the previous month. Chicago saw its default rate decrease four basis points to 0.99 percent. Miami reported a decrease, the first since October 2016, of 25 basis points at 1.42 percent. Los Angeles remained unchanged at 0.80 percent.

“The increase in the Fed funds rate announced last week by the Federal Reserve will push up the interest rate charged on bank cards in the near future,” said David Blitzer, Managing Director and Chairman of the Index Committee with S&P Dow Jones Indices. “The quarter percentage point increase will be gradually passed through to the charges faced by those borrowing with their credit cards. Based on the projections made by members of the Fed’s policy committee, we could see three or possibly four additional increases this year. Given the prospect of higher interest rates and continuing economic expansion, the recent rise in bank card default rates is not expected to immediately reverse. Interest rates on auto loans and home mortgages are also likely to advance following the Fed’s action.”

Blitzer noted while interest rates on home mortgages and auto loans are likely to rise, “the default rates don’t show any adverse trends now.”