NEW YORK—Lower-income consumers are increasingly struggling to keep up with their loan payments, according to recent data and bank executives, and the result is banks have tightened underwriting on loans for the segment, according to a new report.
“A growing number of Americans have seen their savings dwindle as rising prices squeeze budgets while interest rates stay high, bankers and economists said,” reported Reuters. “The deterioration in household finances for those earning less than $45,000 contrasts with financial resilience among those on higher incomes.”
Reuters noted that Austan Goolsbee, president of the Chicago Federal Reserve Bank, recently stated that consumer delinquencies were one of the most concerning economic data points at the moment.
"If the delinquency rate of consumer loans starts rising, that is often a leading indicator things are about to get worse," he said.
Higher Default Rates
First-time and low-income borrowers are experiencing higher default rates on their loans than people with larger incomes, said Arijit Roy, who runs the consumer business at U.S. Bancorp, Reuters noted.
“At Bank of America, net charge-offs, or debts that are unlikely to be recovered, rose to $1.5 billion in the first quarter from $807 million a year earlier, mainly from credit cards, the bank reported,” Reuters said. “JPMorgan Chase's said its charge-offs nearly doubled to $2 billion in the same quarter, while they also increased at Citigroup and Wells Fargo.”
Reuters added that Bank of America is seeing "cracks" in the finances of borrowers with below-prime credit scores whose household spending is affected by higher interest rates and inflation, Chief Financial Officer Alastair Borthwick told analysts on an earnings call.
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