Recent tracking shows the national bank card default rate of 3.53% in May set a 48-month high. When comparing the bank card default rate among the four census divisions, the default rate in the South is considerably higher than the other three census divisions. The East South Central Census Region, – comprised of Kentucky, Tennessee, Alabama, and Mississippi – has the highest bank card default rate. As per the Bureau of Labor Statistics, these states have some of the lowest median household income.
The S&P/Experian Consumer Credit Default Indices found default rates on bank cards are at the highest level since May 2013, four years ago. In the past, default rates began to climb around the same time the growth of bank card credit outstanding began to slow. The year-over-year growth of bank card credit outstanding peaked at 6.8% last November and was at 5.7% in April, the latest figure available. Bank card defaults rose from 2.81% in November to 3.35% in April, and up to 3.53% in May.
The indices represent a comprehensive measure of changes in consumer credit defaults and show that the composite rate dropped four basis points from last month to 0.86%. In addition, the bank card default rate increased 18 basis points from April to 3.53%, auto loan defaults decreased five basis points from the previous month to 0.85%, and the first mortgage default rate dropped five basis points from April to 0.64%.
Overall, four of the five major cities saw their default rates decrease in the month of May. New York experienced the largest decrease, down nine basis points from April to 1.01%. Los Angeles reported 0.66% for May, dropping three basis points from the previous month. Dallas came in at 0.67%, down two basis points from April. Miami was down one basis point from April to 1.29%. At 0.97%, Chicago was the only city reporting a default rate increase of three basis points from the previous month.
The picture of auto loans and mortgages are quite different. Default rates for auto loans have drifted down in the last four months. At the beginning of the year there were reports of a sub-prime crisis in auto loans; these concerns seem to be behind us. The default rate on first mortgage remains at 1%, lower than the pre-crisis period. Rising home prices and increases in the equity mortgage borrowers have in their home are helping lower default rates. One factor in the difference between rising bank card defaults and stable defaults on mortgages and autos may be the difference in interest rates: about 4% on mortgages and 4.4% on auto loans, compared to 12%-18% on bank card loans.