Higher Bank Card Delinquencies Reflect
Deeper Penetration

Perhaps the most striking trend in the credit card market over the past two decades has been the deep penetration of the bank credit card product across all income and age groups. The chart nearby displays the dramatic increase between 1983 and 1998 in the percent of U.S. households who own at least one general purpose credit card (Visa, MasterCard, Discover, American Express). The data derive from the Federal Reserve Board's series of Surveys of Consumer Finances. These nationally representative household surveys have been conducted every three years since 1977 to provide a benchmark of household wealth. The 1998 survey found that every income segment of the population has enjoyed substantially improved access to the versatile bankcard product.

The credit card industry these days is often accused of making too much credit available and pushing their products on consumers without regard to income or ability to repay. Critics forget that for the past quarter century, federal policy has encouraged the credit-granting industry to make loans and other financial services available to a broader segment of the U.S. population. Legislation such as the Community Reinvestment Act specifically mandated that banks find ways to offer their products and services to lower-income households. The Fed's Surveys of Consumer Finances document the industry's success with respect to the bankcard product. Credit card ownership is still strongly associated with income, but low income no longer eliminates a consumer from being considered for a bank card.

One of the consequences of deeper penetration into the risk pool has been a steadily rising delinquency rate across bankcard borrowers. As a percentage of dollar receivables, bankcard delinquencies and chargeoffs have experienced the typical, cyclical pattern over the past two decades, rising (with a 12-18 month lag) during periods of rapid credit growth and subsequently declining as lenders tightened their standards. The nearby chart displays data from Moody's Investors Services that tracks the payment performance of 200 individual credit card-backed securities reflecting over $250 billion of bank card receivables.

The data in the chart are not seasonally adjusted so performance trends are best judged through comparisons with the same month in previous years. Through December, 1999 delinquencies and losses in securitized portfolios had been declining steadily on a year-over-year basis for the previous 18 months. However, the absolute level of both delinquencies and chargeoffs remained higher than at a comparable point late in the last business cycle (i.e., 1988-89). For example, approximately 7 years into the expansion period of the 1980s, the Moody's index chargeoff and delinquency (30 or more days) percentages for December, 1989 were 3.79 and 4.76, respectively. In contrast, the corresponding chargeoff and delinquency percentages in December, 1998 (7.5 years into the current expansion) were 5.92 and 5.04, respectively.

Between 1989 and 1998, the number of U.S. households owning bankcards rose by over 16 million. Researchers at the Federal Reserve Bank of New York have found some interesting changes in the characteristics of bankcard owners through the past decade which further signal a riskier cardholding population. Between 1989 and 1995 the mix of cardholders shifted such that lower income households held a growing percent of all cards. On average, bankcard owners had fewer liquid assets by the end of the period, and borrowers in blue-collar occupations increased their share of all bankcard debt. Generally, debt burdens rose as did the average bankcard borrower's willingness to use debt.

Data from Trans Union's TrenData database confirm that the aggregate pool of bankcard holders in the U.S. has become riskier over the past decade. Despite an extraordinarily favorable economic climate which has raised both employment and household incomes, the percent of all bankcard owners who are delinquent on one or more of their cards has risen steadily since 1992. Note that this statistic differs from the delinquency series often quoted in the press (such as the Moody's series) which measure delinquencies as a percentage of either accounts or dollars outstanding. The TrenData delinquency figures are more reflective of the average borrower's experience. The percent of bankcard borrowers delinquent 30 days or more on at least one of their accounts reached 3.4% in the first quarter of 2000, the highest first-quarter reading since the series began in 1992 and the second highest percentage for any quarter during the period.