The last time household debt service reached those proportions was in the final quarter of 1986. The Fed figure is an average. For many Americans, the monthly payment burden is much higher, of course. The strain of making payments is starting to show. Meanwhile, the credit card delinquency rate climbed to 3.34 per cent of accounts, up from 3.22 per cent a year ago.
Banks have countered by tightening their lending standards, economists note.
Banks are responding as they normally do in the late stages of any expansion by pulling back,'' said Gary Schlossberg, senior economist with Wells Capital Management. Even though rates on credit cards, car loans, personal loans and home equity loans are likely to drop, some consumers could find themselves facing a tougher time winning approval from lenders, he said. People with marginal credit histories probably will bear the brunt of this credit-tightening, said Doug Duncan, chief economist for the Mortgage Bankers Association of America. Lending to consumers with poor or non-existent credit soared in the 1990s, which has contributed in part to the higher delinquency rates. But for many Americans, the latest rate cut will provide some breathing room.