How Fast Will Consumer Credit Tank? | ALLY, AX, AXP, BCS, COF, HAPN, SOFI, SYF
September 28, 2026 | Was Q2 2026 the trough for consumer credit defaults in thee US? Some observers continue to warn that consumer credit is deteriorating, but the financial results from banks in Q2 show that consumer lenders in the bank group are still reporting lower defaults for the seventh straight quarter.
Below for subscribers to The IRA Premium Service, we take a look at the Q2 2026 results for some of the top bank consumer lenders, including Ally Financial (ALLY), American Express (AXP), Axos Financial (AX), Barclays US LLC, CapitalOne (COF), Happen Bank (HAPN), SoFi Technologies (SOFI) and Synchrony (SYF).
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Whither Consumer Credit?
Fitch Ratings reports that the 60-day delinquency rate for U.S. subprime auto loans reached an all-time historic high of 6.9%, exceeding the peak of the 2008 financial crisis which topped out around 5%. This is the highest level recorded since Fitch started tracking the data in the early 1990s.
Credit corrections always come from the bottom up. When the economy shifts and credit tightens, defaults and financial strain almost always show up first among the lowest-rated borrowers and subprime consumers before eventually moving up to impact prime borrowers and corporate credit. This is why people talk about a "K" shaped economy, but that K is fast becoming an L.
Subprime borrowers face growing stress, but prime borrowers remain highly resilient according to the Wall Street narrative. The delinquency rate for prime car loans has held incredibly steady at under 0.5%,suggesting that delinquency is concentrated among lower-credit borrowers. But will rising inflation and energy prices start to cause default rates for prime consumers to move higher? Will the "K shaped" distribution for consumer credit now become more lopsided as delinquency rises from the bottom of the consumer cohort? The chart below shows the Auto Indices for net loss from Fitch Ratings.
Source: Fitch Ratings
Bank auto loans are mostly prime credits but exhibit the same annual pattern as subprime loans. The chart below shows the level of net losses and delinquency on the $551 billion in outstanding bank-owned auto loans through Q2 2026.
Source: FDIC
Ally Financial
ALLY saw improved results in Q2 2026, but managed to miss the relatively low bar for analyst earnings estimates. The $200 billion asset bank picked up 20bp in net interest margin, but the overall level of net income to average assets was still below 1% and the lowest among the eight banks in our consumer lender group.
The chart below shows net income vs average assets, a/k/a return on assets (ROA) for the group and Peer Group One. ALLY is the yellow line at the bottom of the chart. ALLY is trading at a discount to book, which is appropriate given the bank's mediocre financial performance. The only real question is why so many professional equity managers own the stock.
Source: FFIEC
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