Research and Statistics

NY Fed: debt squeeze eases on households


While borrowing on cards increased, credit limits grew faster in the second quarter, leaving cardholders with more available spending power

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The financial squeeze is easing on U.S. households — and on credit card users in particular, according to a report released Wednesday by the Federal Reserve Bank of New York, which shows that debt problems broadly backed off during the second quarter of 2013.

Households “improved their overall delinquency rates for the seventh straight quarter, an encouraging sign going forward,” New York Fed economist Andrew Haughwout said in a statement.

The latest Household Debt and Credit report focused on auto loans, but also outlined an improving picture for credit card users on several fronts. The Fed’s measure of card delinquency rates, which looks at balances late by 90 days or more, fell below 10 percent for the first time since the third quarter of 2008, when the financial crisis began.

NY Fed: debt squeeze eases on households

Borrowing on credit cards increased $8 billion in the quarter to $668 billion. Credit limits expanded faster, however, leaving consumers with more dry powder for charging purchases on their cards. Available credit, at $2.13 trillion, reached its highest level since the second quarter of 2009.

Debt collection problems also dialed back somewhat in the second quarter, the report said. The fraction of households with one or more debts of all types in collections eased slightly to 14.6 percent, with the average amount in collections being $1,409.

The results buttress a recent string of reports showing that U.S. credit card holders have largely gotten their financial houses in order. The credit bureau TransUnion said Aug. 13 that the number of delinquent credit card borrowers neared a record low point in the second quarter. The American Bankers Association reported earlier that card delinquencies in the year’s first quarter touched a 22-year low.

Economists have been looking to consumer spending to help perk up the lackluster economy, and the improvement in household balance sheets points to room for improvement.

But the sheer number of credit card accounts remains well below historical norms, suggesting that subprime borrowers who exited from the card world during the recession have not returned. The total number of card accounts, at 389 million, was up somewhat in the second quarter, but remains down 22 percent from its pre-crisis peak of 496 million.

The New York Fed’s quarterly look at household debt is based on a sample of Equifax credit reports covering about 40 million people.

Overall, U.S. household debt of all types fell 0.7 percent from the first quarter’s level to $11.15 trillion, as the trend of falling home mortgage debt continued. Mortgage originations rose to $589 billion in the quarter, but 200,000 individuals had a new foreclosure notation added to their credit reports.

“Although overall debt declined in the second quarter, households did increase nonhousing debt, led by rising auto loan balances,” Haughwout’s statement said. Auto loans were up $20 billion, surpassing $800 billion. In a blog accompanying the report, New York Fed economists said that newly originated auto loans for new and used vehicles “have just recovered to 2008 levels, driven in part by historically low interest rates.”

Outstanding student debt, a focus of concern from the New York Fed in a previous report, rose another $8 billion in the second quarter to $994 billion.

See related:Consumer debt market shows signs of ‘healing’

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