Below we summarize the release of the latest monthly charge-off and delinquency statistics for the largest credit card issuers in the United States.

HEDGEYE SUMMARY:

• The average DQ rate improved by -41 bps y/y while the median DQ rate improved -14 bps y/y
• All seven issuers in our sample saw lower or flat delinquency rates in July
• The average NCO rate improved by -20 bps y/y while the median NCO rate improved -31 bps y/y

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Note, our summary table captures both first and second derivative movements in charge-off and delinquency rates over the last twelve months, with the former indicated using colored text and the latter indicated using a color gradient.

COMMENTARY ON COVID-19:

• SYF: "In accordance with its credit and collection policies, the Servicer has granted forbearances to certain accounts in connection with the COVID-19 pandemic.  Those accounts receiving forbearance relief may not advance to the next delinquency cycle, including eventually to charge-off, in the same timeframe that would have occurred had the forbearance relief not been granted.  Thus, delinquency data set forth in this Form 10-D and in the Monthly Noteholder's Statements relating to the August 2020 Payment Date may be impacted by the amount of forbearances granted in connection with the COVID-19 pandemic."
• BAC: "In response to the pandemic, beginning in March 2020, BANA implemented a client assistance program for its cardholders experiencing hardship from impacts of COVID-19, which includes payment deferrals for those cardholders. Under this program, interest continues to accrue and is added to the principal balance each month and the delinquency status for the related accounts is reported using the payment status of each account at the time payment deferral was granted. A majority of these payment deferrals were initiated in late March and April 2020 and provided for an initial deferral of up to 60 days and automatic extensions for payments due through August 15, 2020. As of July 31,2020, 1.10% of the credit card accounts, representing 4.15% of the receivables, comprising the Master Trust II Portfolio were subject to payment deferrals under this program. Because the delinquency status reported in this certificate for receivables subject to payment deferrals under this program reflects the payment status of the related accounts at the time payment deferral was granted, and the vast majority of these accounts were current at that time, it is likely that without payment deferrals a portion of the accounts reported as current would have become delinquent. In addition, because the accounts in the payment deferral program do not become delinquent or advance to the next delinquency cycle, including ultimately to charge-off, in the same timeframe that would have occurred had the payment deferral relief not been granted, the levels and severities of delinquencies and charge-off amounts through the deferment period are likely lower than would have otherwise been the case. As these accounts exit the payment deferral program and until any related delinquent receivables are charged-off, levels and severities of delinquencies and charge-off amounts will likely be higher than would have otherwise been the case."
• AXP: "During the first quarter 2020, the Company created a Customer Pandemic Relief Program for customers impacted by COVID-19. Delinquency status is generally frozen at enrollment, and loans that are current at enrollment do not age, regardless of whether payment is made. Upon exiting the program, delinquency aging resumes where it had left off at enrollment. The Company closed the Customer Pandemic Relief Program for new enrollees in the United States as of June 2020."
• DFS: As the company noted during its 1Q20 earnings call, the company's Skip-A-Pay program allows for payment deferrals for up to two months. In addition, as noted in the company's 10-Q, the CARES Act provides financial institutions, like Discover, with the option to temporarily suspend certain accounting requirements related to troubled debt restructurings. As of August 9, 2020, $3.4 billion of credit card receivables have been enrolled in the Skip-a-Pay program. As of August 9, 2020, 34% of eligible accounts have been re-enrolled in a second month of the Skip-a-Pay program.
  
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• COF: The company noted that its reported delinquency rate included the impact of COVID-19 customer assistance programs. In particular, for domestic card customers enrolled in short-term payment deferrals, delinquency status is generally frozen at the time of enrollment and upon exiting the program, resumes to the status at the time of enrollment.
• C: The company's trust documents did not provide commentary on COVID-19.
• JPM: "Accounts in the Trust Portfolio that are subject to COVID-19 payment assistance plans may not advance to the next delinquency cycle, including eventually to charge-off, in the same timeframe that would have occurred had a modification not been granted. As a result, the delinquency data for the second quarter of 2020 and thereafter may be impacted by an increased amount of modifications provided in connection with the COVID-19 pandemic." 
• Hedgeye Takeaway: Issuer forbearance programs are creating a pause or delay in the usual delinquency cycle, to the tune of 1 to 2 months. Moreover, due to regulatory exemptions highlighted above, these forbearance programs will not appear, as usual, in the reporting of troubled debt restructurings in the second quarter. Moreover, aided by government transfer payments and relief from payments on mortgage and auto loans, households have momentarily improved their financial positions which is very clearly depressing the card delinquencies across the various issuers. 

SUPPLEMENTARY MATERIALS:

Hedgeye Summary Table

To download a PDF copy, please click HERE

Chart Book

To download our Chart Book, including detailed summary charts and tables at both the group and issuer level, please click HERE

Example: Discover Financial, ΔY/Y in +30 DQ Rates

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