Brian Wenzel : Yes. So thanks for the question, Ryan. So I think as you think about our asset growth, there’s two dynamics that come into play. One is, you will see a slowing payment rate. Now, again, we don’t expect the payment rate for the entire business to get back to historical levels during 2023. So that is one that will help you from an asset perspective. But if you believe that the economy is going to get a little tougher, the headwind then becomes, will the consumer pull back on spending a little bit? So I think those two dynamics kind of play with each other and how we think about it. Again, if the economy doesn’t — is stronger than we think, again, I think — I still think you’ll see slowing payment rate, but you’ll see stronger sales kind of going in and you could have upside in that scenario to the outlook.
Ryan Nash : Got it. And maybe as my follow-up, Brian, your comments on the RSA dependent on the trajectory of credit. So maybe just to clarify, so we’re talking about 4% to 4.5% this year, which is lower than the 4% to 4.5%. I think you talked about it in Investor Day, yet, we’re still not back to normalized levels of credit until ’24. So my question is, have the goalposts for the RSA move down? What are some of the moving pieces that would have driven that? And is it possible that we could be operating below the 4% level at some point?
Brian Wenzel : Yes. Thanks. First, Ryan, just to make sure we’re on the same page. The guidance for full year 2023 is 4% to 4.25%. And again, I think you have a couple of things. One, you do have a little bit of the net interest margin coming down that plays through the RSA, #1, with the interest-bearing liabilities cost going up. Two, you have the increase in that charge-off rate kind of coming through. Three, you have a little bit of the OpEx piece coming through. And four, you have growth in the denominator with really receivables. So I think that plays through — to the extent your question, can it operate below a 4% level? Yes, it can operate at 4% level, but that would be more dependent upon trajectory of net charge-offs and how much of that is offset through net interest margin.
Again, given the timing of losses, we’re sitting here mid-January, which we have pretty good visibility really through mid-July now. So there is an opportunity for it. Again, we’ve given you the guidance we think is the best estimate for 2023 as we sit here today.
Operator: We’ll take our next question from Don Fandetti with Wells Fargo.
Donald Fandetti : Can you talk a little bit about regulatory risk specifically around what the CFPB might do on late fees, any timing or kind of your updated thoughts?
Brian Doubles : Yes, sure. So look, I think the timing that’s been kind of speculated upon out there is pretty much in line with what we assume, which is we might know something here in the first quarter, but I think probably won’t have an effective rule until late this year or early next year. So again, pretty much in line with our expectations. We’re prepared for that. I think we’ve talked about in the past that about 60% or a little over 60% of our late fees sit in programs that have an RSA, so that’s an offset. Obviously, we’ll work with our partners on that. They have an incentive to help us offset the impact if there is one. So we’re ready for it. We’re preparing internally. We’ll see what comes out. But I think we’ll have some time between when we have some clarity and probably an effective rule, like I said, late this year or early next year.
Donald Fandetti : Got it. And can you talk a little bit about the relative health of the low-end consumer versus prime, what you’re seeing?
Brian Doubles : Yes. Look, I think internally, we certainly talk about a K-shaped recovery. I think we’re certainly seeing that out. I think, broadly, the consumer is still healthy. I think they still have savings. We’re seeing really good spend patterns, great spend on our products, in particular. Last year was a record year in terms of purchase volume. So generally, we feel pretty good about the operating environment. With that said, clearly, there’s uncertainty as we move throughout the year depending on inflation and where rates go. So we’re watching that very carefully. Our credit teams are highly engaged, and they’re monitoring the portfolio to see where we need to make some tweaks and adjustments along the way. I don’t know, Brian, if you’d add anything to that?
Brian Wenzel : I think you covered it.
Operator: We’ll take our next question from Sanjay Sakhrani with KBW.
Sanjay Sakhrani : Brian Wenzel, I wanted to dig into some of the commentary on credit quality. You mentioned you’re assuming 4.2% unemployment rate, but the qualitative assumption is in the 5% range for the reserve rate. I’m just curious what kind of impact would there be to the charge-off rate if the unemployment rate reaches 5%? And then you mentioned — or I guess, does this mean that there’s no impact to the reserve rate if we migrate to the 5% unemployment?
Brian Wenzel : Yes. Thanks for the question, Sanjay. So the qualitative portion, which brings the unemployment, effective unemployment rate up to that, call it, 5% level, again, we look at claims. But that essentially says that in that environment, there probably wouldn’t be any form of significant rate-related reserve increases. Again, for the impact in net charge-offs, there is a timing issue here that happens. So the unemployment rate have to move up pretty rapidly in the beginning part of the year to have a factor in the back half of the year, which would impact the net charge-off rate. So if that happens, you’re probably more looking at some headwinds towards 2024 from a net charge-off basis, but again, you should have that reserve for in the short term.
Sanjay Sakhrani : Okay. So really no change to the reserve rate, just timing on the charge-off rate?
Brian Wenzel : Yes. I mean, obviously, we were most sensitive to unemployment claims. Obviously, there are other things in the economy that we are sensitive to, but that would be the biggest factor for us to have to relook at reserves. And again, I know there’s a lot of questions on reserve rate dipping down. That’s a seasonal factor that happens every fourth quarter because of the denominator. I mean we’re up in absolute dollars from third quarter to fourth quarter. And again, you’d expect as your receivables come down in the first quarter, that rate to rise.
Sanjay Sakhrani : Okay. And just a follow-up question for Brian Doubles. Maybe you could just help us think about how you’re managing the business as you’re thinking about loan growth, obviously, very undecided on where the economy is going as a whole, I think. And then any flexibility you might have on expenses to the extent that we have a more adverse scenario?
Brian Doubles : Yes, sure. I mean, look, we’ve talked about this in the past that we try and manage the business really well through cycles. And we try and provide a level of consistency to our partners in terms of how we underwrite. And so if you look at the last couple of years, we’re coming out of the absolute best credit environment we’ve ever seen in the history of the business. And we didn’t take an opportunity to underwrite a lot deeper. And I think that’s why you saw, again, I think, more consistent loan growth from us than maybe some others, and that’s really important to our business. Because if we take an opportunity to really underwrite deeper and take approval rates up, then we know, at some point in the future, we’re going to have to pull back on that.
And we try really hard not to do that. Again, consistency is really important to our partners. So we feel pretty good about the guide for next year, the 8% to 10% growth. And we think that that’s prudent. That’s not — that doesn’t assume significant changes in how we’re underwriting. Now clearly, if things change, and we see the macro environment play out differently than we’re contemplating right now, then we’ll go in, and we’ll make some tweaks, and we’ll make some adjustments. But we feel pretty good about the 8% to 10%. And look, I think the one thing on expenses, you’ve seen us be pretty disciplined over the years. We had some opportunity last year to make some incremental investments. We did that. Really happy with the return and the payback on those investments, but we stay really disciplined there.
And if we head into a tougher environment in ’23 or ’24, then certainly that’s an area that we’ll look to pull back on if we have to.
Operator: We’ll take our next question from Erika Najarian with UBS.
