U.S. Credit-Card Delinquency Rates Rising, Particularly Among the Young

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05/14/2019 | 03:17 pm

By David Harrison

Credit-card delinquency rates are rising, particularly among young people who are now more likely to have a credit card than a decade ago, according to a report Tuesday by the Federal Reserve Bank of New York.

About 8.1% of credit card balances held by people aged 18-29 were delinquent by 90 days or more in the first quarter of the year, the highest share since the first quarter of 2011, the bank said. Delinquency rates among older people are slowly rising as well, but remain below the rate for the youngest borrowers.

Those delinquencies risk hurting younger borrowers' credit scores and could make it more difficult for them to take out mortgages or small business loans in the future.

Interest rates on those credit card are also moving up, further squeezing struggling borrowers. Rates on credit-card accounts assessed interest hit 16.91% in the first quarter of the year, according to Fed data, the highest rate since at least 1994.

A 2009 law made it more difficult for credit-card companies to recruit college students, prompting a decline in the number of young people with cards. That trend has reversed in recent years. Today, roughly 52% of those in their 20s have credit cards, according to the New York Fed report, up from 41% in 2012.

Delinquency rates among young people, which rose to nearly 14% in the third quarter of 2008, fell sharply following passage of the law but started moving up in 2013, roughly when credit standards started loosening, according to the New York Fed.

"The rate at which credit card balances become delinquent has been rising and that has coincided with an increase in younger borrowers entering the credit card market," said Andrew Haughwout, senior vice president at the New York Fed in a post published by the bank.

(More to come)

On Thursday, Democratic presidential candidate Bernie Sanders and Rep. Alexandria Ocasio-Cortez (D, N.Y.) introduced legislation capping credit card interest rates at 15%. The bill has little chance of passage in the Republican-held Senate. Another contender for the Democratic nomination, Massachusetts senator Elizabeth Warren, wants to limit credit card rates to the highest rate allowed under the laws of the state where the borrower lives. https://www.wsj.com/articles/bernie-sanders-takes-aim-at-credit-card-companies-11557436229?mod=searchresults&page=1&pos=3

Despite the rising delinquency rate, only 14,000 people aged 18-29 filed for bankruptcy in the first quarter of the year, the smallest number on records going back to 2003.

Overall credit card balances totaled $850 billion in the first quarter, the New York Fed said, slightly down from the fourth quarter of 2018 as consumers paid off holiday spending. There were roughly 482.7 million open credit card accounts in the first quarter, the most since the third quarter of 2008.

Corrections & Amplifications

This article was corrected at 12:02 p.m. ET because an earlier version incorrectly stated overall credit-card balances totaled $850,000 billion in the first quarter. The correct total is $850 billion.

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