As investors and other market participants grapple with handicapping the likelihood and timing of the most anticipated recession in decades, some troubling data regarding the ultimate financial well-being of consumers and small business continue to mount and may portend further deterioration in consumption and investment during the second half of 2023. Indeed, we highlighted surging delinquency rates for auto loans two weeks ago, a good leading indicator of future consumer credit performance, where late payments for both Prime and Subprime borrowers jumped to 12 year and all-time highs respectively during May, surely worsened by the highest financing rates seen since the run-up to the Great Financial Crisis (GFC) during 2007. Another form of consumer and small business debt, commonly referred to as ‘Marketplace Loans’ (MPL), have also started to show signs of stress with the share of borrowers late on their payments now at the highest level since late 2015. Marketplace lending, which gained prominence post the GFC when traditional bank lenders retreated, connects both borrowers and investors directly, predominately via online platforms, and feature fast approval times, shorter loan maturities and generally higher financing rates relative to other types of traditional funding.
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