Analysts point to growing economic inequality as the reason for this situation. Ted Rossman, a senior analyst at research firm Bankrate, told CNN that auto mortgage defaults are higher now than during the financial crisis, which is why car prices have risen. In addition, more people than ever are now using credit cards to meet their daily needs.
However, the Federal Reserve considers this situation somewhat unusual. They say the U.S. unemployment rate is now very low and the labor market is strong, so the reason why people tend to default on credit card debt is not exactly clear. The Fed said that further investigation will be done in the future to find out the reason, people’s lifestyles are changing. So people may be living beyond their means or it may be a sign of real financial stress.
Despite this, the default rate is slightly lower than in the pre-pandemic era. The reason for this, the Fed said, is that mortgage lending standards are now much higher than they used to be.
Ted Rossman also said that high inflation and high credit card interest rates are driving this default trend. Apart from this, the situation may also arise due to population growth, e-commerce shopping and strong economy.