Loan Delinquencies Beginning to Level Off

Bankers and industry analysts recently said that U.S. consumers’ late payments on credit cards and other loans have leveled off in recent months after rising earlier this year. Delinquency rates fell to just over 2 percent in August, compared to roughly 2.5 percent in 2019, according to consumer reporting agency Equifax.

“Tighter underwriting in the wake of last year’s banking crisis appears to be reaping benefits, as does the slowing in inflation,” said Mark Zandi, chief economist at Moody’s Analytics, according to Reuters. The Equifax data showed that late payments declined in credit cards, personal loans, auto loans, first mortgages, and retail cards.

This trend in delinquencies could lead to more stable finances for Americans who had fallen behind financially as pandemic savings decreased while the cost of living increased. Data from the Federal Deposit Insurance Co (FDIC) found that as consumers’ finances weakened, lenders’ net charge-off rates for credit cards increased to 4.82 percent in the second quarter.

Industry executives have said for months that there has been a shift in customer finances, notably among those with lower incomes and credit scores, as they have struggled more than affluent customers. Mark Mason, Citigroup Chief Financial Officer, noted that customers with lower credit scores have shifted their spending from discretionary items to household staples.

If the labor market and economy remain resilient, Zandi said delinquencies could be close to peaking. Inflation has slowed, so some industry experts expect that the Federal Reserve will cut interest rates at its meeting this month, which would relieve some consumers who have loans with variable interest rates.