U.S. consumers on lower incomes face loan stress while banks pull back

U.S. borrowers on lower incomes struggle with loan payments as banks tighten credit amid rising delinquencies

U.S. borrowers on lower incomes are increasingly struggling to keep up with their loan payments, according to recent data and bank executives, prompting banks to become more cautious about dishing out credit cards and car loans.

A growing number of Americans have seen their savings dwindle as rising prices squeeze budgets while interest rates stay high, bankers and economists said. The deterioration in household finances for those earning less than $45,000 contrasts with financial resilience among those on higher incomes.

Austan Goolsbee, Chicago Federal Reserve Bank President, said on April 19, that consumer delinquencies were one of the most concerning economic data points at the moment.

"If the delinquency rate of consumer loans starts rising, that is often a leading indicator things are about to get worse," he said.

First-time and low-income borrowers are experiencing higher default rates on their loans than people with larger incomes, said Arijit Roy, who runs the consumer business at U.S. Bancorp .

At Bank of America, net charge-offs, or debts that are unlikely to be recovered, rose to $1.5 billion in the first quarter from $807 million a year earlier, mainly from credit cards, the bank reported on April 16. Rival JPMorgan Chase's said its charge-offs nearly doubled to $2 billion in the same quarter, while they also increased at Citigroup and Wells Fargo.

Bank of America is seeing "cracks" in the finances of borrowers with below-prime credit scores whose household spending is affected by higher interest rates and inflation, Chief Financial Officer Alastair Borthwick told analysts on an earnings call.