Credit Card Losses See Quickest Increase Since the Great Recession
September 22, 2023
As consumers rack up more credit card debt and interest rates climb steadily higher, credit card companies are seeing losses climb at the fastest pace since the Great Recession.
Researchers at Goldman Sachs have noted an “unusual rise” in credit card losses, meaning the amount that banks have written off as uncollectible.
Credit card losses have climbed 1.5 percentage points from the low of September 2021 to 3.63%. Their growth since the second quarter of 2022 is the fastest in nearly 30 years, aside from during the financial crisis of 2008. Goldman Sachs expects credit card losses could rise to 4.93% and peak in late 2024 or early 2025 for most issuers.
The report notes that it is “unusual for losses to rise outside of an economic downturn,” and that three of the past five credit card loss cycles occurred during recessions, including the early 1990s, the dotcom bust of the early 2000s, and the 2008 recession.
American consumers are continuing to rely heavily on credit cards, despite surging interest rates. Outstanding credit card balances topped $1 trillion for the first time ever this year, as borrowers continued to rack up debt, undeterred by the highest interest rates in nearly 40 years. According to Bankrate, the average APR this week was 20.71.%. A decade ago, the average APR sat at just 13.02%.
There are also recent signs that cardholders are struggling more with their debt. The delinquency rate on credit cards reached 2.77% in the second quarter of 2023, according to data from the Federal Reserve. That is the highest level since 2012, when the delinquency rate was 2.82%.