The recent rise in interest rates is causing credit to become more expensive and harder to obtain, which will have significant implications for various sectors of the economy such as real estate, automobiles, finance/banks, and venture capital/tech companies. Rising rates also affect the fair value of assets, presenting both opportunities and risks for investors.
Late payments on credit card balances are surging, potentially signaling a recession, as delinquencies hit an all-time high among commercial banks outside of the top 100, according to Wells Fargo.
Macy's warns of a surge in delinquencies on credit card payments, signaling mounting financial stress on consumers.
Americans are struggling to pay their bills as inflation rises, leading to a surge in credit card and auto loan defaults, which is expected to worsen with rising interest rates and the expiration of the student loan moratorium. Low- and middle-income earners are particularly affected, resorting to using credit cards for essential purchases, while opening new lines of credit to pay off debts, resulting in record-high credit card debt. The resumption of student loan payments and potential holiday season spending add to concerns about escalating debt levels.
American consumers' worries about access to credit have increased due to higher interest rates and stricter standards at banks, according to a New York Federal Reserve survey.
Credit card interest rates have reached historic highs, with the average rate hitting 20.68% in May, leading to concerns about the potential snowball effect and long-term financial consequences for consumers.
Banks are becoming more stringent with their credit card terms and conditions, offering lower credit limits to high-risk customers, asking customers to tie their salary accounts to the bank for better control over cash flow, and taking term deposits as security for credit card limits; furthermore, banks are adopting a self-selection process to screen potential customers and capping benefits on credit cards, all while looking to retain customers who generate revenue and pay their outstanding balances in full.
US credit card debt reached $1 trillion for the first time, but experts argue that it is not a cause for concern as factors like income, wealth, spending growth, credit card utilization, and delinquency rates indicate that consumers are in good financial shape unless the US enters a severe recession.
The Federal Reserve has proposed lowering the fees banks charge for processing debit-card transactions, which would benefit merchants but harm big banks and credit-card companies who generate revenue from these fees.
American households are facing increasing delinquency rates on credit cards, mortgages, and auto payments as savings decline and interest rates rise, with credit card debt surpassing $1 trillion and delinquency rates reaching record highs, according to data from Equifax and Fitch Ratings. However, economists believe that this uptick in delinquencies is a result of the economy re-normalizing after the pandemic rather than signaling an impending downturn.
