Let's get started here. Thank you, everyone, for joining us. I'd like to introduce Perry Beberman. He is EVP and CFO at Bread Financial. He joined the company in 2021, bringing over 30 years of experience in financial services in the credit card space. He's previously held leadership roles at Bank of America and MBNA. And so thank you, Perry, for joining us today. Maybe we start with the news drop this morning. I mean, thank you for giving us something to talk about.
Because we wouldn't have anything else to talk about.
Listen, I'm not, no, no. But that is obviously front and center for everyone. So the credit numbers look pretty good. There's obviously some stuff in there in terms of the hurricane stuff. So maybe you could just disaggregate a little bit of that.
Happy to, yeah. So I think when you think about our credit numbers are coming in stable, consistent with what we expected them to. The new news for the quarter as I mentioned previously was we were going to have a little over $10 million in impact when we froze some of the delinquency buckets as related to the FEMA impacted areas from the hurricanes. And that's being spread over both the October and November results. And with a little bit more than half of that hitting in October and impacting our loss rate by about 40 basis points. And so what'll happen is, as I mentioned, the impact of the dollars will fall into the second quarter of next year. So we'll see a little bit of elevation in the second quarter of next year.
But we'll also get a little choppiness in some of the monthly numbers like you're seeing right now.
Generally speaking, you characterized the data telling us things are stable, correct?
Yes.
Okay, cool. Not seeing anything meaningfully different than what you guys have talked about during earnings.
Nothing meaningful. It's all unfolding pretty much as we expect. Consumers are still feeling pressure from this period of elevated inflation. We're seeing that pressure being offset by our credit mitigation strategies, but we're encouraged. I expect at this point we're going to follow the normal seasonal trends, and then with hopeful improvement with the consumer as the economy eases for them a little bit.
Maybe we just talk about this trend where losses are sitting here quite high, unemployment's very low. It's a little bit different than what we've seen in the past in terms of correlations to unemployment rate. Maybe just unpack that a little bit. What's affected your customer so much more than historically?
Yeah, and it's the one thing that I probably spend the most time speaking to investors and analysts about is that this economy is very different than past economic cycles where I'll say the more affluent consumers are feeling great about their financial situation. Everything's up and to the right. Stock market's hitting record highs. Home valuations are high. So if you're somebody who has a lot of investable assets, you're feeling like the economy's pretty good. And inflation, they know about it because they can see it, but it's not really impacting their daily life. And actually their financial health is probably as strong as it's ever been. But for most of Americans, call it the middle 50% and below, the moderate income, middle income families are feeling the pressure of inflation. They don't have as much savings.
In fact, their savings have been depleted since COVID when they got the stimulus, and you hear it all the time now. You're seeing more of it. I think, actually, 60 Minutes did a spot on the cost at a breakfast at a diner. The average price was $24 pre-COVID, and now it's $36, the average ticket. So it's the price of eggs, and it's real, and that's impacting families. The families that we serve that are near prime to prime, little prime plus are the ones who are feeling it. This pressure on the consumer's disposable income has them upside down for a number of years where inflation has been higher than the wage growth. Now we're starting to turn the corner and wage growth is outpacing inflation.
But it's going to take a number of probably years for them to really get back to where they were pre-COVID. So it's something that our credit strategies, the risk mix is going to improve that. But consumers are feeling it. It's that pressure on the daily budget. They're making choices, less discretionary spend to more necessities. And people are doing a good job with it. It's stable. But this is very different than what you and I have seen in the past when you had that period of elevated unemployment and it affects a sliver of the economy. And you're seeing some layoffs now with tech jobs. Those are high professional jobs and hopefully they go find new jobs quickly.
But if that's another 1.5%-2% of the population that's impacted, it cleanses out and then you've got this clean book, still as healthy as they were. But with inflation, it impacts the majority of our book. And that's where we're seeing it and why I think it's going to take, as I've said before, a prolonged number of quarters for the consumer to heal. And while they're stable, I'm encouraged, cautiously optimistic that nothing goes dramatically wrong with the economy. It seems like jobs are going to remain strong, employment's strong. And so that's the good part.
Right. And I guess, is there any marker to look back to say, well, it's going to take a year or two years? What do you think? How many years of positive disposable income do you need for things to heal in your mind? I mean, is that an analysis you guys have run?
Not to that extent because you're constantly changing the mix of the, I'll say the portfolio as the ones who are most stressed are the ones that charge off. And then there's a new batch of people who are still trying to get through it. And if they can just start to get that marginal wage growth and rebuild some savings, you're going to be in a position where you're going to continue to see that gradual improvement. It's almost a distinct marker I'm looking for. I think the concern would be if something happens, and I know we'll probably talk about what's going on with the shift in administration and government.
But if there's something that the government does that triggers inflation to go the other way, I think that would give us all a little bit of pause to think it's going to take a longer period of time to improve. But as we're underwriting our book with the highest best risk scores in history, albeit smaller vintages, and the existing book cleanses itself a little bit, I expect that to be the marker it'll continue to improve. And right now it's just the consumer needs a little bit of relief.
Do you feel comfortable with your underwriting models at this point in time to adjust for all of these pressures that you've been talking about?
I do. I feel very comfortable with our underwriting models. We have a team that is deep expertise in underwriting, particularly the near prime customer. And the thing about us, we're not targeting a loss rate. I know we say we have an objective to get to a through the cycle loss rate of around 6%. But again, we underwrite for profit. And if you look at our risk-adjusted margins, we have the strongest risk-adjusted margins in the credit card industry. And that's the most important thing. We're accreting capital even while we've experienced loss rates in the mid-8s%. So it's not as if we're solely focused on that loss rate. We're in business to underwrite, help unlock value for our brand partners and make sure that our investors are going to get the right return.
Because we could dramatically reduce underwriting even further, but we'll take out a lot of risk-adjusted margin. So then we're not going to get the earnings that we would. So it's a balance. We've got a really strong team in terms of the analytics to make sure that we're underwriting appropriately for the return.
So I'm sure you've seen people are very optimistic since the election cycle. Clearly it has fed into your stock valuation as well. So the bar is now higher, it feels. I'm just curious sort of how you feel about it. I mean, what do you see as a result of this election cycle?
I would be lying to you if I said I expected this because with the American, you just never know what you're going to get. And this one I think surprised a lot of people. Some people obviously thought this was going to unfold this way. Not many people who I knew had that much conviction around it. But I think we're cautiously optimistic that this will change the temperature with regulation. I've been in this for a long time. We've gone through a number of different administrations. I've been in credit cards for over 35 years. Some of the regulation that occurred was self-imposed because of bad practices in the credit card industry pre-CARD Act. That was one that candidly the industry brought onto itself in some ways.
This one on the late fee, I've been very vocal that this was an ill-conceived rule, that this late fee has been governed by the CFPB since 2010, and they're the ones who have increased it over time, and so again, we just want fair regulation and one that's not going to be overly detrimental to the business. I think in this new administration, we're hoping for a little change in that and it's less political and more balanced, and I think that's true of all business, so what you're probably seeing and we're all hearing is it's a little more fair to businesses, and I think that's some of the sentiment out there, but you never know what's going to happen.
Absolutely.
That's what we're prepared for. We're continuing to execute against our what we call the late fee mitigation through higher APRs and new fees because this is still hung up in court. While we're optimistic, there's still a final rule that's been passed. This still has to play its way through. As I understand it, and you may have been speaking to some industry experts as well, but what we're hearing is the CFPB would actually then have to pass a new rule to change this rule. Either they have to lose in court and then not appeal it or something has to happen. It's still going to take time. I'm optimistic, cautiously optimistic, but we still have to let this play out as if this could be going into effect.
What's your take on the litigation? Are you surprised it's taken this long for the judge to come back and decide which way this case is going?
I'm not surprised, and so I say that because just with Judge Pittman is a judge and he has not wanted to take this case from day one. He apparently has a pretty full docket and he tried to kick it out of his court to D.C, and so now the litigation is still about where this is going to be heard. We haven't even gotten to the merits of the case yet, they're still debating, should it be in D.C, should it stay in the Fifth Circuit, but back when you saw this was starting to play out and the stay was in place, there's no harm being done, and so my view was he was going to wait till after the election. What's his rush to do it?
Because his life could get a lot easier if he waits and he has a ruling and then the thing just goes away. But now he still has to rule on where it gets heard. And then I think then the next step is then if he says, okay, I'm going to keep it, I don't think the new administration would necessarily appeal that. Let it get heard, let it unfold and you go from there. But there's still an appeals process. I think this takes many months. And my suspicion is now at this point, why would he rule on it and just not wait until mid-January for the new, if there's a new CFPB head, which I would expect there is?
I would expect there is too, if past is precedent, so I guess, yeah, let's walk down this scenario now where the most positive thing happens, which is the late fee doesn't go into place. How do you guys react to that? Because there's these mitigants that have been put in place.
Yeah. So the mitigants are starting to take effect. And I've commented on that, that it was minimal in the third quarter. It's going to start to have more impact in the fourth quarter. You may not see it as much in the results because the fourth quarter, we still are going to have elevated losses. You get some net interest margin compression seasonally. So it'll mute some of that. But then you start to work into next year, it can start to wedge in to be more impactful as the year goes on just by the nature of the way APRs build in. For us, it's about working with our brand partners. And this is the business we're in. It's a partnership business.
So there's revenue share agreements in place to allow some of these mitigations to go into effect earlier because of the time it takes for APRs to build. So we're monitoring what the impacts are of these to see if you're seeing any sales suppression, any negative consequences. And so far things are not showing that. It looks pretty good. So really it's going to be where does the market go? And I would say this too around this. Some of the pricing when you're operating in a period with still some elevated inflation coupled with some being slightly asset sensitive as a company, meaning as interest rates go down, we have a little bit of net interest margin compression. This helps to offset that as well to make sure that you're actually managing to protect risk-adjusted margins in the period we're operating through.
So we're going to follow very carefully what happens competitively. Again, we underwrite deeper. So a little bit stronger, higher APRs is appropriate. But we'll work with our brand partners. If anything happens where there's too much of a negative customer experience, then we'll make the proper adjustments.
How do you philosophically think about late fees in the absence of someone telling you it needs to go lower? I mean, do you guys feel like it's an appropriate level?
I have. I mean, again, this has been in place for nearly 15 years and even before that. This was originally $25 and $31 or $35, whatever. And it's an appropriate deterrent. And without that deterrent, I think some customers would certainly not really care because I don't think they pay as much as careful attention to their credit scores as perhaps they should. For others, they'd have to pay even a much higher APR than where they are now or just not be underwritten. Because again, when I talked earlier about underwriting for profit, marginal approvals can have pretty elevated loss rates. And we don't underwrite subprime, but I'm sure you've spoken to some subprime issuers. Their yields are really high, but they're getting paid for the risk they take. So I think the late fee has been fair.
I'm not expecting the industry to say across the board they're going to lower it on their own. That's for all the reasons why it was put in place with the amount. Again, this notion that it was supposed to be a cost to collect is not what the late fee was supposed to be. It's supposed to be a penalty fee. If anybody's ever been late in your taxes, the price you pay may not seem exactly fair.
Absolutely, so I mean, maybe shifting gears and thinking about credit sales. Those have been weaker for discretionary spend and across private label, quite frankly, and even in general purpose to some extent, but what gets that going again?
That's a great question. Again, I think it's going to come down to wage growth, inflation coming down. Inflation comes down, then they can rotate back into more of the discretionary spend. If you're somebody who, you don't have a lot left in savings, you're trying to make ends meet every month, you're probably not going to go out and purchase that big ticket item, like a new couch, a big new TV, or a nice piece of jewelry. So I think that's where this is having serious impacts because consumers, this is why I said they're stable, they're being very responsible with the budget they have and trying to take care of the necessities versus the non-discretionary items rather than discretionary items.
And like you guys have obviously tightened too. So I mean, that probably weighs in on credit sales as well.
Absolutely. When we do what's called initial line assignment, when you're underwriting a new account, you have an initial line assignment that you give a customer. Well, that's much lower than what it was before we were in this period of increased inflation because consumers have more debt right now. So we're being very careful with that. And we've also really paused our line increases. So one of the things that you do, you book a new account and then as the customer demonstrates good payment behavior, you increase that over time giving them more capacity to purchase. Well, we have basically ceased that for the past two years. So now as you get into next year, you start to see things improving. We'll look for markers of health of pockets and you'll start to reintroduce line increases. So that will help to expand the consumer's ability to purchase.
We expect to see some sales improvement from that as well.
So you guys as a management team have evolved the product set to be a little bit more co-branded. I think it's 52% of sales in the third quarter and then private labels like 43%. There's also buy now, pay later out there. And famously you guys bought Bread to sort of get into that product set. Could you just talk about how you see your product set evolving over the next several years?
Yeah, I think when.
In terms of mix.
Yeah, when you look at, I would expect private label to continue to decline as a percent of the product mix as we continue down our path of trying to take more general purpose spend into the portfolio because that gives you less cyclicality with retails. We used to be, I want to say close to 50% soft good private label just on soft goods. Now it's below 25%. So that can be a pretty cyclical piece of business. And what you're also seeing is more of our brand partners who are even ones that would have been traditionally private label want a co-brand product.
So while there's been a notion that private label is shrinking over time, when you stack what I'll call dual card or co-brand for those merchants on top of the private label, which is really more of a downsell product for those merchants, it's still a very strong business. Retailers want strong loyalty programs, but I expect co-brand to continue to opportunistically grow just by nature of the partners we're talking about, are going to want co-brand products and then true play co-brands like AAA, NFL, the next opportunity we see for that, and then we'll continue to look to grow installment loan when we like the profit dynamic, and that's where we, like you said, had purchased Bread Pay. We love the capabilities. We've invested in that to make sure we've got a good product there.
But again, we're looking for being disciplined with capital deployment and make sure you get the right returns.
Now you hear a lot about the Pay in 4 buy now, pay later products bringing in younger cohorts into the system. Do you guys feel like that's an opportunity or that you're not exposed to or how do you feel about that?
It's about payment preference for consumers, and my view of the buy now, pay later, particularly Pay in 4 . It's often for, like you said, the newer to credit, younger demographic who doesn't have enough money in their debit account to pay right now. They want to space it out when they're going to get some money coming in and they pay in four and that works for them, but they're not qualified to get a credit card. So we prefer to work with those customers where you can actually get them their first private label card at an Ulta or a Sephora and they can then build credit. This is a means between debit and credit and it is a transition. One where, again, when you're looking at it for a small ticket, the way our business model is working with brand partners, it doesn't fit as neatly into that.
Whereas installment loans do. That's why the bigger ticket spaced out over six to 12 months of installment loans, we like that product better. So we're not as focused on the Pay-in-4.
Okay, and as far as installment, it doesn't seem like you guys are leaning into installment in a significant way either.
We will opportunistically grow into it. Again, looking for the right partner, the right brand partner because there's a very different model out there for the big buy now, pay later firms. They've got marketing fees they're getting. They're getting eyeballs into their app. They're trying to be a super app. That's not who we are. We're really there as a partner with the brands and we'd rather white label something for them, figure out a way to unlock value for them. And that's how we go about it.
Got it. And I guess as we think about the top of the funnel on partnerships and co-brand, I'm sorry, and private label, talk about the environment there. I mean, are you seeing a lot of opportunities or how should we think about new prospects?
Yeah, there's a strong line of new prospects. A lot of times when you look at the, we call it a business development pipeline and we have an amazing business development team. Val Greer came in, an industry expert, brought in a number of people who she's worked with in the past and Ralph Andretta. We get looks at almost every deal that comes to market and every new opportunity. A DeNovo program, which is a brand new program that for a company that hasn't had one of the credit card program in place yet. We give serious looks at those and we're disciplined again with the returns. You're not going to see us chase an Amazon, a Walmart, an Apple Card, those $15-$25 billion portfolios. Probably doesn't fit real well with our $20 billion asset company.
Because again, we're also being disciplined with, not to say we couldn't do something like that and get an equity investor, but the returns and margins are really thin and they're very demanding partners for any of us that have been at large banks. You know what you're getting. But we're going to be disciplined. We love those partnerships that are out there with $100 million-$1 billion and even a little bit more in size. And when they come to market, we'll compete for them. But again, in a disciplined way. It's got to be right for our shareholder.
So in terms of verticals that you could probably get bigger in, you guys have obviously done very well in cosmetics and jewelry. I mean, are there any other verticals that you think might be interesting?
I think home improvement is an interesting one that will continue to grow in time. I can see our electronics. You think about what we've done on electronics with computers. That could continue to grow. We do like to get a little more, I'll say travel, entertainment. We have AAA, Caesars. I can see that growing. Hard Rock just launched. So there's definitely pockets to just continue to diversify. But again, opportunistically, I don't think you have to try to nail any one particular vertical, but where there's an opportunity, now we like our verticals and they'll continue to remix as the opportunity is there.
So you worked at much larger balance sheet providers before. And the consumer deposit franchises there were pretty more efficient than what you have right now. I'm curious, you guys have grown the consumer deposit base. What's your experience there? Do you expect it to become a bigger part of the story over time?
Yeah. I mean, we've grown our deposits really nicely since I've joined. And it had been a focus, before I even joined, to start going more direct to consumer and less relying on wholesale deposits. And the regulators prefer that. We prefer it. And we're really pleased with our growth. We've grown to just around $7.5 billion right now. And that's up materially. I think it was a little over a billion when I started. And so that continues to be a focus. We're up to over 40% of our funding is through direct to consumer deposits. And it's actually very efficient for us. Whereas you talk about the big banks where they have brick and mortar, they have to offer low rates and they have the whole operating account checking and all the services. This is a very efficient way to fund.
And that's why we're happy to be towards the top of the league table on rates because it is an efficient way. And when you think about the margins we have on our credit cards, it's.
Right.
Yeah, it works, and it'll be something we'll continue. We've said we want to get it to be over 50% of our funding mix, and then we'll reset the marker from there once we achieve that.
The charter you have right now, you don't feel it's inhibiting in any way to get to a significantly higher level?
No. To your point on the charter, we have a Utah Industrial Bank and a credit card issue-only bank. We issue direct to consumer deposits out of our Utah Industrial Bank, and if in time, we'll probably grow more of the assets there so we can continue to fund more deposits out of that bank.
Okay, great. And then I guess you touched a little bit on being asset sensitive. With the rates coming down, how should we think about NIM sensitivity and such?
Yeah. So it depends on the pace at which rates come down. I think one of the things you're probably seeing as I am as well. There's a little more sentiment that it won't come down as fast as what was originally predicted. I think they were originally calling for 100 basis points down this year, at least another 100 next year. Now, what are they saying? Maybe 75 in total this year that will have occurred and perhaps 50 to 75 next year. So that will help shape some of that. Our CDs will continue to reprice. Our high yield savings will obviously reprice a lot faster. But we'll introduce some hedging strategies and make sure we're not as asset sensitive. But the goal is to be pretty neutral and not go one way or another.
Then in time, that'll be a tailwind for us as you get out a few years.
So I think you have still $50 million in convertible notes outstanding at the end of the third quarter after having repurchased the bulk of the $316 million originally issued. So what's going to happen with the remaining $50 million?
Yeah. Just like we were with the original amount that we repurchased, which we're real pleased to be in a position to repurchase as much as we did, the bulk of it. We'll be opportunistic to continue to take out more when some people want to sell. We'll probably take a good strong look at that. But again, it's one of those things where we knew with the opportunities in front of us that it was the right thing to do to get out of this convertible because it would get expensive. And with the cap call that we have in place, right now we're protected up to nearly $135 share price before there'd be any impact or dilution to our shareholders. So we're pleased with the.
High-class problem if that were to happen.
Yes.
Is the point, right?
If you mean when?
Clearly at this rate, at the rate it's been going up. All right. So maybe we can switch over to capital because you guys have done a very good job of sort of rebuilding the capital at the company. We're getting closer and closer to a period or a point where it seems like you might have some excess. Could you just talk a little bit about that?
I think your assumption there is correct, right? It's just a matter of when. And some of what will inform when the right time is, it's a combination of remaining committed to our capital priorities we've talked about, supporting responsible growth. So that's the first thing you want to deploy capital to because that will regenerate more capital for the future. But we've got to do it, make sure we get the right returns. Just what I talked about earlier. We're very disciplined on that. We have really strong capital policies and the way we approach things internally. Then we're going to continue to invest in our technology capabilities. We did a big lift a couple of years ago converting to Fiserv. Now we're continuing. We have a new Chief Technology Officer who's doing an amazing job.
And now it's continuing to advance being a fintech forward company, make sure we put the right capabilities out there for our brand partners and our customers. And then taking care of the parent debt, which we've done. We're in a good spot there. We still have about $100 million stub remaining on one of the bonds that we'll take care of in early 2025. A little bit of the convertible left we may want to take care of. And then we can then evaluate, okay, how is the economy doing? How are things improving? But we should be in a strong capital generation position, having cleared capital hurdles, hopefully at some point in the near future. And then it's about the regulatory environment. If the CFPB late fee rule does not go into effect, obviously we have our long-term targets a lot sooner.
That will allow us to consider return to shareholder.
Can you speak to the target for yourselves internally for CET1?
We have said that we're at some point, we would like to get to do something with Tier 1, Tier 2 capital to help improve our capital stack and get that 12%-14% and then deliver the mid-20 ROEs. Near term, trying to get that 20%, but we'd like to get to the mid-20s.
So I mean, I guess what do you think is the outlook for Bread under your 5- to 10-year strategic plan? I mean, how different of a company would it be compared to today? Especially with all of these different variables out there. I mean, do you think the ROAs are sort of comparable over time or what do you think?
To hit the return targets, you'd expect the ROAs to improve a little bit from here, and that's really going to be solely based on improving credit environment, which will happen slowly, but also we're going to continue to run as efficiently as we can with not being too shortsighted. Make sure we keep the investment levels up, but through our operational excellence focus, meaning that you're trying to constantly every year deliver in your savings through efficiency that you can reinvest in the business so you don't have these periods where you need these step up expenditures. Some companies you'd see, okay, I got to go spend an extra $100 million, $200 million, well, we want to be able to self-fund that so that we are constantly creating more value within the firm for our customers and clients, and that's been our mantra.
Trying to continue that, I'll say that positive operating leverage every year. So if you do that, you should continue to be able to deliver strong ROAs. So when you look forward, I mean, five years from now, gosh, I hope our tech capabilities are pretty amazing, but where AI helps unlock value or what does the tech environment look like, payment environment, consumers will always need to lend. And banks are there to lend money, take risk, and I expect that to still be the case. We've been in this industry, what, since the early 1980s, credit cards. I've been observing it. So it'll be here, it'll evolve. But what does tech look like? How do consumers pay? Do they look in a device with their eyeballs and it unlocks payment? I don't know. But biometrics will continue to evolve.
I guess that leads me to another question. I mean, do you guys feel like you have the right tech stack? Maybe think about tech stack, balancing that with operating leverage over time. How should we think about that?
I think the tech stack is never "right." You're always moving towards something. If I told you, okay, we do, we have a three-year plan and how we're redoing our tech stack, everything's going more cloud-based, but that's going to look different three years from now. You're going to be looking forward to the next three years and it's going to continue to change. I mean, look at the pace of change in tech and you're closer to it even than I am, and it's something you just have to continue to stay after, but do it in a way where you're not taking the big bet and taking a big bang hit to the P&L only to recognize you're two years into your journey and things have changed so fast.
I think the way good companies are running things, and I saw this in my early years where companies took big bets on tech. It takes three years to put it into place. By the time you install it, it's already outdated, right? You're trying to move off mainframes. We've got a plan to be more nimble, agile, and that's being responsible with our tech.
Okay. So maybe before, yeah, maybe I open it up to the audience for questions. There's one over here, and please raise your hand if you have something and we'll bring the mic after.
Yeah, Perry, obviously we talked about the targets at the investor day. You had a medium-term target of that low mid 20s ROTCE. Does that target change in any way with the election? Do you feel like that there's more upside to that target or B, that you can get there quicker?
It's exactly that. Again, I'm cautiously optimistic with the changing election that maybe some rules are in place around the late fee rule. Maybe the industry wins the case on litigation or they change the rule. And it's exactly that. What we laid out as our long-term targets could be accelerated. What we put out as medium-term targets in that around that 20% range, we could get closer to that mid 20% faster. But that was also us introducing some Tier 1, Tier 2 capital in there as well to help with getting there. But absolutely we'd get there probably a year and a half to two years faster if the late fee rule does not go into place.
And then just also that within that was the loan growth target, low to mid single digit, medium term. Does that accelerate with a more benign regulatory environment or the loan growth doesn't really change?
Not as much. In that loan growth, there was probably a little bit of, I'll say, trimming of the consumer who would no longer be profitable with an $8 late fee because we had said that it will impact customers. You can only reprice up to so much and still be able to underwrite as deep. So there's a little bit of muted loan growth in there, but really the medium term is going to be more affected on the improvement in the economy, us unwinding some credit strategies, health of the consumer coming back in. And again, as losses go, you think about this. We're running probably, I'll say close to 4% higher gross loss rates than we normally went through the cycle. That's suppressing growth by almost that amount, a 4% growth suppression. When you underwrite deeper, that's what happens when you have higher gross losses.
So you think about what you bring in top of the funnel. It's kind of going out the back door through losses, but you're doing it and you're understanding it because you're making the right returns to give credit to these customers. But it is, that's the nature of it. So as soon as the customer starts to heal, that's a little tailwind to growth. You start to unwind some of the credit strategies. That's a tailwind to growth. Consumer health is better, so there's more spend. That's a tailwind to growth. And that's without even booking any new clients, any new brand partners. And then growing your existing programs that you have is another tailwind to growth.
Any other questions in the audience? I have one last one, which is, I mean, you've done this for a very long time and it's been very difficult to forecast how your consumer will do over the next year despite the macro not being terrible, right? Obviously, inflation, high rates have played into this. I mean, what surprised you the most here that you think will evolve and become more certain? Because I'm just a little surprised we don't know the path towards better credit because you have vintages that are rolling off, you know?
Yeah. This is what I'd say. It's not surprising, but it's just different. And I think a lot of people are surprised because they haven't taken the time to really think through the bifurcation. We call it the K-economy, those who are really doing well, as I mentioned earlier, to those that are struggling because most of the people in this room are probably, you have college degrees, you're in professional jobs, and you run with people who are probably doing pretty well. And you're not out in rural America or in these parts of the country where they really feel this inflation. And I think this past election was the clear demonstration that a lot of the people who are not in touch with what's happening out there. And we see it because of who we serve.
And it is going to take some time for them to feel the benefit of lower inflation. And right now, I mean, you go back for a period of time pre-COVID, and I think I've mentioned this before, right? A basket of goods over a four-year period previous to that, like food, groceries went up 1%. Since COVID, those four years, it's gone up 25%. And it's not going back down, right? So that basket of goods is up almost 25%. Okay, so it's going up now 2%, 3%. It's still up. And that is the part that when people say surprise, I'm like, it's math, right? It's a compounding math issue. And so until wage growth gets a little better and then inflation really continues to moderate, the pressure will remain.
Yeah, that's a good way of putting it. All right, well, we'll stop right there. Thank you so much, Perry.
You're very welcome.