Brocker.Org: Credit Default Rate Hits 4-Year High


Bank card defaults in the U.S. rose for the fifth consecutive month and reached the highest levels since 2013, new data from S&P Dow Jones Indices and Experian shows.

Interest rates have continued to rise in the first quarter of 2017, making debt servicing harder for borrowers, which has led to the steady increase in defaults on credit cards that generally have higher interest rates than other debt. “Currently the debt service ratio for consumer credit — the percentage of disposable income required to service consumer credit debt — is 5.58%, up from its recent low of 4.92% in 2012 but lower than the 6.01% peak seen shortly before the financial crisis,” David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices said.

“The higher interest rates that most analysts expect over 2017-2018 are likely to combine with continued growth in consumer credit to push the debt service ratio back towards the 6% level.”

Regional Default Trends

Of the five largest cities in the U.S., New York had the largest increase in default rates, which rose 15 basis points to 1.09 percent. Miami, Dallas and Los Angeles all reported decreases from a month prior; it was the first decline in Los Angeles for over six months. Nationwide, the South continues to have the highest level of bank card default rates, which rose above 3.5 percent. On a state basis Kentucky, Tennessee, Alabama, and Mississippi have the four highest levels of bank card defaults. (See also: Credit Cards and the Cashless Society)

Auto Loan Debt

In more upbeat news, S&P Dow Jones Indices reported that auto loan debt fell 5 basis points to 1 percent. The $1.2 trillion market has been under fire of late. Last month the New York Fed said that over 6 million Americans are at least 90 days behind on their auto loan payments. While the auto loan market does not pose a systemic risk to the U.S. economy, the industry – both makers and suppliers – accounts for 3 percent of U.S. gross domestic product, according to the American Automotive Policy Council. (See also: Auto Delinquency Rates Near 2008 Highs)