Credit card CEO warns of dark times when the $600 unemployment benefit

[ad_1]

In normal times, that’d be good sign of financial responsibility. But in the pandemic era, it may just be the calm before the storm.

“People got forbearance on credit cards, mortgages and auto loans. Everything got pushed out,” Keane said. “As forbearance and stimulus wears off, we’re definitely in a rockier place.”

In other words, the financial pain got delayed, not canceled.

“It’ll almost certainly get darker from here,” Brian Wenzel, Synchrony’s chief financial officer, told CNN Business.

Unless Congress takes action, this week will be the last for the $600 weekly enhanced unemployment benefit that was part of the $2 trillion stimulus package.

Synchrony (SYF), which provides cards for businesses including Amazon (AMZN), Lowe’s (LOW) and TJ Maxx, has offered customers three months of forbearance and also waived late fees and interest charges. But that relief won’t last forever.

Bracing for bad loans

That’s why Synchrony, formerly part of the General Electric (GE) empire, is being “cautious” ahead of what could be a challenging next few quarters, Keane said.

Synchrony, whose share price is down 37% this year, is reining in consumers’ ability to rack up credit card debt by lowering credit limits.

Americans are rapidly shrinking their credit card debt during the pandemic

The credit card company revealed Tuesday it raised its provision for bad loans by $475 million, or 40%, during the second quarter. The surging credit costs drove a staggering 94% drop in Synchrony’s bottom line.

And yet Synchrony’s credit metrics hardly look like the United States is mired in a deep recession. (It is).

Just 3.1% of the company’s loans are 30-plus days past due. That’s down from 4.4% a year ago.

Excluding the impact of Synchrony losing the Walmart (WMT) portfolio last year, that rate was down nearly one percentage point.

Likewise, Synchrony isn’t suffering a spike in losses on credit card defaults, at least not yet. Net charge-offs as a percentage of total average loans stood at 5.4%, down from 6% a year ago.

Americans are paying down credit card debt

But these numbers are a bit of a mirage.

Synchrony’s forbearance program is masking the financial pain. Customers enrolled in the relief program don’t have a minimum to pay, meaning they are viewed as “current” whether they choose to make a payment or not. And nearly one-third of those customers have not paid off their credit card debt at all.

'I beg them': Still-unemployed workers plead for Congress to extend federal $600 benefit

Synchrony has enrolled 1.7 million customers with $3.2 billion of balances in the forbearance program since it launched earlier this year. Encouragingly, the company said nearly 70% of those customers have since left forbearance.

In another positive, Americans are taking this opportunity to chip away at their credit card debt. The amount of consumer revolving credit, which is mostly credit cards, has plunged by more than $100 billion since hitting a record high in February, according to the Federal Reserve.

“Customers didn’t go out and spend. They actually…