The Federal Reserve boom has created more employment opportunities, boosted price inflation in wages and spurred borrowing levels. However, consumers in the United States are starting to have a difficult time paying off their credit cards, home equity lines of credit and automobile loans, says a new report.
According to the American Bankers Association (ABA), delinquency rates – payments that are 30 days or more overdue – rose in the third quarter last year. The report found that credit card delinquencies increased to 2.74 percent, while auto loan delinquencies climbed to 0.87 percent.
Experts note that the rising delinquency rates stem from lenders loosening their credit standards. For instance, the number of new credit cards in the U.S. has risen substantially since the economic collapse, but a considerable number of those new customers are subprime borrowers with a credit score of 660 or below (SEE: It’s 2006 all over again – subprime borrowers are getting new $1,000 credit cards at alarming rates).
Meanwhile, when it comes to auto loans, there are approximately $1 trillion worth of auto loans outstanding.
James Chessen, ABA’s chief economist, told CNBC that this could be the start of a bigger trend, adding that the uptick may be normal considering that the delinquency rate has been below the 15-year average.
“It’s important for consumers to remain cautious and maintain their discipline in keeping debt at levels they can comfortably manage,” he said. “There has been more credit being extended, and we’ll see whether this is the start of a movement upward. These types of fluctuations don’t come as a surprise amid a six-year period in which bank card delinquencies have been so far below their long-term average.”
This comes as a different report discovered that the delinquency rate for commercial real estate loans has surged to its highest level in 14 months.
According to the December 2016 US CMBS Delinquency Report, the delinquency rate for U.S. commercial real estate loans in commercial mortgage-backed securities is now 5.23%.
Of course there has been more credit issued, we are a credit economy. Wages are flat for most workers over the last 20 years, so what are they going to do? Use credit to maintain the illusion of a middle class standard of living. This is a non-story 97% are making their payments on time, let me know when it gets to 90% then we may have a problem.