Stocks held by consumer-lending firms fell last week after Wall Street executives warned of lower-income borrowers' struggling to pay bills.
What Happened: Banking executives at a recent Barclays conference in New York noted how delinquencies are on the rise, the Wall Street Journal reported.
The average interest rate on a credit card as of May was 21.51%, up from around 15% in 2019, Federal Reserve data shows.
About 9.1% of credit card balances turned delinquent over the past 12 months to mark the highest rate in over a decade, according to an August report from the Federal Reserve Bank of New York.
"What that tells you is if people do get behind on their payments in this environment, it's tougher to get out of them," TD Cowen analyst Moshe Orenbuch said.
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Why It Matters: Bread Financial, a credit card company that serves lower-income borrowers, said it expects higher charge-off rates — balances that banks write off as a result of lack of payments — this year.
Late payments and charge-offs on auto loans were higher than expected in July and August as borrowers grapple with the cost of living and a worsening labor market, Ally Financial Inc. (NYSE:ALLY) CFO Russ Hutchinson said.
This worried investors because car payments are usually the last bills to go delinquent because cars are needed for transportation.
The average interest rate on a 60-month loan for a new car was 8.2% as of May, according to Fed data, up from 5.3% in 2019.
Over the past year, roughly 8% of auto loans turned delinquent, according to the New York Fed, the highest rate in over a decade.
Price Action: Consumer-lending companies trended upward into Tuesday's early afternoon trading.
- Enova International Inc. (NYSE:ENVA) rose 3.48% to $83.32
- Qifu Techhnology, Inc. (NASDAQ:QFIN) gained 1.02% to $25.17
- Regional Management Corp. (NYSE:RM) went up 2.4% to $33.25
Car-loan providers also rose on Tuesday.
- Bank of America Corporation (NYSE:BAC) inched up 0.93% to $39.47
- Ally Financial gained 2.42% to $33.83
- Capital One Financial Corporation (NYSE:COF) picked up 3.13% to $145.36
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