While overall delinquency numbers on the new debt have not been discussed, there are several more specific trends:
Delinquency and credit card balances are disproportionate to the 18-34 age demographic.
Those with a lesser knowledge of financial implications are affected at a higher rate
States in the southern half of the country have higher rates of delinquency on credit cards than northern states.
What can be done to reverse the recent trend of increased dent loads? Many solutions have been proposed from interest rate caps to altering the processes and rules to file bankruptcy. This issue has been discussed by nearly every Democratic Presidential candidate. Let’s look at a summary of their public positions:
Bernie Sanders – Alexandria Ocasio-Cortez has proposed a cap of 15% on credit card interest and this has been adopted by the Sanders campaign. (Currently average rates are 17% for good credit, 25% for poor credit and 30% for store cards.) Sanders also proposes eliminating predatory debt collection practices and instituting a government run credit agency (effectively replacing the current credit reporting agencies)
Elizabeth Warren – Warren proposes allowing states to set their own interest rate caps. She also appears to favor bankruptcy reform by suggesting the number of insolvent individuals increased 25% after the 2005 tightening of regulations.
Pete Buttigieg – He has shown sympathy toward younger borrowers and even discussed his own student loan debt. While he has not released a specific plan, Buttigieg appears to agree there is a problem with the current process.
Joe Biden – There has been no mention of any Biden proposals. However, Biden has been widely criticized for his support of the 2005 bankruptcy reform and for protecting Wall Street. Biden is also a long-time Delaware representative where credit card companies have been based due to lax usury laws.
So, what is the solution? Usury laws are already on the books in most if not all locations and would seem to restrict access to credit if lenders were unable to account for the risk. Will bankruptcy rule relaxation help? Maybe. Borrowers would have easier access to discharging their debts but may have unintended consequences to the cost of credit or increasing the under-banked population.
Education may be the best solution. Empowering consumers with the knowledge of credit and how the cost of borrowing impacts their personal budget and allowing the consumer to drive the market makes sense. Borrowers with knowledge could then determine what types of financial terms make sense to their situation without being denied credit due to additional caps, regulations and unintended consequences.