The Philadelphia Fed's first quarter 2024 bank loan and mortgage report released on July 24 showed that the U.S. credit card delinquency rate in the first quarter rose to the highest level since the Fed began tracking the data in 2012.

In terms of details, the delinquency rates of credit cards overdue for 30 days, 60 days and 90 days have all increased. The proportion of delinquencies for more than 60 days has climbed to more than 2.5%, more than double the low point during the epidemic, when the US government's massive stimulus measures boosted the disposable cash of American households. The survey data also showed that the total revolving balances of credit cards in the United States reached a record high of US$628.6 billion in the first quarter. The revolving balance accounted for 71% of the total outstanding balance, also the highest level since 2021.

One of the reasons behind this is that a period of high inflation has put severe financial pressure on most American households, who have been forced to pay more for daily necessities such as food and rent.

According to the latest data from the U.S. Department of Labor, although the inflation rate has dropped significantly in recent months, it is still up 3% compared with the same period a year ago. Under high inflation, low-income Americans often bear a disproportionate burden. Moody's data shows that more than three-quarters of the excess savings of the American people are currently concentrated in the hands of the top 10% of households, that is, households with an annual income of $245,000 or more. More and more ordinary families have spent the large amount of cash accumulated during the epidemic stimulus phase and have to rely on credit card consumption, increasing credit card borrowing and debt scale month by month.

What is more difficult to deal with than inflation is the "longer and higher" interest rate level. According to the Bankrate database, the average annual interest rate (APR) of credit cards in the United States remained stable at 20.71% this week, and this year's APR has reached about 22%, the highest level since 1996. In comparison, the APR two years ago was only about 15%.

Record delinquency rates coupled with high APRs mean that Americans who default on their credit card debt will have to pay more in the future. The report also acknowledges that "credit card holders who default on their payments tend to carry larger unpaid balances." For example, based on the average American's credit card loan arrears of $5,000, the current APR level means that if the minimum payment is made each month, it will take about 279 months to pay off the debt, and up to $8,124 in interest will be paid. The only good news is that a new regulation from the Biden administration has set an $8 cap on credit card late fees.

High credit card interest rates and delinquency rates are just a microcosm of the loan pressures facing Americans. Last fall, as the federal student loan relief program ended, students needed to start paying their student loans again, and some student borrowers are in worse financial shape than they were two years ago. Data from the U.S. Department of Education shows that about 40% of student loan borrowers missed their first scheduled payment.

In addition, since the pandemic caused a historic rise in car prices in the United States, more and more borrowers have begun to be unable to repay their auto loans. Moody's data shows that banks' bad auto loan write-offs have recently reached the highest level since 2011. Data from automotive research websites Edmunds and Cox Automotive also show that more and more auto loan borrowers owe more than their cars are worth, and the number of vehicle repossessions caused by inability to repay is also increasing.

In addition to traditional loans, more and more Americans are beginning to use "buy now, pay later" services for consumption. As a fintech loan product that has emerged in recent years, "buy now, pay later" is usually not counted in credit reports. But according to Bankrate data, more than one-third of Americans have used at least one "buy now, pay later" service.

(This article comes from China Business News)

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