Rising Credit Card Debt and Defaults Prompt Fresh Thinking Across the Subprime Industry

Time For Fresh Thinking Across Subprime

You’ve seen the figures. According to the Federal Reserve, the total amount of credit card debt reached $1 trillion in 2023, on its way to $1.17 trillion in the third quarter of 2024.

Additionally, the Financial Times recently revealed that the total amount of credit card defaults for the first nine months of 2024 was $46 billion, which is more than at any other time since the Great Recession in 2008.

These signs indicate that consumer credit card debt is reaching unprecedented heights, and they serve as a stark reminder to brainstormers across the subprime lending sector to adjust to changing market conditions.

The ones that can do that most seamlessly will be the ones that emerge stronger than they were before.

As far as I’m concerned, Inauguration Day is a great day to mark as a starting point.

I always place stats such as the total credit card debt number in context to gain a broader sense of their significance. Soon after we reached the $1 trillion mark, the Fed began comparing total credit card debt to income growth and inflation and landed on a less alarming perspective than the headlines heralded.

Check out this graph from the St. Louis Fed’s FRED blog that illustrates my point. Relative to total income, total credit card debt is actually lower than it was before the COVID-19 pandemic and “essentially equal” to Q1 2020 when measured against the Consumer Price Index.

Data from St. Louis Fed blog.
Data from a table from the St. Louis Fed’s FRED blog showing total credit card debt in absolute terms (blue), indexed against inflation (green), and indexed against income (red), where we’re still ahead of where we were before the pandemic (gray vertical line).

That doesn’t mean we’re not on our way to $1.2 trillion or more of total credit card debt when the fourth-quarter Fed data hits the street in mid-February. If I were you, I’d be willing to bet on that.

The default stat is harder to pin down. I believe it’s a nominal figure — not adjusted against any index — and I can’t find evidence to the contrary.

Either way, the numbers signal a kind of inflection point in the subprime lending industry. Challenges such as persistent inflation, higher interest rates, and loss of disposable income are forcing more consumers to make decisions they don’t want to make about their credit cards.

I can’t draw cause-and-effect connections, only argue that while the reality behind the numbers may be more nuanced than the news suggests, the implications of the behaviors we’re seeing are clear.

Combine that with the widespread impression that tariffs and other disruptions could lead to even more economic pressure in 2025 than in 2024, and you’ve got a situation that affects every part of your organization.

Helping your institution navigate these challenges is your responsibility, whether you’re on the front lines or the back office. As 2025 dawns and newness seems everywhere, let’s look at how things might shake down in your part of the business.

  • Analytics shakeups: Risk and finance teams can expect market evolutions that may require strategic reconceptualization. While each team will have to adapt differently, they’ll share the imperative to adjust in response to competitive shifts, trends, and events.
  • Product innovations: Product marketing teams are going to have to solve for the revised insights that result. As expectations change, there may be a lot of arithmetic to revise to maintain and extend customer relationships in ways that boost profitability.
  • Executive buy-in: At the same time, there needs to be conversations about what the future means in terms of brand strategy, organizational risk tolerance, compliance, and other higher-level concerns. If your world is changing, so will your organization.
  • Messaging changes: Meanwhile, marketing teams ought to be casting for new ways to communicate evolving perspectives. If it’s your job to tell your institution’s story, prepare for twists and turns in the plot.
  • Systems adjustments: The tech behind the data, content, workflows, and everything else associated with internal pipelines needs to be reliable, flexible, and ready to adapt to future changes.
  • Customer concerns: As the saying goes, perception is reality, and change impacts people at different paces in unpredictable ways. Now is the perfect time to ensure that every team member who interacts with customers understands who they’re speaking to and the challenges those customers face.

Sure, it’s more of the same in some ways because change is constant. But you’ve got to admit that 2025 looks off the charts, and it’s putting the $1 trillion credit card debt and the announcement about defaults reaching a 14-year high in a different light.

Those numbers aren’t just industry markers but manifestations of potential shifts ahead. There’s no reason to expect those possibilities to recede until consumers tell us they have.

Today, of all days, doesn’t seem the time to predict smooth sailing ahead. Subprime lending organizations with the most seamless ways of channeling insights across the value chain (among many other things) have the best chance of emerging into the future in an improved position.