The dam is about to break as U.S. credit card loan defaults soar

A New York Fed researcher has raised an alarm over the sharp rise in credit card loan defaulters this year. They cautioned that the strain of Americans’ record-high consumer debt could soon reach a breaking point.

The Financial Times reviewed data from BankRegData and revealed that lenders wrote off over $46 billion in seriously delinquent credit card loans during the first nine months of 2024. The figure represented a 50% surge compared to the same period in 2023 and was the highest level of credit card loan write-offs since 2010.

Growing concerns over debt delinquencies

BREAKING: US credit card defaults jumped to $46 billion in the first 9 months of 2024, the highest since 2010.

Credit card defaults are now up over 50% year-over-year.

Defaults of seriously delinquent credit card loan balances have more than doubled over the last 2 years.… pic.twitter.com/xHiHGuRDV0

— The Kobeissi Letter (@KobeissiLetter) December 30, 2024

Data from the New York Federal Reserve revealed in November 2024 that American credit card debt hit a record high in September, reaching $1.17 trillion in the third quarter. The Fed data showed that the rise in credit card debt marked the highest level on record, dating back to 2003.

The report also highlighted that total household debt rose to a new high of $17.94 trillion, auto loans ($1.64 trillion), mortgage balances ($12.59 trillion), and student loan balances ($1.61 trillion).

New York Fed researchers discussed the growth in debt balances in a call discussing the released report. They cited the persistent and “concerning” growth in auto loan and credit card delinquencies. They mentioned that stress and high delinquency rates were concentrated among young borrowers. The Fed researchers also argued that the rise in payments consumers made on credit cards and auto loans was attributed partly to inflation and higher interest rates.

In a separate report, the Fed also mentioned that supervisors remained focused on credit risk management practices at large firms, particularly with respect to credit card and CRE lending. The report highlighted that supervisors assessed how firms actively managed the risk in their loan portfolios and the adequacy of credit loss reserves.

A newly released Q3 2024 Quarterly Credit Industry Insights Report (CIIR) from Transunion pointed out a level of stabilization in the consumer credit market. The report highlighted that credit card and unsecured personal loan balances showed slowed growth rates compared to the year before. Both credit card products saw year-over-year (YoY) growth of approximately 15% in the year ending Q3 2023, and YoY balanced growth for the year ending Q3 2024 was only 6.9% for credit cards and 3.6% for unsecured personal loans, as per the report.

Michele Raneri of Transunion believes that the moderate growth in credit card balances is likely the result of tightened underwriting standards, which may have made lending to borrowers less likely to grow balances quickly.

“In addition, as inflation has returned to more normal levels in recent months, it has also meant consumers may be less likely to rely on these credit products to make ends meet,” said Michele Raneri, Vice President of the U.S. Research and Consulting at TransUnion.

Fed’s Supervision report takes note of rising card delinquencies

Data from the PYMNTS’s New Reality Check: The Paycheck-To-Paycheck report revealed the surge in household card delinquencies. Some households realized an increase in their outstanding credit balances, while others saw their balances remain constant. The report detailed that 25% of households said their outstanding balance increased over the last year, while 55% said it remained the same. Of the consumers surveyed, only 21% said the balances had decreased.

PYMNTS also highlighted that 34% of cardholders living paycheck to paycheck with issues paying bills had their outstanding balances increased. And 30% of those paycheck-to-paycheck cardholders who had no difficulties paying bills said the same. 

The report also detailed that 41% of financially struggling cardholders “often or always” reach their card spending limits and are more than six times as likely as financially stable consumers to do so. According to the data, only 6.3% of those not living paycheck to paycheck regularly hit their spending limit.

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