Household Debt Increases During 3Q, But Number of Consumers With Debt in Collections Plummets

The number of individuals with an account that has been placed with a collection agency continued to hit record lows in the third quarter, even as the average collection amount per person increased, according to data released yesterday by the Federal Reserve Bank of New York. Less than 8% of consumers had a debt in collection during the third quarter, which is the lowest that figure has been in the 17 years that the bank has been tracking the data. This correlates to anecdotal evidence that I have been hearing that placement volumes at agencies have slowed significantly in recent weeks.

Forbearance programs offered to consumers for many of their financial products helped keep overall delinquency rates lower during the third quarter, according to the report. The expiration of those forbearance programs, without any further intervention or stimulus packages from Congress, could lead to a significant spike in delinquency and default rates as well as accounts placed with collection agencies.

“Notably, balances and delinquency rates across debt products remained largely stable in the third quarter,” said Donghoon Lee, research officer at the New York Fed, in a statement. “The data likely reflects improvements in economic activity and the labor market, as well as the positive impacts of temporary relief measures provided through CARES Act provisions or offered voluntarily by lenders.”

Across all credit types monitored by the report — mortgages, credit cards, auto loans, student loans, and home equity lines of credit — the share of each that was at least 90 days past due fell in the third quarter, compared with the second quarter of 2020.

Overall, total household debt increased by $87 billion during the third quarter, to stand at $14.35 trillion. The increase offset a drop in debt from the second quarter, when many consumers used stimulus funds to pay down their debts. Credit card balances held by consumers dropped $10 billion, to $810 billion. That followed a $76 billion decrease in credit card balances during the second quarter.

It is possible that a looming financial crisis is being masked by the forbearance programs being offered to consumers, or the additional time that consumers have had to get back on their feet may have have kept them from falling off a financial cliff when those forbearance programs expire.

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