Outstanding US credit card debt hit a seven-year high, underscoring the difficulties many consumers face despite the economy’s strong performance.
Data from the banking industry shows consumers were at least three months behind on repayments or were seen as otherwise struggling on $ 11.9 billion in credit card debt at the end of the year, an increase of 11.5% in the fourth quarter.
More Americans are also behind on their mortgages, for which problematic debt levels rose 5.2% over the same period to $ 56.7 billion.
In contrast, the level of commercial and industrial loans that banks considered problematic fell 8.5% to $ 18.1 billion.
The figures, published Tuesday by the Federal Deposit Insurance Corporation, add to concerns that despite a strengthening the economy, parts of Central America are in short supply and rely on credit cards to get by.
They will also give ammunition to critics of U.S. tax cuts who argue that the loot goes to businesses rather than families who need the support the most.
Levels of sour credit cards rise after increased issuance. Banks have sued consumers with airline miles, cashback offers, and sign-up bonuses. Late payers are subject to penalty interest rates of up to 30 percent.
David Rosenberg, chief economist at Gluskin Sheff, said the recent use of the cards had been “absolutely epic.” “Now it’s time to pay the bagpiper,” he added.
While credit cards made up less than 9% of the US banking industry’s total $ 17.4 billion balance sheet at year-end, they accounted for 59% of all loans written off as bad in the fourth quarter.
Major bankers are ignoring concerns about rising losses, arguing that they are to be expected after a recovery in lending after the crisis. The credit card debit rate fell from 3.46 percent in the previous quarter to 3.77 percent, but remains well below crisis-time levels.
Gordon Smith, director of retail banking for JPMorgan Chase, told investors Tuesday he was “very encouraged” by the health of his customers. “The absolute level of losses, whatever the base, is always exceptionally high,” he said.
Yet, said Torsten Slok, chief international economist at Deutsche Bank, investors were increasingly questioning the welfare of American consumers. Indicators of household wealth and unemployment were strong, but the poorest families had not benefited from asset price inflation and income trends were weak.
“It’s pretty clear that the policy initiatives we’ve seen were aimed at helping corporate balance sheets rather than consumer balance sheets,” he said.
Banks canceled just 0.45% of commercial and industrial loans in the fourth quarter, according to FDIC figures, aided by continued corporate profitability.
However, the total level of overdue balances in the US banking sector rose for the first time in seven quarters due to worsening consumer metrics.
Overall, debts for which borrowers were more than 90 days past the repayment due date, or had an “unaccounted for” status – meaning the lender stopped charging interest – increased by $ 1. 3%.
Letter in response to this article:
Corporate and household debt structures differ / De Niels Erich, San Francisco, CA, US