Lenders say Americans are falling behind on their credit card bills

Lower-income consumers are struggling to pay their bills on time
By Sam Bourgi
•
19 September 2024
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Corporate executives representing America’s largest credit card companies are sounding the alarm on rising delinquencies—and making their investors nervous in the process.

At the recent Barclays banking conference, executives said low-income consumers are increasingly falling behind on their credit card and auto loan payments.

Citigroup’s chief financial officer, Mark Mason, told the conference that delinquencies are rising as more customers carry bigger credit card balances.

Lenders like Bread Financial and Synchrony Financial said they expect to see higher charge-off rates for the rest of the year. In the credit industry, a charge-off is when a lender essentially writes off an account as a loss.

As Creditnews recently reported, auto lender Ally Financial told the Barclays conference that more car loans are entering late-stage delinquency, or more than 60 days past due.

In general, missed payments have “been a bigger issue for people in the bottom half of the income spectrum,” said TD Cowen analyst Moshe Orenbuch.

“What that tells you is if people do get behind on their payments in this environment, it’s tougher to get out of them,” he said.

The Barclays conference was held from Sept. 9 to 11, and it didn’t take long for investors to become aware of the delinquency concerns. As The Wall Street Journal reported, consumer-lending stocks nosedived as a result.

America’s consumer-driven economy is being fueled by credit card debt, which normally wouldn’t be an immediate concern if consumers were making their minimum payments on time.

Unfortunately, with more Americans falling behind on their bills, economists are questioning the health of the economy.

Delinquencies raise concerns

According to the New York Fed, by the end of the second quarter, roughly 9.1% of credit card balances had transitioned into delinquency over the past year—the highest percentage in more than a decade.

Perhaps more concerning was the fact that Q2 marked the eleventh straight quarter that delinquencies rose.

Meanwhile, the share of auto loans that are delinquent also increased to nearly 8%, the highest since 2010.

Bank of America research analyst Michael Gapen said rising delinquency rates won’t necessarily impact consumer spending because credit cards only account for 6.5% of consumer debt.

However, lower-income households could be at risk, especially if they lose their job.

“[E]levated credit card delinquencies among lower-income consumers could increase the sensitivity of these consumers to an adverse labor market shock,” said Gapen.

Unemployment in America has been on the rise for the past year. What’s more, the pace of hiring has been much slower than initially believed.

Researchers at the St. Louis Fed have observed that labor market “shocks” tend to adversely impact lower-wage workers. This was especially the case during the pandemic when low-wage workers experienced a larger drop in working hours.

“These findings are especially alarming since low-income households tend to run deficits, meaning their spending exceeds their incomes. In addition, they have less or even no savings to fall back on once they encounter [...] financial hardship,” wrote Fed economists Serdar Birinci and YiLi Chien.

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