US credit card defaults jump to highest level since 2010
ft.com
ft.com
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.
Delinquent > 30 days
Generally delinquent increase of any percentage is a big red flag as these accounts are statistically very unlikely to make a correction and are a bellwether for greater issues like sustainable future consumer trends. They also betray the real unemployment rate including the us "jobless" hand wavery.
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%.
My focus was critiquing their phrasing, which turns that 25% into 38%.
Like I said, I’m not actually an expert on this to know if the trend is what matters.
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.
Basically what you already said but a little better connection in how moodys probably reported on it.
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.
> The citation is clearly to another internet source
How is "data from Moody's" (likely internal, unreleased, or subscriber-only) clearly an internet source?
If not, then it is on the internet somewhere. Whether it is on the “public” or “free” internet is different. If it is not freely available, then they could still give a real citation, so someone else with access to Moody’s private data could find it.
“based on internal data from Moody’s”
“data from Moody’s” with no qualifier indicates the reader should be able to reasonably find the information themselves (which they can’t in this case)
> If it truly cannot be linked because it is private, more context is still needed to understand what this data means.
a sign that lower-income consumers’ financial health is waning
a closely watched measure of significant loan distress
but the bottom third of US consumers are tapped out
consumers’ personal finances are becoming increasingly stretched
Consumer spending power has been diminished
Americans who cannot pay off their credit card bills in full paying $170bn in interest
as a result, more of those borrowers are struggling to pay back their credit card debt
https://www.creditorsbar.org/news/-credit-card-charge-offs-a...
It kind of used to be. There was a level of responsibility despite the organizations being for-profit. But I just cannot pretend this is sufficiently true anymore.
I don’t really see any reason why journalism shouldn’t be for-profit. For example, a business model of producing informative articles and then selling access to those articles could be completely ethical, and a reasonable way to do journalism.
Ad supported media is just a toxic business model though.
Freedom of Speech can be given to everyone very generously, if Broadcasting (distribution) is controlled.
During the hey days of newspapers without Postal subsidies/Railway subsidies and paper mill subsidies it was very expensive for publishers to ship tons of paper across the country everyday. Even today world wide lot of Govts run the Post Office and Railways. And they subsidize rates for newspapers and magazines. Good luck getting that subsidy if you piss off the wrong people.
Same story repeats with licenses for radio/tv/satellite spectrum. Today its just Ads or control of the content factory (see who owns all the loss making news orgs in the land - Corporations). Ad supported just means who ever can bid most for the ad. And the Elites can outbid the plebs every day of the week.
I think both goals can sometimes find harmony and the revenue can support the journalistic endeavour. But that feels less and less true. A lot of for-profit media is optimizing heavily towards clicks, often at the very clear expense of the story. Such as not linking citations because thou shalt not guide eyeballs away from the website.
I feel that journalism has immense social value (I’d call it an absolute necessity) and ideally it is funded publicly and uses the academic tenure style approach.
And the history of state run media is not particularly aligned with the idea that “the truth” was the goal.
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.
Living paycheck to paycheck, truly, and I mean truly in that sense where you need to wait for checks to clear before buying groceries occasionally - is extremely common. When you live like this long enough, "big" costs start adding up. That funny sound in your car that you can't afford to get fixed gets worse. Your tooth hurts super bad, but can I afford a $1000 dentist bill? I'll just hope it doesn't get worse. Maybe your kid gets really sick, forcing you to take time off you cannot afford to (not everyone is salaried or has vacation/PTO policies), adding to the strain. You go to credit cards to stretch things out, but of course that has a limit to how far it can go, especially when you're barely treading water. Eventually you will drown, something has to break. What it is varies and will probably largely determine the long-term outcome of the situation.
Anyway, all this to say, there have been many times in my life where these nagging, lingering problems that caused significant strain and hardship in my life that I simply could not afford to fix would have been solved immediately with a few thousand dollars, or whatever "trivial" amount you want to put as a value here. $2000 can actually be a lot more than that when you consider interest and paying down a credit card debt. I can think of one very specific time in my life where $500 being loaned to me was the difference between where I am now and being out on the street, and that is not an exaggeration whatsoever.
The reason you cannot wrap your mind around it, and why this bothers me, is that comments like this come from people that truly cannot imagine how massive swaths of the united states, and more broadly live day to day - it comes from a position of enormous privilege, even if you may not realize/acknowledge it. To me, I struggle to imagine how this comment I am responding to can be made at all, but I know our life experiences probably differ in a drastic way.
I am very lucky in that things panned out (relatively, I still deal with residual issues due to living that way for as long as I did, about 15 years) and I was somehow able to finish school due to traits I believe not many people are lucky enough to have. I don't believe at all that many people in this situation are there of their own fault, and I'd die on that hill, but I can only provide my own brief story and some really basic cost of living statistics that are very easy to look up. It's bleak out there.
Only the author can detail on what he really means, but do you think the extra 2k would significantly influence the people's behavior on the medium / long term (I do agree that for many it can have a significant impact on the short term and really help them) ?
For example, I've been at absolute zero and living in my car largely because I just couldn't find a job and literally ran out of money trying (I guess count the car and laptop as an asset, w/e, but actually in the red), and if I'd been given 2x $2k cheques, I'd have a hard time finding a way that it would change my habits for positive or negative for longer than a few months, except if I'd looked for a quick source of substance based relief, which I didn't and wouldn't but assume that's irrelevant for now. I'd probably just try to stretch as far as possible and maybe get a few more calories, or a shower, or temporary gym membership. I can sympathize with the confusion somewhat, because to influence my decision making long-term, I'd have to be set back or set forward in a more reliable way than sudden burst of cash. Like I'm not going to get a loan or a 1 year apartment lease, it would be more like a campground instead of the street for a week every month. I do think worst case scenario, back to the substance topic, is that if you're in a really bad place financially, for no fault of your own (which I absolutely agree that this applies to a majority of people in those situations), it's that you become addicted to something, but everyone's dealt a different hand from a different deck and I do believe I'm way off the mark in terms of what other people might do.
Edit: Actually, that sort of windfall might also make it feel way easier to start spending on food delivery bs, which I have to imagine is a somewhat crippling negative long-term financial habit, especially if you're already working like hell with a family and it's an obvious efficiency increase.
To clarify my opinion (hopefully beyond doubt so that you can't imply things I do not think), I think that blaming people will not solve anything, people are not poor due to behavioral issues, people that are currently poor must just be aided (in multiple ways) to get out of the situation. But people do react differently to different ways of helping, and as we don't have infinite resources, we need to discuss how such interventions affect them on short/medium/long term.
If you prefer more to find points in which you disagree (points that were not clearly there or semantic points as "short term help") I don't think I can bring anything to the discussion. I remained without a formed opinion of why the jump in defaults appeared...
I've been that poor before (never _truly_ struggling like some countries experience, but unable to comfortably afford both food and a roof), and some other units might make that check make more sense:
- 4.5 yrs worth of rice, flour, or beans (the bulk of my diet by weight and by cost)
- 5 months of rent
- 5.5 yrs of electricity (almost all of which went to cooking or refrigeration -- heat was unnecessary unless it was under 0F outside)
- a new-to-me car, enough money for the parts that I'll inevitably have to buy to fix any used car shortly after I buy it, and enough gas to drive to work for a year
When you're struggling paycheck to paycheck, that's a life-changing amount of money. I'd already escaped that life by the time covid hit, but if I hadn't then that might've been my ticket out.
As to how somebody in better circumstances might be "COVID rich"? I can only speculate, but even in the middle class people tend to have a number of "essential" payments: health insurance, mortgage/rent, newish clothes for their kids, you should probably eat a vegetable once in awhile, .... People are living "paycheck to paycheck" in those more comfortable lifestyles, and going from $0 to $2000 in discretionary income is huge. That's a year of weekly date nights at someplace better than McDonald's, a year of monthly date nights at a pretty good steakhouse or other gourmet opportunity, kayaks and road-trip money for the whole family, a very nice clavinova and a few months of lessons, ....
In either case, I suspect the key to understanding is to compare that $2k (really $2.2k-$3.3k in equivalent income depending on relevant tax details) to $0 rather than to total expenses.
Based on stats looks like they massively paid down debt.
I think that term ("Covid rich") isn't meant just for the checks, but for the general increase of disposable income.
If you are low income, $2-3k in checks can effectively be a pretty big windfall as people note in this thread.
If you were middle income, there was probably a bunch of discretionary spending on e.g. meals out, shows, vacations that you didn't spend compared to previous years. It's not hard to see that being an "extra" 5 figures for lots of families.
On the lower end, assuming you were able to WFH the instant savings from not having to commute (gas, tolls, etc). Was a pretty big change to your budget.
Other things like childcare can be a significant expense for many families and it’s a huge change when kids were forced home and the expense was avoided. Some of these things came with reduced household incomes, layoffs, etc for other households. But if you were able keep your income and just reap the savings then you benefit. At first, before inflation kicked in, but since then if you’re income hasn’t increased ~30% or more since 2019 (very dependent on your locale) then you’ve probably been digging a hole the past ~2 years, unless you are a great with budgeting and cut back in real time as prices increased. My feeling is it’s been had to do for many people as most people don’t budget and I know for many income hasn’t grown enough to keep pace with inflation.
I’m pretty pessimistic about Covid economics/politics. My opinion is it should have triggered a global recession, likely worse than the financial crisis. There’s still a ton of inflation that needs to flush through the financial system. While we talked about flattening the curve of the virus, we really just flattened the curve of the economic fallout of such a large event. I think a period of austerity is likely going to be required. Rates and prices have a lot of people locked in their houses or out of home ownership, average vehicle age is at a record high, people are dining out less, even cutting back on their beloved Starbucks, etc so I think the signs of this are ramping up. I’m not quite sure how it plays out, especially with the US political leadership changes coming up; but I feel like the majority of Americans (at least) have some financial strains coming their way, likely uncomfortable changes will need to be made and will feel like a type of austerity to us.
Do you mean four or that four figures feels like five?
>> ..., there was probably a bunch of discretionary spending on e.g. ...
i.e. money in your bank account that in a "normal" year you would have spent already. On top of the checks.
I grew up kinda poor and lived this as a kid, my family was always helping or being helped by a neighbor or something. Through my friends and some extended family I knew these things were like a sign of our “class” and even slightly more secure people would never do them, it would even be a social faux pas to even ask for help. Now, at middle aged, I’ve done pretty well for myself and sometimes make other types of faux pas statements like “just buy a new car instead of dealing with that”. I have to be somewhat mindful that even a 10 year old used car is a huge purchase for many people. Even if it’s in good shape and can get another 5-10 years out of it, and would technically be the best move, it’s not viable if they can’t afford it or have to subject to some usurious loan.
TBH I generally like to just take the “it’s impolite to talk about money” approach unless I know the person well enough. Although I’m a financial professional so people tend to like asking my opinion/advice on a lot of things, even if I barely know them, I have found that I prefer to avoid those types of conversations altogether until I know you pretty well.
Especially the idea that money just disappears so spend it whilst you have it. That’s like saying your legs might disappear so cut them off now to avoid the surprise.
Add to it the rise of buy-now-pay-later schemes like Klarna and Affirm, which for a long time would allow you to make your payments with a credit card, allowing people to run up more debt faster than ever before.
It's my understanding† that making payments with a credit card is no longer permitted, so now these companies are pulling cash out of already over-extended people's checking accounts, keeping them from paying their credit cards.
Fintech wins. Traditional credit cards lose. Human beings lose harder.
† I have never used any of these services, but I know people who have, and it all sounds like loan sharking to me.
Most recent example being someone considered an 'adult child' of the state and on SSDI that used Affirm to pay for some xmas presents.
> It's my understanding† that making payments with a credit card is no longer permitted,
Ive never used them myself either but it would surprise me if they allowed credit cards for payment ever.
In my head they were trying to make their money back on the loan via the merchant rate 'padding' (i.e. usually 1-2% of the item price).
Which of course, in this non NZIRP/ZIRP climate means they have to find other ways of making/saving money... (didn't klarna just do a layoff?)
And some people more than others.
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.
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
Pretty tough to look at that and determine if this clearly concerning or an moderate adjustment to a changing post-covid environment.
The record 2010 number is ~$80 billion in 2024 dollars vs $46 billion this year.
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.
I dont think it is. The article includes a chart of the first 9 months of the past 20 years, 2010 looks like about 55 billion or so. In any case, it is very clear from that chart that the 2024 number is significantly higher than any other year except 2010. Not everything is measured in "rates," most things are just measured in dollars. Anyway credit card charges are unlikely to be subject to the exact same inflation rate as general goods like CPI, given that few people charge their housing to a credit card.
And the article does mention Capital One's writeoff rate increase over the past year.
$55 billion in 2010 is $80 billion in 2024 dollars. I kind of feel like my original point was pretty clear.
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.
> 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
34% of mortgages are below 3% interest rate, which means their house payment is at least 30% cheaper than renting. Nobody is going to give that up easily.
Here you could easily go from a 3/3 single family home to a 2br apartment for the same price monthly. Which means you would need to move into a 1br apartment to save any money.
All this to say, the first thing to go is the credit card payments, then the car payments, and finally the mortgage payments.
I went through a divorce and my ex got the house. I thought I would travel for a few years before buying another one and I missed out on the 3% rates.
There are of course a lot of factors, but I think we'll be back in the high fives at some point in 2025 and settle around 4.5-5 after that. That's if Mr Tariff doesn't spike inflation.
The buyer will never see their rates go higher than this in the life of the loan, and in reality, if/when rates drop again, they can refinance to a new 30 year fixed at the lower rate.
I do wonder how much of these credit card balances are people paying ~$3.50 per gallon to fill up and kit out SUVs and trucks they're paying ~$700 a month for.
As someone who strives to spend/save responsibly and drives wholly owned used cars and is still a few paychecks away from disaster, I do not understand how working/middle class people are keeping up with these costs. I notice our local Chevy dealership is also full to the brim (literally covering all of the grass on their lot) with new trucks and SUVs. I would love to better understand who is buying/leasing those vehicles and how they're keeping them on the road -- for now.
Reason being I’m in a townhouse. They do not appreciate at the same rate as single family detached and it also carries an endlessly increasing hoa fee.
Due to the hoa increases it also limits how well a property can cash flow as a rental so keeping the property as an investment is doubly less attractive as often you can forgo rental income in lieu of asset appreciation.
So how about you tell us how some of them have already done renewing at 6%+? Did bad things happen?
Edit: clarification
So I think the GP has a good point.
https://www.investopedia.com/arm-applications-grow-as-mortga...
Generally speaking people who are in mortgages are able to afford them because they're on fairly decent terms and lent to people who are capable of paying. But nobody is selling if they're going to need a new mortgage.
Yes, we understand it triggered the 2008 recession.
No, it probably won't be the canary in the coalmine for the next one.
The way in which "booming economy" phrasing is used in conversation, one would imagine that it refers to growth in GDP that has a multiplier effect in the local economy. In practice, it really just means spending is up now, but will deflate as soon as credit is harder to come by.
A lot of vacations, cars and home improvements are funded by home equity loans, not actual disposable income.
Meanwhile the average American doesn't have a spare $1500 set aside for a life threatening emergency, let alone for a Taylor Swift concert.
USD is losing value rapidly. It's amusing to see politicians claiming credit for stocks going up while the food prices are up almost as much, but nobody is responsible for this one. Dollar is down massively and downplaying this fact is only encouraging more of the same.
Have you looked at those conversions?
One June 1st 2007, 1 Argentinian Peso was worth 0.082£, today it is 0.00078£.
as well as publications leaning either direction
To me that is the biggest reason.
Loaning based on cash instead of income is how Brex and Ramp took on Amex.
(obligatory: "commercial != consumer")
https://www.myfico.com/credit-education/whats-in-your-credit...
And "low unmployment" and not "median income vs cost of living/inflation".
https://www.newyorkfed.org/microeconomics/hhdc/background.ht...
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.
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.
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...
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.
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.
US Lenders being overly generous with credit isn't something that started in 2021.
Just another journalist trying to scare you. All that happened is bad debt rose 1% compared to 5 years ago.
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.
> 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