So it’s selective. The consumer is just being more prudent with the dollars. Again, we see transaction frequency up even though the transaction values are down. So the consumer, I’d say is managing through this period. So I wouldn’t necessarily read too much into it that there’s a big change in the consumer profile and what they’re doing.
Sanjay Sakhrani: Okay. Very helpful. Thank you. And I couldn’t let you guys get away without a late fee question. So maybe just as we’re waiting here on the courts at this point, maybe you could just talk about how you’re planning for a mid-May implementation and how much flexibility you have if there’s an injunction after the current planned implementation period? And any early observations on the PPPC behavior changes? I know most of that will be in the second half. Thank you.
Brian Doubles: Yeah, Sanjay. So we’re not surprised this is the second question. We thought it might be the first. Obviously, we are waiting on the outcome of litigation. That is uncertain, but we’re executing our plan. We said from the beginning that we weren’t going to wait for the outcome on litigation, just given the uncertainty. So we began the implementation of our changes in December. We’re already over 60% done with those. We’ve got them sent out, the changes in terms, etc. The vast majority of those will be done in the next two months. So look, we’re executing the plan. In terms of timing, our base case was October 1 that assumed an injunction. With that said, it will be extremely operationally challenging to get this implemented in May, but we’re preparing for that as well as a scenario.
Sanjay Sakhrani: Thank you.
Brian Doubles: Thanks, Sanjay.
Brian Wenzel: Thanks, Sanjay.
Operator: Thank you. We’ll take our next question from Terry Ma with Barclays. Please go ahead.
Terry Ma: Hey, thanks. Good morning. I just wanted to follow up on the product, policy and pricing changes. Is there any way, we should think about how those benefits sort of materialize once it’s kind of fully phased in? Like, is there a way to think about whether or not it’s a slower ramp through the year, a step-up or kind of like a quicker ramp?
Brian Wenzel: Yeah. Hey, Terry, I’ll take this and see if Brian has any follow-on. I think what you should expect to see is beginning an impact in — a little bit in the second quarter, more in the third quarter with regard to the mitigants, and then it continues to build from there. I’ve gotten a question in the past, and we really hadn’t talked very much about it. When you think about how the APR phases in for the consumer, so when the APR becomes effective, which again, think about that as 60 days after notice, you’ll begin to feel the effects of that, I’d say, 50% in the first 12 months if you roll that out, 75% at 24 months. So you begin to feel that out. Now, some of the other fees that come in and some of the other policy changes, they are more immediate.
When it comes through there now, most certainly, we’ll see as that flows through, there will be some adoption really related to going with the e-statements and things like that, that will flow through different parts of the P&L than we expect. So again, I think you begin to see a ramp with some of the things that are more immediate and it gives you a sense on how the APR comes in. But that’s why there was a blend in order to kind of get to that neutrality point a little bit sooner than just relying upon APRs.
Terry Ma: Got it. That’s helpful. And then for my follow-up, just had a question on your cash balances. It looked quite elevated this quarter relative to last year. Any color you can provide there on how we should think about that going forward?
Brian Wenzel: Terry, again, to be honest with you, we have excess liquidity this quarter. I go back and attribute that really to the strength of our deposit franchise. I think that when you just look at the core, retail deposits were up $3.4 billion from the end of last year. And then, you put the seasonal nature of the cash that kind of comes in. It served as well as we purchased Ally for $2 billion, but we also got $600 million coming in from the sale of the Pets Best franchise. So I’d say liquidity is kind of peaking. So I think if you think about margin and the effects on margins, you step through, net interest margin is probably at its low point for the year in the first quarter, given all that excess liquidity. And listen, I think we’ve heard other lenders over the last week or two talk about balances being down, flatter balance sheets, that’s not what we’re expecting.
So clearly, we’re still in deposit gathering mode. We haven’t really done anything to significantly track new deposits. It’s just the trends and attractiveness of our digital franchise.
Terry Ma: Okay. Great. Thank you.
Brian Wenzel: Thanks, Terry.
Operator: Thank you. We’ll take our next question from John Hecht with Jeffries. Please go ahead.
John Hecht: Yeah, guys. Good morning. Thanks for taking my questions. I guess just a little bit more on the net interest margin, Brian. I know there’s always a seasonal impact in Q1 as you gather deposits to kind of pre-fund for growth later in the year. And then, you mentioned the PetSmart kind of causing incremental cash balances. But maybe could you give us some sense for like the — parse out what drove the margin decline this quarter relative to, say, 1Q ’23? And then maybe talk about marginal deposit pricing and where you’re kind of in the CD markets and the savings account market and when deposit costs should level out.
