Discover Card Delinquency Rates Exceed Pre-COVID Levels

Discover Financial says its credit card delinquency rate has topped pre-pandemic levels.

In a filing Monday (Aug. 14) with the Securities and Exchange Commission (SEC), the company said its delinquency rate climbed from 2.86% in June to 3% in July, and above the 2.37% Discover recorded in July 2019.

Net charge-offs, meanwhile, fell slightly, from 3.8% in June to 3.77% last month, though that number was still more than the 3.23% noted in the summer before the pandemic.

The news comes one week after the Federal Reserve reported that American credit card balances now exceeded $1 trillion, a milestone that indicates how prevalent this payment method has become.

The Fed’s report showed credit card balances rising by $45 billion in the second quarter of 2023, with credit card debt climbing at a 4.6% quarterly pace.

“Credit card balances saw the most pronounced worsening in performance in [the second quarter] after a period of extraordinarily low delinquency rates during the pandemic,” the report said, noting that aggregate delinquency rates were roughly flat “and remained low.”

As of June, 2.7% of outstanding debt was in some stage of delinquency, 2 percentage points lower than the last quarter of 2019, just before the pandemic hit.

In a blog post, the Fed said that “despite the many headwinds” consumers in the U.S have dealt with in the last year, including steep interest rates, post-pandemic inflationary pressures and a series of banking failures, there is little evidence of widespread financial distress.

“Though the Fed contends there are no signs of widespread financial distress, millennials stand to lose as much as 6.5% of spending power when student loan payments resume later this year,” PYMNTS wrote. “The pressure may be on, headed right into the holiday spending season, and as credit card debt obligations increase in the meantime.”

Meanwhile, Discover’s filings Monday to the SEC also included the news that the company had replaced its CEO.

Roger Hochschild, who has been with the lender for 25 years, the last five as CEO, stepped down following the news that the company had been overcharging its merchants, and that it was the subject of a review by the Federal Deposit Insurance Corp. (FDIC).

John Owen, a member of the board and retired executive from Regions Financial, will take over as interim CEO while Discover searches for a new chief executive.