U.S. credit card borrowing surges; more defaults soon?

The U.S. economy is growing at just 2.5% a year, but credit card lending is rising more than twice as fast: 5% over year-earlier levels each month since last fall, accelerating to 6% in March and April, says Federal Reserve data.

That's the fastest card debt has grown since card lending fell in the 2009 recession, writes longtime credit card analyst David Hilder in a report to clients of Philadelphia-based Drexel Hamilton this morning.

Since Americans aren't earning that much more, won't delinquencies, chargeoffs and bankruptcies be rising in another year or two?

"We do not expect a rapid increase in credit-card loss rates," Hilder insists, since debt service has been "flat" at around 15% of Americans' disposable income since 2012.

That's nearly the that lowest debt ratios have been since the Fed's Debt Service Ratio survey began back in 1980.

Indeed, for the 9 dominant U.S. credit card banks, which control 70% of the Visa-MasterCard-American Express-Discover-Chinapay market in the U.S., average chargeoffs in early 2016 were 3.13% of annualized average loans, "down from a peak of 9.9% in 2009."

Of course bad mortgages were also at low levels in the mid-2000s -- after a lot of new loans were made but before they had a chance to go bad -- making loss measures a poor predictor of the 2008-09 credit crisis.

Loan-loss rates are highest -- not when bad loans are made -- but when they stop getting paid -- which can take a year or two from the time when the bills were run up.

Loan losses can be masked by aggressive new lending -- and exaggerated at banks that stop making new loans, allowing loss rates to mount.

The most aggressive/fastest growing major card lenders include Capital One, Synchrony (formerly General Electric Finance), and Wells Fargo, Hilder notes. Citi, Chase and other bigger lenders are expanding less aggressively.