June 30 is a pivotal day in the credit card industry. Delinquency risk is locked for the current year, and issuers must scramble to reduce credit losses by working out payment arrangements. If the account is in delinquent status as of that day, it is subject to charge-off before year-end.
Anything that rolls into delinquency from July 1, 2026, until June 30 next year affects 2027 credit losses. This is based on a six-month aging process, in which billing defaults are charged off at 180 days delinquent. Credit card collection managers must address each delinquency bucket and attempt to roll the account back to its current status. Collection managers must block and tackle accounts in delinquency buckets, and what is in the pipeline up until June 30 is what is at risk for the current year.
Beware of Perma-Debt
Perma-debt, coined during the 2008 financial crisis, refers to people who get stuck with credit card payments that never seem to go away. Some claim it is a credit card issuer problem. Practical lenders often acknowledge the concern but point out that budgets are getting out of hand. And budgets are getting out of whack as inflation festers. Look at gas pricing: AAA reports that the average price of a gallon of regular gas is $4.16 in Florida, up from $3.09 a year ago. And in California, we see $6.06 versus $4.81.
According to the Bureau of Labor Statistics, the Consumer Price Index showed inflation moving from 2.4% in January and February 2026, to 3.3% in March, and a whopping 3.8% in April. People have to eat and drive, and rising costs reduce households’ ability to pay off their credit obligations. Credit cards haven’t become more expensive than they were when consumers took them out, but consumers’ budgets aren’t keeping up with the financial demands.
Wall Street Journal recently highlighted several overextended credit card accounts through a series of case studies. The article, “Americans Are Falling Behind on Their $1.2 Trillion Credit Card Bill,” describes a woman earning $194,000 a year who carried a $15,000 balance on her Chase Sapphire card and faced a $572 minimum payment. It also profiles a medical assistant in South Portland, Maine, whose income fell from $65,000 after a divorce and who now receives daily collection calls from multiple creditors. Another example features a couple whose incomes declined as their relationship unraveled.
Then, instead of paying off the balance, minimum due payments come in, and the obligation lingers ad nauseam.
Is the Problem the Credit Card or the Cardholder?
One of the most important items in the CARD Act of 2009 is that card issuers could not price dynamically. Under dynamic pricing, credit risk behavior could trigger a higher rate to reflect risk. The CARD Act changed event-based pricing to lock in the rate used at underwriting.
Unfortunate events, whether they reflect changes in relationship status, employment, healthcare, or the like, arise every day. Issues like high interest rates and inflation accelerate the credit risk.
It is not that the contract changed, nor is it that the consumer mishandled their finances, but there are underlying contracts that support the credit and impose responsibilities to investors and stockholders. People do not intentionally neglect their responsibilities, but changes occur. That does not mean the card issuer should waive payment, but a call to a customer service center to work out an extended payment plan is certainly in order.
Important Implications for Credit Card Bankers
This year will likely end with slightly higher credit losses as economic events continue to play out. Watch out for 2027, though. Loan loss reserves for 2026 are already locked in and shown to be protected by DFAST. It is time to think about your 2027 MBOs—and in that, anticipate higher credit losses in late 2026, rolling into 2027.
