Rising credit card delinquencies will add to US banks’ worries

(Reuters) – U.S. banks, already under pressure from slowing loan growth and low interest rates, could face another challenge as a growing number of Americans fall behind in payments by credit card.

Several major US banks and credit card companies, including Capital One Financial Corp COF.N and JPMorgan Chase & Co. JPM.Nreported a rise in credit card delinquency rates in August, the second consecutive rise after a four-month decline.

Although rates remain well below levels reached during the 2008-2009 financial crisis, rising delinquencies could lead to increased loan losses for lenders.

“A noticeable increase in delinquency rates – even from very low levels – is worth looking into,” said Andrew Haughwout, senior vice chairman of the Federal Reserve Bank of New York.

JPMorgan’s credit card delinquencies rose 1.16% in August, from 1.15% in July, while Capital One reported a delinquency rate of 3.97%, from 3.81% in July.

Discover financial services’ DFS.N the monthly credit card delinquency rate rose to 2.1% in August from 2% in July.

Overall, seasonally adjusted credit card delinquency rates for U.S. banks rose to 2.47% in the second quarter from 2.20% a year earlier, according to New York Fed data.

Crime rates jumped during the financial crisis as the economy crashed and thousands lost their jobs. In the aftermath of the crisis, lenders tightened their standards to limit losses from non-performing loans.

As the United States now approaches full employment, lenders are more willing to take risks and provide loans and cards to people with low credit scores.

“We’ve seen a loosening of card issuance standards: people with low credit scores get extended credit cards or limits, allowing them to borrow more,” Haughwout said.

U.S. household debt levels are near record highs, having topped their pre-crisis peak earlier this year, as Americans continue to extend credit card and mortgage debt repayments and automobiles.

There has been a noticeable increase in the transition to severe default levels, primarily among borrowers with credit scores below 660, the New York Fed said in a blog post.

“It’s not yet known what effect this will have on the future. But historically, once these delinquency rates start to increase, they may continue to increase,” Haughwout said.

Along with lenders willing to take on more risk, stagnant wage growth is also behind the rise in credit card delinquencies.

“Stagnant wage growth certainly doesn’t help (delinquencies). When you combine that with rising debt and slowly rising interest rates, it’s a troubling combination,” said Matt Schulz, principal analyst at CreditCards.com.

Schulz said the danger is that if the U.S. economy gets worse, delinquencies could be an affliction because people carry bad credit card debt in good times, which will be hard to pay in bad times. .