Federal Reserve Bank of New York’s Household Debt and Credit report says more balances are in late-payment status, but overall delinquencies are moderate
“Credit card balances increased and flows into delinquency have increased over the past year,” the Federal Reserve Bank of New York said, announcing its Household Debt and Credit Report.
“Flows into delinquency” measure newly troubled debt. Credit card balances newly in serious delinquency status – 90 days late or more – were 4.6 percent in the third quarter, up from 4.4 percent in the second quarter.
While new delinquencies are climbing, the overall rate of unpaid card debt remains at a relatively low level for the long term, the report showed. The overall 90-day-plus delinquency rate of credit card debt was 7.47 percent of balances. That compares with 7.08 percent in the third quarter of 2016 and 8.21 percent in 2015. The peak delinquency rate for the third quarter was 13.16 percent, reached in 2010.
The rise in card delinquencies “comes from a very small level,” said Michael Dolega, economist at TD Economics in Toronto. “At this point we don’t think it’s a concern … but it bears watching.”
As the U.S. economy improves, households are using leverage again to improve their buying power, he said. Strong economic fundamentals, including low jobless rates and rising household income, support the increased spending.
Banks tightening access to credit
The recent rise in late payments comes as banks raise their cushion of reserves for sour credit card loans in the future. They’re also tightening their standards for new cards and higher credit limits, according to a recent Fed survey of loan officers.
However, economists say the trend is an expected part of the healthy expansion of the economy. As more consumers qualify for cards and debt levels grow, delinquencies move toward their long-run normal levels. The number of open credit card accounts grew nearly 7 million during the quarter while the average balance per account rose by $27 to $1,734.
NY Fed credit card facts
- Number of open accounts: 465.97 million, up 7 million during 3rd quarter
- Average balance per account: $1,734, up $27 during 3rd quarter
- 90-plus-day delinquency rate: 7.47 percent of total balances
- New 90-plus-day delinqencies: 4.6 percent of balances, up from 4.4 percent in 2nd quarter
- Total credit card debt: $808 billion, up from $784 billion in 2nd quarter
Overall increase in household debt
The New York Fed’s quarterly report looks at household debt including mortgages, student loans, auto loans and home equity loans as well as cards. It is based on a sample of Equifax credit report data representative of the U.S. population.
Overall household debt rose 0.9 percent to $12.96 trillion in the third quarter, including a 3.1 percent rise in card debt, the Fed said. Home equity lines were the only form of debt to decrease, down 0.9 percent.
Delinquency rates rose, collections dropped
The overall delinquency rate ticked up to 4.9 percent, from 4.8 percent. Auto loans along with cards saw delinquencies climb, but people had fewer late payments on their mortgages, the report said. At the same time, delinquencies on student loans improved slightly, though they remain at relatively high levels.
Other findings from the report contrasted with the trends of rising debt and delinquencies during the July-August-September quarter:
- Percentage of consumers with one or more accounts in collection dropped to 12.29 percent, from 12.45 percent in the previous quarter, and the average amount in collection fell to $1,340 from $1,387.
- Number of consumers with new foreclosures and bankruptcies both fell. Foreclosures reached a new historical low of 69,580 during the quarter, the report said.
- Number of all types of new accounts opened within the past 12 months slowed to 209.9 million, the lowest in two years. Inquiries about new credit climbed slightly in the quarter, but slowed significantly from the third quarter of 2016 and 2015.
Car loan debt in the spotlight
In a blog accompanying the report, Fed economists examined the rising amount of car loan debt – and climbing delinquencies.
“Examining the auto loan market more closely revealed notable differences between auto finance and auto bank lenders,” wrote Wilbert van der Klaauw, senior vice president of the New York Fed. “Delinquency rates among auto finance lenders are considerably higher and rising, especially for subprime borrowers, in part reflecting differences in underwriting standards.”
Auto loan debt reached $1.21 trillion in the quarter, of which 3.97 percent was in 90-day-plus delinquency status.
Since 2011, the share of auto loans originated by finance companies has grown, while the overall delinquency rate deteriorated, van der Klaauw wrote.
See related:Credit cards are now most common type of debt, Fed finds, Guide to rising credit card interest rates, Fewer late payments on cards show consumer strength, banks say, Credit card delinquency statistics