‘Minimum-Payment Effect’ Covers Growing Number of Credit Card Users

For American consumers, making minimum monthly credit card payments is becoming the norm.

That’s according to a report Saturday (Jan. 25) by The Wall Street Journal (WSJ) on an uptick in credit card spending among consumers.

For example, JPMorgan Chase, the largest bank in the U.S., said in its earnings report earlier this month that it was seeing higher revolving credit card balances.

And Capital One said recently that the number of card users making only minimum payments was above pre-pandemic levels.

“We’re seeing this minimum-payment effect across this credit spectrum. I’m not making a point here about the low end of the market or even about subprime,” said CEO Richard Fairbank during an earnings call last week.

Fairbank added that consumers are in good shape by and large, but that some are experiencing the cumulative effects of inflation and interest rates more than others, especially those whose incomes haven’t kept up with increasing prices.

According to WSJ, a recent report from Federal Reserve Bank of Philadelphia echoed banks’ earnings, showing that revolving credit-card balances in the third quarter reached their highest levels in data going back to 2012. The number of consumers making only the minimum payment also crept up.

WSJ said these trends are due partly to easier access to credit, with card companies having relaxed underwriting standards during the pandemic, when government stimulus funds helped fuel spending while keeping delinquency rates low.

More cards were granted to riskier consumers, who have since been pressured by inflation, Charlie Wise, senior vice president of research and consulting at TransUnion, told WSJ.

“They’re dealing with a lot in terms of cost-of-living challenges,” Wise said. “Many of these consumers aren’t homeowners, and we’ve seen significant increases in rent, as well as groceries, gas, child care and insurance.”

As covered here last week, other Fed data — this from the Federal Reserve Bank of New York — shows the pressures facing lower income consumers.

Findings from the bank’s December 2024 SCE Household Spending Survey showed that just 37% of households earning under $50,000 per year made at least one large purchase during the last quarter of the year, an all-time low. Bigger purchases were mostly confined to median-income or higher-income households.