Consumer Delinquency Rates Decline as Inflation Slows

More consumers are making their loan payments on time, aided by slower inflation and other trends.

Late payments on loans have leveled off after increasing earlier in the year, Reuters reported Friday (Sept. 13).

Delinquency rates across all household liabilities — including credit cards, auto loans, personal loans, retail cards and first mortgages — declined to about 2% in August, lower than the 2.5% seen in the pre-pandemic year of 2019, the report said, citing data from Equifax.

Net charge-off rates, which reached their highest level since 2011 in the second quarter, have also leveled off, according to the report.

The report attributed the earlier increases in delinquencies and defaults to consumers being challenged by a drop in the savings they built up during the pandemic and to the rise in living costs.

Now, however, many consumers’ financial positions are improving as inflation slows, the report said. In addition, banks tightened their lending standards amid fears of a potential recession.

Moving forward, consumers’ financial status could continue to improve if the economy and the labor market remain resilient and the Federal Reserve cuts interest rates, per the report.

The Federal Reserve’s Consumer Credit Outstanding report released Monday (Sept. 9) showed a jump in most forms of consumer debt. The $25 billion bump in credit outpaced the roughly $12 billion that had been the consensus.

Forty-three percent of consumers revolve their debt, according to the PYMNTS Intelligence report “New Reality Check: The Paycheck-to-Paycheck Report: The Credit Card Use Deep Dive Edition.”

The percentage rises to 65% among consumers who live paycheck to paycheck with issues paying bills and 51% for those who live paycheck to paycheck but without issues paying bills, the report found.

Bank of America CEO Brian Moynihan cautioned last month that if the Federal Reserve does not cut interest rates soon, American consumers could become disheartened.

“They’ve told people rates probably aren’t going to go up, but if they don’t start taking them down relatively soon, you could dispirit the American consumer,” he said.