Late payments on cards worsen as balances rise, NY Fed says

Card delinquencies rose 'notably' in 2017 but remain historically low

Fred O. Williams
Senior Reporter
Expert on consumer credit laws and regulations

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U.S. consumers’ credit card debt is weighing more heavily on their budgets, a new federal report shows.

Late payments on cards worsened in the fourth quarter of 2017, according to the Federal Reserve Bank of New York’s Household Debt and Credit report. It was the fifth quarter in a row that delinquent payments worsened.

“The flow into 90-plus days delinquency for credit card balances has been increasing notably from the last year," the report said. Bills 90 days late or more are considered “seriously delinquent” in bank terms.

In the fourth quarter of 2017, 7.6 percent of total card balances were seriously delinquent, in dollar terms. A year before, in the fourth quarter of 2016, 7.1 percent of total balances were seriously delinquent.

The rising problems came as balances on cards grew by $55 billion over the year, to $834 billion.

Other results from New York Fed's Q4 2017 Household Debt and Credit report:

  • Average balance per credit card account grew $59.78 over the year, to $1,779.16.
  • There were 468.8 million credit card accounts in the U.S., up by 15.7 million from a year ago.
  • The fraction of consumers with a debt in collection fell to 10.7 percent, from 12.26 a year ago.
  • The average amount of debt in collection fell to $1,309, from $1,343 a year ago.
"The flow into 90-plus days delinquency for credit card balances has been increasing notably from the last year."

Total household debt increased, delinquencies improved

The quarterly study – drawn from a sample of Equifax credit reports – looks at all types of household debt, including mortgages, home equity loans, student loans and car loans as well as credit cards.  

Total household debt of all types grew 1.5 percent in the quarter to $13.15 trillion, the 14th straight quarterly increase, the report said. That’s $473 billion higher than the pre-recession peak reached in 2008. All types of loans grew except for home equity in the quarter.

Overall delinquencies improved slightly – in contrast to the worsening late payments on credit cards. Looking at all debts, only 4.7 percent were in some stage of delinquency, by dollar value, down from 4.8 percent in the in the fourth quarter of 2016.

Credit card delinquencies at half Great Recession levels

“Overall, consumers have a very manageable debt load right now,” said Scott Hoyt, senior director at Moody’s Analytics responsible for consumer forecasts and analysis.

Credit card delinquencies, while rising, are still only about half their peak levels during bad economic times, report data show. Seriously delinquent card balances nearly reached 14 percent of total balances in the first half of 2010, after the layoffs during the Great Recession took their toll on family budgets, according to data released with the household debt report.

“As consumers get more access to credit there’s going to be deterioration in credit quality.” Hoyt said. “That’s not necessarily a terrible thing.” 

Lenders who opened their doors wider to borrowers during the economic recovery are starting to tighten their standards for issuing new cards, according to the Fed’s survey of senior loan officers. That should keep delinquencies from growing too quickly, Hoyt said.

The rising credit card debt burden and late payments came amid good economic times, with the U.S. unemployment rate holding at 4.1 percent.

"As consumers get more access to credit there’s going to be deterioration in credit quality...That’s not necessarily a terrible thing."

Rising delinquencies contrast with consumer optimism

Are consumers burying their heads in the sand about their rising delinquencies? Another survey from the New York Fed found that consumers are growing less afraid of missing a minimum debt payment.

In the Survey of Consumer Expectations, people estimated their odds of missing a minimum debt payment at 12.3 percent in January, down from 13.4 percent in September.

The January survey “shows continued improvement in expectations about households’ year-ahead financial situation,” the New York Fed said in a news release.

Interest rates are projected to rise more this year, making it more expensive to carry a balance. Rate setters at the Federal Reserve project three rate hikes this year. Economists say that the pace could quicken if inflation heats up, fueled by spending increases in last week’s federal budget agreement.

“The $300 billion increase in the spending cap over two years, laid out in the federal budget deal, could add to inflationary pressures at a time when the economy is already operating at close to full capacity,” TD Economics economist Katherine Judge wrote in a Feb. 9 analysis.

"The $300 billion increase in the spending cap over two years, laid out in the federal budget deal, could add to inflationary pressures at a time when the economy is already operating at close to full capacity."

Mortgage debt in the spotlight

In a detailed look at housing, New York Fed economists found that mortgage debt remains 4.4 percent below its peak in the bubble days of 2008. But different areas of the country are faring differently. 

“Some regions of the country have long surpassed their earlier peak,” New York Fed economists wrote in a blog post, “while the areas hit hardest during the Great Recession – those with the largest home price declines and highest foreclosure rates – have aggregate mortgage balances far below their previous peaks, even as home prices have largely recovered.”

States with mortgage balances 10 percent above their previous peak include Texas, North Dakota and Delaware. Meanwhile, some states hit hardest by falling home prices – such as Florida, Arizona, Nevada and California  have mortgage debt 10 percent below their previous peak.

See previous coverage: NY Fed: Credit card delinquencies continue to rise, Guide to rising credit card interest rates



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Updated: 04-26-2018