Are chargebacks on credit cards high? Deutsche Bank explains why how they are tracked matters

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Fears that the US economy could be heading for a recession as inflation remains elevated and the central bank prepares to tighten monetary policy. Those pressures have put the focus back on consumers’ financial health, as soaring prices for gas, groceries and other expenses eat away at savings and paychecks.

Credit cards often serve as the first place to look for signs of consumer distress. Yet it is possible to get a very different picture of the delinquency rate (see graph), depending on the reported late payment, according to a new report from Deutsche Bank.

SOURCE: FRBNY CONSUMER CREDIT PANEL/EQUIFAX, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (USA), FITCH, DEUTSCHE BANK

At the high end, the New York Fed Consumer Credit Panel and Equifax (NY Fed/Equifax) data showed a credit card delinquency rate of 8.4% in the first quarter of 2022, including the portion of late payments of 90 days or more.

The Federal Reserve reported a delinquency rate of 1.7%, focusing on credit cards past due for 30 days or more for the same period, while rating agency Fitch focused on 60 days or more past due, reporting a small rate of 0.6%.

As inflation puts pressure on household budgets, consumers have seen a solid 1.7% increase in total household debt in the first three months of 2022, according to the Federal Reserve Bank of New York.

Yet questions remain about how overdue debts are reported. “A 90+ day rate should be less than a 30+ day rate, all of these things being equal, so what’s the deal?” Deutsche analysts wrote, in a client note Friday.

Digging deeper, they noted that delinquency data from the New York Fed/Equifax Consumer Credit Panel included delinquent loans still in collection, unlike Fed data from Call and the Fitch ABS index.

There is no doubt that consumer delinquency rates will be closely watched by Wall Street in the months ahead, especially with stocks continuing to slide for a third straight week as recession fears mount.

Lily: Recession risks are rising, but the U.S. economy is not set for a slowdown

The S&P 500 SPX index,
+0.22%
recorded its worst weekly decline since March 2020 on Friday, the Dow Jones Industrial Average DJIA,
-0.13%
and the Nasdaq Composite COMP,
+1.43%
ended slightly higher on Friday, but also ended the week sharply lower.

Wall Street grappled with the impact of May’s Consumer Price Index, a key indicator of the US economy, which rose at an annual rate of 8.6%, instead of slowing like many had planned it. The selloff was also attributed to the Federal Reserve’s decision on Wednesday to raise its key rate by 75 basis points, the biggest since 1994.

Read next: Worried about the Fed’s biggest rate hike since 1994? Here are 3 smart money moves to make right now

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