Credit card balances fell sharply, reflecting a similar decline in consumer spending due to the COVID-19 pandemic.
8/6/2020 14:00
The Federal Reserve Bank of New York’s Center for Microeconomic Data Quarterly Report on Household Debt and Credit released Aug. 6 shows the impact of declining consumer spending during the COVID-19 pandemic on debt levels—particularly credit card debt.
Total household debt decreased by $34 billion (0.2%) to $14.27 trillion in second quarter of 2020, according to a news release on the report. This marks the first decline since the second quarter of 2014 and is the largest decline since the second quarter of 2013. The report is based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample of individual and household-level debt and credit records drawn from anonymized Equifax credit data. This latest report reflects consumer credit data as of June 30, 2020.
Reflecting the sharp decline in overall consumer spending due to the COVID-19 pandemic and related social distancing orders, credit card balances fell sharply by $76 billion in the second quarter, according to the news release. This was the steepest decline in card balances seen in the history of the data. Auto and student loan balances were roughly flat in the second quarter. In total, non-housing balances (including credit card, auto loan, student loan and other debts) saw the largest drop in the history of this report, with an $86 billion decline.
Mortgage balances, however, increased by $63 billion in the second quarter to $9.78 trillion, according to the news release.
The Fed also reports:
- Aggregate delinquency rates dropped markedly in the second quarter, reflecting increased uptake of forbearances, which were provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Note that accounts in forbearance are typically marked as current on consumer credit reports. The share of mortgages in early delinquency that transitioned to current rose to 61.1%, while there was a decline in the share of mortgages in early delinquency whose status worsened during the second quarter.
- Like mortgages, credit cards, student and auto loans also showed lower transition rates into delinquency, likely reflecting the impact of government stimulus programs and various forbearance options for troubled borrowers. Approximately 7% of aggregate student debt was 90+ days delinquent or in default in second quarter as compared to 10.8% in the first quarter of 2020. The sharp decline in student debt delinquency reflects a Department of Education decision to automatically qualify all federal student loans for CARES Act forbearances and report their status as current.
“Protections afforded to American consumers through the CARES Act have prevented large-scale delinquency from appearing on credit reports and damaging future credit access,” Joelle Scally, administrator of the Center for Microeconomic Data at the New York Fed, said in the news release. “However, these temporary relief measures may also mask the very real financial challenges that Americans may be experiencing as a result of the COVID-19 pandemic and the subsequent economic slowdown.”
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