US credit card defaults have reached their highest point since the 2008 financial crisis, indicating a decline in the financial well-being of lower-income consumers after years of high inflation. The situation is driven by rising costs and stagnant wages, leading to increased financial strain for many.
Defaults on US credit card loans have hit the highest level since the wake of the 2008 financial crisis, in a sign that lower-income consumers’ financial health is waning after years of high inflation. Credit card lenders wrote-off $46bn in seriously delinquent loan balances in the first nine months of 2024, up 50 per cent from the same period in the year prior and the highest level in 14 years, according to industry data collated by BankRegData.
Write-offs, which occur when lenders decide it is unlikely a borrower will make good on their debts, are a closely watched measure of significant loan distress. “High-income households are fine, but the bottom third of US consumers are tapped out,” said Mark Zandi, the head of Moody’s Analytics. “Their savings rate right now is zero.” The sharp rise in defaults is a sign of how consumers’ personal finances are becoming increasingly stretched after years of high inflation, and as the Federal Reserve has left borrowing costs at elevated levels. Banks have yet to report their fourth-quarter numbers but the early signs are that more consumers are falling significantly behind on what they owe. Capital One, the US’s third-largest credit card lender, after JPMorgan Chase and Citigroup, recently said that as of November its annualised credit card write-off rate, which is the percentage of its overall loans that are marked as unrecoverable, hit 6.1 per cent, up from 5.2 per cent a year ago. “Consumer spending power has been diminished,” said Odysseas Papadimitriou, head of consumer credit research firm WalletHub. US consumers exited pandemic-era lockdowns flush with cash and ready to spend. Credit card lenders were happy to help, signing up customers who might not have qualified in the past based on income, but looked like safe debtors because their bank accounts were flush with cas
CREDIT CARD DEFAULTS INFLATION CONSUMER SPENDING ECONOMIC HEALTH FEDERAL RESERVE
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