More young borrowers are struggling to pay their credit cards as inflation and higher interest rates take a toll on their finances, according to new research from the Federal Reserve Bank of New York.
Borrowers in their 20s and 30s became seriously delinquent on their credit card payments significantly faster than older consumers last quarter, the New York Fed found.
About 3% of credit card loans to borrowers in those age groups became more than 90 days past due during the fourth quarter of 2022, compared with 1.7% for those in their 50s and about 1% for those in their 60s and 70s.
Still, there's no "widespread stress" evident in lenders' portfolios, New York Fed researchers wrote in a blog post published Thursday. They noted that delinquencies remain at or below pre-pandemic levels when looking at total balances.
But for many individuals, the "financial distress is real, and the delinquent marks will impact their access to credit for years to come," the New York Fed researchers
The picture is similar for auto loans, where younger borrowers are starting to miss payments at a faster rate than those in older generations.
For borrowers in most age levels, auto loans are "slightly healthier" than they were before the pandemic, but quick transitions into late-payment status "suggest a rapid return" to 2019 levels, the researchers said.
The New York Fed's findings line up with recent comments from bankers. Several of them have noted steady upticks in loan delinquencies among some groups of borrowers, but they have not sounded loud alarms.
Credit quality among consumers has been a "mixed bag," Wells Fargo Chief Financial Officer Michael Santomassimo said this week at a Credit Suisse conference.
"You're certainly seeing a gradual deterioration in performance, but it's been really gradual," Santomassimo said, adding that "overall, it still feels okay."
The credit card company Synchrony Financial has also seen a "very linear progression in delinquency back to pre-pandemic levels," Chief Financial Officer Brian Wenzel said at the same conference. The migration to higher delinquency rates has happened more quickly among consumers with lower credit scores, according to Wenzel.
At the private student lender Sallie Mae, borrowers who were "brand new out of college"
"You can all of a sudden see very clearly why that small subsegment of customers might be very different than someone who has the exact same payment, but three years later in their postgraduate journey," Witter said on a quarterly earnings call.
The weaker financial positions of recent graduates helped drive loan charge-offs above Sallie Mae's prior expectations, and Witter said the company has since "ripped apart and reconstructed our analytics."
In the report released Thursday, the New York Fed found that delinquency rates on consumer loans "remained low" during the fourth quarter, actually ticking down a bit. Just 2.5% of outstanding debt was marked as delinquent as of December, compared with 4.7% just before the pandemic hit.
But even as overall delinquencies were subdued, the share of borrowers who had newly transitioned into that status increased for all loan types except student loans. Student loan borrowers continue to benefit from a pause on federal loan payments.
"Once payments on those loans resume later this year under current plans, millions of younger borrowers will add another monthly payment to their debt obligations, potentially driving these delinquency rates even higher," the New York Fed researchers wrote.
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The report is based on data from the credit bureau Equifax.
