Despite an improving economy, credit card delinquency rates have remained persistently high over the past couple of years. Following the pandemic, delinquency rates initially dropped as the economy recovered, reaching a low of around 1.5% in 2021. However, this figure has since climbed to 3.2%—the highest level since 2012.
Even more worrisome is the disparity between larger and smaller banks. According to the New York Fed, the credit card delinquency rate among the 100 largest banks was 3.11% in Q3 2024. In contrast, smaller banks reported a significantly higher rate of 7.48%. The Fed defines delinquent loans and leases as those past due by 30 days or more and still accruing interest, as well as those in nonaccrual status.
What explains the stark difference? One factor is the ability of larger banks to manage delinquent customers more effectively. The majority of credit cards are issued by these major banks; in fact, among the 7,000 companies that issue credit cards in the U.S., 95% of cards are issued by the top 10 credit card companies.
“The larger banks have a great deal of collection capacity in terms of their call centers and agents,” said Brian Riley, Co-Head of Payments at Javelin Strategy & Research. “They can move through the delinquency process very quickly and efficiently.”
Larger banks also have access to analytics that smaller banks may lack. These tools make their credit card origination process more reliable, helping to screen out higher-risk customers from the start.
Additionally, economies of scale play a crucial role. Larger banks can spread their risk across a much broader pool of borrowers. “At a smaller bank, it just takes a couple of bad loans for them to really hurt the overall numbers,” said Riley.
A Small Bounceback
If there’s a bright side for smaller banks, it’s that their delinquency rates have started to tick down. After peaking at 7.83% in Q2 2024 , there has been a modest decline in recent months. However, the current crest over the past year has put this number higher than it’s been since the Fed started collecting this data in 1991.
“It might seem like a David and Goliath fight,” Riley said. “But small banks need to have a credit card business of some sort so they can protect their market. Every bank should have a play on credit cards. Just like if you don’t have a debit card, you really don’t have a consumer bank.”
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