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People aren't paying their credit cards and more are being shut down

Naomi Baker/Getty Images

Credit-card delinquencies, application rejections, and involuntary account closures are all on the upswing, according to a report from the Federal Reserve Bank of New York. The Fed says these developments are "potentially concerning" given the strength of the economy and comparatively low interest rates. The trends most likely indicate that credit-card companies issued debt too freely in the preceding years. But they could also signal that lenders are bracing for an economic downturn and paring back risk accordingly.

The economy is robust, unemployment is sitting at 3.7%, its lowest mark in nearly half a century, and interest rates, though moving upward, are still relatively low.

So why are credit-card delinquencies, application rejections, and involuntary account closures all on the upswing?

That's what the Federal Reserve Bank of New York would like to know.

The Fed released the results this week of its "Credit Access Survey" — a quarterly report on US borrowers — and it surfaced a couple of alarming trends that suggest credit-card issuers are getting skittish and paring back risk: Both credit-card rejection rates and involuntary account closures are on the rise.

Rejection rates for credit-card applicants came in at 20.8% in the October survey, up from 14.4% a year ago, while the rejection rate for credit-limit increases ticked up to 31.7%, compared with 24.9% a year ago.

Meanwhile, the proportion of respondents who had an account shut down by a lender reached its highest level since the Fed launched the "Credit Access Survey" in 2013. In October, 7.2% of surveyed consumers reported having an account involuntarily shut down in the previous 12 months, up from 5.7% last year and 4.2% in 2016.

Most of these account shutdowns are credit cards or retail-store cards.

A separate New York Fed report released last month, the "Quarterly Report on Household Debt and Cred...

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