Credit Card Delinquencies in U.S. on Rise for Smaller Issuers

(Bloomberg) -- Despite a 50 basis point decline in the U.S. 10-year note yield since late July, the average interest rate on credit cards continues to hover close to record levels, newly released data from the Federal Reserve show.

The U.S. prime lending rate, the rate that commercial banks to charge their most credit-worthy customers, has fallen thanks to easier Fed monetary policy. But the spread between the prime rate and the average annualized rate on credit cards widened to a record at the end of August.

Credit Card Delinquencies in U.S. on Rise for Smaller Issuers

Many issuers have been competing for new customers with richer rewards rather than lower rates. They may also be maintaining this record spread because risks are brewing, underscored by a pickup in delinquency rates at smaller issuers of cards. Fed data show a growing gap between delinquency rates for the 100 largest banks compared with all others. Delinquent accounts for the largest banks were at 2.44% in the second quarter, while other banks saw the rate spike to 6.34% from 5.73% the prior quarter. At 3.9 percentage points, the spread between the two measures is also at an all-time high.

Credit Card Delinquencies in U.S. on Rise for Smaller Issuers

U.S. consumers’ love of credit cards is apparent. Spending on Visa Inc. and Mastercard Inc. credit cards has surged to a record in recent years, propelling the combined market value of the two largest card networks to more than $600 billion.

Credit card issuers have been busy adding customers. Since 2010, more than 100 million new accounts have been created, bringing the total to 486.5 million in the U.S. as of the second quarter. These new accounts and increases in credit availability within existing accounts have increased potential credit card spending power to $3.8 trillion -- an increase of $1.1 trillion since 2010. Credit card debt outstanding has increased to $870 billion.

Credit Card Delinquencies in U.S. on Rise for Smaller Issuers

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