America's Credit Card Slump: Delinquencies Reach 12-Year High As Issuers Lower Credit Limits

Consumers are having trouble paying credit card bills.

What Happened: According to a new report by the Philadelphia Fed, credit card delinquencies reached the highest on record in the last quarter of 2023.

The agency has been analyzing credit card data since 2012. Since then, the fourth quarter of last year was the worst for credit card companies.

Nearly 3.5% of credit card users carried their balances 30 days past the due date, with records also being crossed in the 60+ and 90+ days categories.

For some users, balances have reached concerning figures. At least 10% of borrowers have account balances over $5,200, and 25% have balances above $2,000.

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Why It Matters: Credit scores are deteriorating for the lowest 25% of credit-card borrowers. As a response, credit card issuers are lowering the limits for new cards issued.

Throughout 2023, the median limit for new cards went down from a $3,368 high to $3,000.

The agency said that stress among cardholders was further underscored in payment behavior. The share of accounts making minimum payments rose 0.34% to a new high in the recorded data.

Credit card balances have also reached a nominal high in Q4 2023, but they remain below Q4 2019 when adjusted for inflation. Credit card balances normally grow in the last months of the year due to holiday purchases and other expenses.

The Philadelphia Fed report falls in line with recent trends in the credit sphere. A majority of the population is gearing up for a tougher credit environment as credit card companies announce major changes in their fee structures.

Last week, Mastercard Inc MA announced it will raise its credit card fees. This is part of an effort to compensate for losses stemming from an antitrust settlement with U.S. merchants, reached together with Visa Inc V.

Those most likely to be affected by the rise in delinquencies are credit card issuers.

JPMorgan Chase & Co JPM is the largest issuer by number of card holders, with almost 150 million, according to a Nilson report quoted by MoneyGeek.

It is followed by Capital One Financial Corp. COF, Citigroup Inc C, Discover Financial Services DFS, Bank of America Corp BAC and American Express Company AXP.

In February, Capital One announced an agreement to acquire Discover for $35 billion. If the deal goes through, the merged entity would become the largest credit card company in the country, with 170 million card holders.

Earlier this week, Senate Majority Leader Chuck Schumer echoed comments by other democrats who voiced concern over the merger and its effects on the average user.

"Less competition in the credit card marketplace could mean higher interest rates for these cardholders, bigger fees, higher penalties and so much more," said Schumer.

iShares US Financial Services ETF IYG is one of the ETFs with the largest exposure to credit card companies and issuers, with over 35% of its holdings being composed of JP Morgan Chase, Mastercard, Visa, Bank of America and Wells Fargo & Co WFC.

Financial Select Sector SPDR Fund XLF has a similar portfolio with large exposure to the same companies.

Photo by Avery Evans on Unsplash.