Credit Card Delinquencies Near Great Recession Peak
According to a new report on household debt published by the New York Fed, credit card balances increased to $1.17T, 8.1% above the level a year ago. More importantly, as the chart shows, the share of delinquent credit cards has reached the highest level since 2012. This share is now just around 300 bps below the peak, which was seen during the Great Recession. Despite still relatively benign conditions for households. Initial Fed rate cuts are unlikely to have a significant impact on the asset quality in the segment. Despite the 50 bps cut in September, U.S. banks are reluctant to decrease rates on credit cards. CNBC has cited a CardRatings.com survey, saying that only 37% of the credit cards surveyed changed their rates following the September cut, and the average credit card interest rate fell by just 0.13%. According to Forbes, the average credit card interest rate is 28.75% now. And, despite such a prohibitive rate, credit cards continue to grow at almost a double-digit rate. Credit cards are not just a tool to get points and rewards - they're a crucial debt instrument for many households. Many Americans just do not have enough money to make ends meet without using credit cards, according to a survey published by Achieve. The study says that 28% of participants reported that their debt had increased during the third quarter. Notably, 37% of people with growing debt attributed the rise to their continued inability to make ends meet. 36% of respondents stated that they find it very difficult or difficult to make their recurrent debt payments on time, and 68% of these respondents stated that they find it difficult to make their debt payments on time because they do not earn enough money to cover their expenses. The numbers look very weak, and what's more concerning is that we're seeing this survey in an environment that's still relatively benign for a consumer. Finally, it's worth reminding that the American credit card market is a very concentrated one, as almost half of total outstanding balances were granted by just three banks: JPMorgan, Citigroup, and Capital One. This developing situation could have a significant impact upon these three banks.
