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US credit card defaults jump to highest level since 2010
- swalling 2y agohttp://archive.today/N59nk http://archive.today/N59nk
- mcnamaratw 2y agoThe economic boom isn’t helping everyone.
- jmclnx 2y ago>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 cash To me that is the biggest reason.
- philip1209 2y agoWasn't this sometimes a bug instead of a feature? Loaning based on cash instead of income is how Brex and Ramp took on Amex. (obligatory: "commercial != consumer")
- delfinom 2y agoThat seems to defeat the narrative of "the consumers are struggling due to high interest rates". If they have the cash in their accounts, they shouldn't be the ones largely defaulting.
- connicpu 2y agoThey had cash when they signed up, they don't anymore
- jandrese 2y agoI think the story is that the COVID stimulus checks meant that people who normally live paycheck to paycheck were for the first time showing a healthy bank balance which increased their credit score just enough to qualify. Once the checks stopped they stated defaulting.
- losteric 2y agoSince when is bank balance considered in credit scores and checks?
- jandrese 2y agoSince forever? Part of the assets/debt ratio.
- do_not_redeem 2y agoI'm gonna need a source on this one. https://www.myfico.com/credit-education/whats-in-your-credit-score https://www.myfico.com/credit-education/whats-in-your-credit...
- etempleton 2y agoI wonder to what extent credit card issuers factored-in pandemic related stimulus into their risk models. If they really considered cash on-hand as a replacement to verified income the stimulus payments would have completely invalidated their existing models.
- ac29 2y agoI have applied for many credit cards over the years and I have never once seen one that asked about assets, only income.
- asdev 2y agoit was never an economic boom, just an inflationary boom. AI hype created an echo bubble from 2021 but it's due to pop
- misiti3780 2y agoI agree it's going to pop. Unfortunately the market turn will be hard to short as far as i can tell.
- jraby3 2y agoIt was an economic boom based on debt. The US faired much better than europe but most likely due to the massive debt we used and then gave to our citizens (and businesses).
- chasd00 2y agoYeah I feel the same. Going to adjust to a more conservative portfolio soon and try to minimize the damage to ye’old 401k
- delfinom 2y agoIt is helping the wealthy, about all the government cares about really. And "low unmployment" and not "median income vs cost of living/inflation".
- paxys 2y agoThere's no economic boom, just a stock market boom. People are helped in proportion to the money they have in the market.
- nerdponx 2y agoThere was a huge corporate profit boom as well.
- yieldcrv 2y agoI wish a President would say that as well as publications leaning either direction
- jaco6 2y ago[dead]
- UncleMeat 2y agoReal wages are up, especially for lower earners. Unemployment is low.
- vladimirralev 2y agoReal wages are not up for low earners. This is such an obvious math flaw I can't understand how nobody is challenging it. Real wages are adjusted for average inflation based on all consumers. However low earners experience much higher inflation than the average, at least double, and their consumption is vastly different (all of it is housing, food and energy in that order). Many of these low wage earners are periodically homeless or otherwise avoid paying bills to begin with.
- TeaBrain 2y agoReal median wages for full time workers are up a little less than 2.5% since Q4 2019. It could be worse, but it's not really something worth getting excited over. https://fred.stlouisfed.org/series/LES1252881600Q https://fred.stlouisfed.org/series/LES1252881600Q
- vladimirralev 2y ago
- timewizard 2y ago[dead]
- fldskfjdslkfj 2y agoDoesn't seem to be much movement in mortgage defaults: https://fred.stlouisfed.org/series/DRSFRMACBS https://fred.stlouisfed.org/series/DRSFRMACBS
- jraby3 2y agoCredit cards are probably an earlier indicator than mortgages.
- paxys 2y agoWait for all the 2.x% 7/1 and 5/1 jumbo ARMs issued between 2015-2022 to renew at 7%+ and we'll see how strong the mortgage market actually is.
- selectodude 2y agoAll? I’d be shocked if 5 percent of mortgage originations in the US are ARMs.
- eightysixfour 2y agoThey were very low leading into the increased interest rates - 4% in 2021. In 2023 it was closer to 10% of originations. https://www.investopedia.com/arm-applications-grow-as-mortgage-rates-remain-high-8350836 https://www.investopedia.com/arm-applications-grow-as-mortga...
- drewg123 2y agoAccording to https://point.com/blog/arm-report-2024 https://point.com/blog/arm-report-2024, ARMs were 10-20% of mortgages 2015-2020 So I think the GP has a good point.
- rib3ye 2y agoWhere is the ARM mortgage data?
- jandrese 2y agoWhy the hell would you get an ARM when the fixed rate was 3%? The only way to go from there is up.
- paxys 2y agoXYZ metric is at its highest ever! Is it adjusted for inflation and the rise in population in that period? (hint: it isn't) 10 seconds of simple math usually takes the steam out of the vast majority of such sensationalized headlines.
- deleted 2y ago[deleted]
- piva00 2y agoYou're correct about the figure not being adjusted for inflation but the metric on the rise compared to last year is concerning: > 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
- bbatsell 2y agoThat is not an independent variable. For example, lenders could have decided that the market in 2023 was on the way up and not writing off as much debt would allow them to collect more delinquent accounts in the future. In 2024, they think that anyone who would have been able to pay them has done so, so they wrote off the defaults they postponed from 2023 and also increased the speed of their write offs because their predictions about the economy changed. While it tells you something, it’s certainly not an accurate measure of spending habits or ability to pay.
- sosodev 2y agoA lot of those metrics are percentages which are always adjusted for population.
- BJones12 2y ago> Credit card delinquency rates... remain nearly a percentage point higher than they were on average in the year before the pandemic. Just another journalist trying to scare you. All that happened is bad debt rose 1% compared to 5 years ago.
- KingOfCoders 2y ago1pp != 1%
- add-sub-mul-div 2y agoGoing from 5.2 to 6.1 is a 17% increase, which isn't insignificant.
- n144q 2y ago1. The title still isn't wrong. 2. What does 1% mean in context?
- yieldcrv 2y agoLooking at the velocity of how we got to this level is absolutely noteworthy
- blueelephanttea 2y agoNot only that, but the headline is a non-inflation adjusted value! We're still well below the peak of 2010! We might be on the cusp of a collapse, but the media (and HN commentators!) continue to predict 3465 out of the last 2 recessions.
- piva00 2y agoI mentioned to another comment, you're correct about the figure amount but the concerning part is: > 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
- jimmytucson 2y agoAnecdotal but my spending habits changed a lot during lockdown and it's been an uphill battle to get them back to normal. There was a period there where we were flush with valuable cash that you wanted to just spend, just for the dopamine hit in some cases, but also because you knew the cash was going to be worth less over time. Getting stimulus checks was a bit of a mindfuck too. We still shop almost exclusively on our phones, and it's so easy to just "add to cart" and have someone put it in my trunk or drop it at my doorstep. Cut to a few years later and the cost of things has risen faster than my income and my brain is still "COVID rich", I can see why credit card balances are higher and defaults are more common.
- lowercased 2y agoThat seems odd. I got stimulus checks too, but I never once felt "covid rich", and my spending patterns during 2020-2023 hardly changed at all.
- gnatolf 2y agoThis is such an odd take
- skybrian 2y agoIf you're worried about inflation, why not invest the money?
- jimmytucson 2y agoOh, I definitely did invest some of it (if you can call playing with cash in a brokerage account investing), and seeing some of the returns I got made me feel even richer. I should stress that I am not a totally rational or irrational actor, I'm pretty much average intelligence, and this is one person's anecdote.
- blueelephanttea 2y agoThis entire article seems to be completely based on a non-inflation adjusted write-off value. It is not surprising to me that we are setting write-off records. We were bound to at some point! It is clear that delinquencies have ticketed up over the last year or two. But this article does not do a particularly good job about contextualizing if this is actually concerning. Here is the actual rate: https://fred.stlouisfed.org/series/CORCCT100S https://fred.stlouisfed.org/series/CORCCT100S Pretty tough to look at that and determine if this clearly concerning or an moderate adjustment to a changing post-covid environment.
- pests 2y agoI’m having trouble getting thinking this through. If the rate was inflation adjusted, would it appear better or worse?
- blueelephanttea 2y agoIt would appear better. The absolute value of written off loans will perpetually increase since the total amount in loans will increase. The record 2010 number is ~$80 billion in 2024 dollars vs $46 billion this year.
- listenallyall 2y ago46 billion is only 9 months of this year. Unlikely to reach 80, but the writeoffs are accelerating, hence the article.
- blueelephanttea 2y agoThe 2010 $80 billion is a first 3 quarters number too. I'm objecting to the media's obsession with using the persistent march of inflation to constantly write headlines about record this or record that. I'm agnostic to whether this is some important or stark economic indicator. But I think the media should write articles that use rates not absolute values when they choose to write these articles.
- davidclark 2y ago> Credit card delinquency rates, which are seen as a precursor to write-offs, peaked in July, according to data from Moody’s, but have only fallen slightly and remain nearly a percentage point higher than they were on average in the year before the pandemic. This is a prime example of a style of reporting that really grinds my gears. The citation is clearly to another internet source, so a link should be provided. If it truly cannot be linked because it is private, more context is still needed to understand what this data means. I actually can’t find the source myself, but I can find “Delinquency Rate on Credit Card Loans, All Commercial Banks” from the Federal Reserve. [1] The percents from that source somewhat match those referenced in the FT quote. “Peaked in July” - 2024Q1 3.15% - 2024Q2 3.24% - 2024Q3 3.23% Using 2019 as “the year before the pandemic”, the average was 2.5825. Is +0.6475 “nearly a percentage point”? I guess it technically would round up. Seemingly important context that the quote doesn’t give is that 3.23% is lower than any time 1991Q3 to 2011Q4. But, maybe the trend matters more for this metric. [1] https://fred.stlouisfed.org/series/DRCCLACBS https://fred.stlouisfed.org/series/DRCCLACBS
- pessimizer 2y ago> Using 2019 as “the year before the pandemic”, the average was 2.5825. Is +0.6475 “nearly a percentage point”? I guess it technically would round up. They're clearly not giving their references, calculations, or any basis for comparison, which is awful. But there's no need to minimize what you've found in your own research, which is that that defaults are up ≈25%.
- deleted 2y ago[deleted]
- conductr 2y ago> which is that that defaults are up ≈25%. Thanks! I feel like this is actually the next reporting step that the source article needed to do. The original data source citation is helpful of course too. But my feel is the FT author is trying to avoid just listing the numbers, so tries to cleverly explain them and unintentionally creates a meaningless statement. Instead, they should exercise a tiny bit of analysis and tell us on a relative basis the metric has changed since the premise is that it’s changed a lot, how does “higher level” even compare to what the readers can relate to or comparing to another time they where high or the previous record holder. In any case, if I read it’s 25% higher than 2019 I immediately can see how that would be concerning and drastic change and makes me want to read more. The cynical part of me thinks it’s possibly just a way to increase word count and write with less numbers. But this is one of those cases when the author should use the data to create information for their audience to consume instead of describing the raw data (raw data nearly never needs description, if you’re tempted to do that, just cite/recite it directly). In short, information > raw data > convoluted descriptions of raw data.
- larrydag 2y agoHere is the NY Fed household data statistics on the subject. The NY Fed reports quarterly on US credit and debt. Aggregate delinquency rates going up. https://www.newyorkfed.org/microeconomics/hhdc/background.html https://www.newyorkfed.org/microeconomics/hhdc/background.ht...
- 2OEH8eoCRo0 2y agoThe election is over, we stop pretending that the market is doing bad.
- bee_rider 2y agoThe whole credit system is a big scam anyway, hopefully people will keep defaulting and eventually take it out.
- Etheryte 2y agoWhile I get your sentiment, let's not forget that behind every default, there's a life that's struggling to keep it together. This is not people sticking it to the man, it's people who have lost their jobs, been hit with a medical bill, or etc then going on to lose their car and their home.
- bee_rider 2y agoThat’s true, and fair. I was glib due to my annoyance with the system, but of course it is structured to also hurt real people.
- Sohcahtoa82 2y agoNo way. Buying things on credit is huge because if my credit card is used fraudulently, I'm not out the money while I wait for the fraudulent charges to be reversed.
- bee_rider 2y agoThat’s just a super specific quirk of the current implementation
- Sohcahtoa82 2y agoHow so? If I didn't pay with credit, then I'd be paying for everything with debit, exposing my debit card number to breaches, skimmers, and other security issues. If my debit card number gets used fraudulently, I literally lose money until I get refunded. That could be a problem if I have a rent/mortgage payment about to come out. On a credit card, the temporary loss is not mine, it's the credit issuer. My money is safe from fraudulent use of my credit card.
- michaelteter 2y agoI don't know if the article references credit card interest rates, but I think it's worth also including in the discussion. The graph on this page illustrates how consumer credit card interest rates have skyrocketed, and how obscenely high it is relative to the Prime rate. https://wallethub.com/edu/cc/historical-credit-card-interest-rates/25577 https://wallethub.com/edu/cc/historical-credit-card-interest... I seem to recall that some years back the credit card interest rates were capped at a much lower rate than they are now. Where this would lead us shouldn't be a surprise to anyone. And at a general level, many current systems in the US are on a clearly unsustainable trajectory. However this collapses, it's going to be really messy.
- standardUser 2y agoWere standard credit card interest rates ever much below 20%? I think 20-25% has been the normal range for 20+ years (since I've had credit cards), though laws like the one passed under Obama do reign in the banks a little in terms of how brutally they can destroy a delinquent customers livelihood (like limiting default rates and banning other creditors from charging default rates when you default with one creditor). I always check out the balance transfer offers I receive and use that as a gauge for how cheaply creditors are willing to extend credit. Even with the prime rate jumping up in recent years, you can still get the same 12 months at 0% interest with a 4-5% transfer fee. There was a time during the low-rate era where the average was closer to 18 months and 3% fees, whereas the last few years have leaned towards 9 months and 5%. But the variance has been pretty tame.
- bobmcnamara 2y agoYes. They were lower on average: https://www.consumerfinance.gov/about-us/blog/credit-card-interest-rate-margins-at-all-time-high/ https://www.consumerfinance.gov/about-us/blog/credit-card-in...
- bufferoverflow 2y agoIt's Bidenomics.
- rchaud 2y agoCare to give a description of what that is? US Lenders being overly generous with credit isn't something that started in 2021.
- gahhsbbs 2y ago[dead]