Credit Card Fed Report Shows Americans Increasingly Slipping Into Minimum Payments

The credit card market is sounding warning bells. The Federal Reserve Bank of Philadelphia’s latest Q4 2024 report shows an increasing proportion of consumers who pay nothing more than minimums on credit cards — the worst trend in over 10 years. 

It’s an indicator of financial pressure threatening to have repercussions across the subprime lending space.

From the report, “The percent of accounts making the minimum payment hit a new 12-year high in our data, rising an additional 25 basis points from last quarter’s previous series high.” 

Even worse, delinquencies in credit card accounts — specifically those 90 days late — also hit series highs. These trends reveal consumers are under increasing pressure.

Although some seasonal fluctuation is normal, the overall direction is concerning. Since Q4 2019, 30-day delinquencies have increased 22 basis points, 60-day delinquencies have increased 18 basis points, and 90-day delinquencies have risen 14 basis points. 

In isolation, each of those numbers may look modest — but collectively, they reflect a pattern of distress.

This is significant from a subprime lending point of view. Subprime consumers tend to live near the edge, and an uptick in missed payments can snowball, turning into a chain of defaults. Increased delinquencies mean it becomes more challenging to collect — and costlier to manage risk.

Notably, while consumers increasingly fall behind, banks continue to increase credit availability — albeit unevenly. As the Fed explained, “The 90th percentile current credit limit increased year over year by $1,000 to $19,500. Credit limits for this cohort had risen by less than $4,000 over the prior 11 years combined.” 

That’s one of the biggest increases in the series. In contrast, the median credit limit has remained at $5,000, so most Americans have experienced little increase in spending power.

This implies that issuers are taking care of their star performers. People with high credit ratings and stellar payment records are enjoying bigger limits and better terms. 

Subprime consumers who have low ratings and thinner credit files are stuck with frozen limits, higher interest rates, and an increased likelihood of becoming delinquent.

For subprime lenders, this is a competitive pressure point. Mainstream banks are scooping up top customers, leaving subprime issuers stuck serving the riskiest segments. 

That has always been part of the business model, but as consumer fundamentals worsen, distinguishing good risks from bad becomes increasingly difficult. Lenders have to bet more on non-traditional underwriting strategies to detect potential delinquencies early.

Paying only minimums can seem innocuous — after all, consumers remain current — but it’s usually an indicator of trouble, as it signifies an inability to pay off balances. And when average APRs are at near-record highs, that balance balloons fast.

This is particularly dangerous in the subprime market. These consumers pay higher rates to start with, and their budgets may be squeezed by housing, transportation, and inflationary expenses. It becomes difficult to escape the minimum-payment trap.

Subprime lenders should take heed. Minimum payments preserve near-term cash flow but mask underlying affordability issues. A high percentage of minimum payers can presage future charge-offs, and portfolio risk could increase should employment lose steam or inflation rekindle.

The new numbers place consumer credit’s vulnerability in the limelight. For mainstream banks, this may translate to tighter terms and increased reserves. For subprime lenders, however, the risk is even greater.

This is a market in which early detection and precision underwriting will be paramount. That can include embracing cash flow-based underwriting or real-time payment tracking.

A few subprime lenders are already investigating alliances with data aggregators to view borrower capacity more clearly. In a riskier environment, nuance is as key as ever. 

Lenders who can pivot — presenting flexible repayment terms, creating smarter models, and flagging problem accounts in time — may survive this cycle better than their peers. 

The Philadelphia Fed’s report is an alarm call. Now, the industry’s reaction remains to be seen.