Rise in Credit Card Delinquencies

While most banks continue to enjoy strong loan demand and limited loan charge-offs, credit card defaults have slowly been creeping up from the historical lows seen in 2015.  The Federal Reserve of St. Louis reports quarterly U.S. credit card default rates were 2.12% for the second quarter of 2015.  These default rates increased each of the next 8 quarters to 2.47% for the second quarter of 2017.  

Many believe the increase is due to loosening credit standards as unemployment rates continue to trend downward.  U.S. household debt levels are near record highs, after having surpassed their pre-crisis peak earlier this year. 

The good news for banks is that credit card defaults continue to be below historical averages and significantly below those reached during the financial crisis during 2008 – 2009, where default rates reached 6.77% in the second quarter of 2009.  

We recommend that banks with credit card loan portfolios continue monitoring credit quality and evaluating credit card issuance and available credit limit standards to mitigate risks of losses.