Check out, Enova, other consumer lenders affected by inflation worries

“The current increase of more than 50% in gas prices is significantly higher than any increases we have seen in the past 30 years and may exacerbate the headwinds of post-COVID credit normalization to the extent that gas prices remain high,” Wolfe analyst Bill Carcache wrote in a March 17 report.

Discover executives are vigilant.

“We think we can react very quickly if we see enough signs of a coming recession,” Dan Capozzi, president of US cards at Discover, said during a March 9 investor presentation. “(We’re) not really sure if it’s going to subside or if it’s going to lead to a recession, but we’ll be ready just as we enter the pandemic.”

Enova CEO David Fisher is outspoken.

He says it’s been so long since the US economy has seen high inflation and correspondingly higher interest rates that investors are overreacting.

“They didn’t see it,” he said in an interview.

Yet some investors old enough to have experienced inflation are also worried.

“Inflation is a terrible thing when it starts,” activist investor Carl Icahn said in a March 22 interview on CNBC. “You can’t put that genie back in the bottle too easily. We saw it in the 70s, we saw what happened.

Another uncertainty is how aggressively the Federal Reserve will raise interest rates. Fed Chairman Jerome Powell recently signaled a more aggressive approach than his previous statements had anticipated.

Fisher says that as long as borrowers remain employed, he’s not worried about excessive loan losses. With more people returning to work as the impact of the pandemic subsided, Enova’s growth potential has improved since the start of the year, he says.

“The size of the workforce is the same as our potential market,” he says. “We don’t lend to unemployed people.”

In recent years, Chicago has become a center for consumer lending, especially online businesses catering to borrowers with damaged credit. Enova is one of the pioneers in the industry. More recently, companies like Avant and OppFi have taken root here. Enova, Avant and OppFi together employ at least 2,000 people in the city.

For now, Discover and Enova say they see no signs that the American consumer, who has been remarkably resilient to the pandemic thanks in large part to federal subsidies intended to keep businesses and individuals afloat, is cracking up.

Discover debited just over 2% of its credit card loans at the end of February, the highest rate since June 2021, according to a March 14 Securities & Exchange Commission. deposit. But this rate is still abnormally low. Credit card loan balances fell for the second month in a row, but that’s not uncommon in the first two months of the year as consumers breathe after the holidays and often get tax refunds. Year-over-year loan growth was 7%, a high rate for Discover.

Enova saw demand for its high-cost loans increase in the first two months of the year. Consumer loan originations through February were more than double what they were during the same period in 2021, according to a recent presentation to investors.

Meanwhile, loan delinquencies are consistent with the same period in 2019, before the pandemic hit, Enova said.

Enova’s customers tend to be people who live paycheck to paycheck and need a loan to cover an unexpected expense like a car or home repair.

The company has been an outstanding stock market performer for years. Last year, shares of Enova rose 65%. In the pandemic year of 2020, Enova stock gained more than 2% while the Standard & Poor’s 600 Financials index lost more than 11%.

This year so far? Enova is down more than 7% while the index is down less than 6%.

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