Card balances stable as transactions increase | business | theweeklyjournal.com – The weekly journal | Vette Leader

Puerto Rico has in recent years positioned itself as one of the best credit ranked jurisdictions in the world in terms of its population. And while recent industry reports point to a slight increase in credit card usage for the first quarter of 2022 in Puerto Rico, the level of delinquencies on credit card payments has remained “normal,” according to Rodney Curbelo, general manager of consumer credit for reporting agency TransUnion-Puerto Rico.

The rise in credit card usage coincides with rising inflation, a global trend that has been hitting economies hard since the beginning of the year. Puerto Rico has followed this trend. In its recent Credit Market Trends report (which includes banks in the US), TransUnion reported that average credit card balances have declined over the past year. However, the report shows an 11.6% increase in the average balance through March 2022 compared to its June 2021 bottom.

“Puerto Rico performs very similarly to the United States in terms of credit card balance. If we talk about the average card balance of all Puerto Rican consumers, it was on the decline since 2020 until it reached its lowest point in June 2021 when the average balance was $1,172. As of the first quarter of 2022, it rose to $1,308. That’s the current situation,” Curbelo said. He also pointed out that default rates on this type of debt are typically the lowest historically.

“Credit cards are consistently the product with the lowest arrears in banking, both in Puerto Rico and in the United States. According to our data, the late payment rate in the first quarter of 2022 is still well below the level of previous years,” he explained.

According to TransUnion data for Q1 2022, the 30-day card balance backlog was 0.72%, a slight decrease compared to the same period in 2021 (0.77%).

A similar trend was seen in the 90-day arrears, which were reported for the first quarter of 2022 at 0.23% versus 0.26% in 2021.

The other side of the map

For José Vargas, Mastercard’s general manager for Puerto Rico and the US Virgin Islands, higher volumes are because everything costs more “but the consumer spends less in the long run.”

“So far we haven’t seen any impact on our customers. Use [of the card] continued to increase as expected. Growth will exceed pre-pandemic levels,” Vargas said.

Mastercard has also focused on businesses by promoting cost-saving incentives and programs that could allow business owners to pass those savings on to their customers. One such program is the discount for cardholders who refuel at PUMA gas stations.

“Our strategy is to reinvest and help businesses with digital payment platforms and rebates,” Vargas said.

According to the Mastercard board, debit was the most relevant product during the pandemic. “You have to keep in mind that consumers in Puerto Rico have had a lot of liquidity during the pandemic. Now, post-pandemic, credit is being used more,” he said.

Vargas argued that the increasing use of credit cards may be due to consumers’ interest in “keeping a cash stash,” not necessarily because they have less money.

But while credit card use has steadily increased, at least for Mastercard, Vargas asserted that “people aren’t spending what they normally spend.”

“Travel expenses, holidays are on the rise again… Yes, consumers are spending on essentials, but also on holidays. This is a global trend and Puerto Rico is no exception,” Vargas said.

For Mastercard, the T&E category (travel and entertainment) has “increased significantly” relative to other categories.

Inflation still a factor

However, Curbelo does not rule out that arrears could rise if inflation continues to rise and the availability of federal funds falls.

“What is being talked about in the financial industry in Puerto Rico and the US is that the money is already spent and there could be a spike in arrears on all credit products,” the TransUnion executive said.

It seems that this trend is already developing in the US. As of early 2022, consumers had paid just $13.2 billion of their outstanding credit card balances, according to research published on personal finance website WalletHub. That is 76% less than in the previous year.

Meanwhile, data from the Office of the Commissioner of Financial Institutions (OCIF, for its Spanish acronym) shows that credit card crime in Puerto Rico hit a 10-year low in 2021 at 2.27%. In contrast, the default rate for the first quarter of 2022 is 2.39%.

For his part, Eugenio Alonso, President of Consumer Credit Counseling Services (CCCS), also warned of an increase in the use of credit cards on the island, seeing it as a direct result of inflation.

“Obviously, it’s getting harder and harder for people to make ends meet because of inflation, the market situation and all these things that have happened. Credit card debt will increase because it’s revolving credit,” Alonso said.

The CCCS President explained that while debt levels are rising, the ability to pay is falling, which in turn is leading to an increase in defaults on credit card payments, which is why he urged people to make adjustments in the use of credit.

“When inflation drives up prices and incomes don’t increase, people have to adapt. What we are telling our customers is that until all of this goes away, they have to adapt to a new reality,” he urged.

Alonso also pointed out that as people use their credit cards to pay for basic needs like grocery shopping, they exhaust their balance sooner, which typically ranges from $15,000 to $20,000.

According to CCCS reports, three out of five clients who sought advice last week were looking for alternatives to settle with their creditors because they could no longer pay and in some cases had already been taken to court.

“We are seeing an increase in debt collections from creditors who have taken people to court for late payments. Believers need to be more sensitive. We are experiencing a period of economic crisis that we will not emerge from this year,” said Alonso, who also mentioned that there is a slightly increasing trend of people filing for bankruptcy.

credit outflow.

On the other hand, OCIF statistician Ariel Acosta said that in 2021, the cumulative amount of money owed to local banks for credit cards has decreased. The amount owed to local banks was $1,193 million, the lowest since 2012.

Acosta argued that such a drop in debt could be due, among other things, to the transfer of balances to US bank-issued cards following multiple offers and promotions to attract new customers.

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