When it comes?to the finances of American consumers, the viral videos produced by Caleb Hammer, a personal-finance social-media star, provide some cause for concern. His “financial audits” of debt-laden guests have amassed almost 2m followers on TikTok and YouTube in less than three years. Mr Hammer’s interviewees—typically young and foolish—scramble to justify their wild borrowing habits, to their interviewer’s growing ire.

Mr Hammer’s subjects may represent extreme examples of financial misbehaviour, but his stock of potential guests is nevertheless growing fast. Recent data published by the Federal Reserve Bank of New York show that the proportion of American credit-card debt in serious delinquency—with balances at least 90 days overdue—surged to 11% in the final quarter of last year (see chart 1). That figure has risen by four percentage points over the past two years and is back to a level last seen 13 years ago, when unemployment was twice as high as it is today. The proportion of overdue debt for car purchases has climbed, too, to a four-year high of 5%.

On the face of it, this is cause for concern. Before the global financial crisis of 2007-09, for instance, delinquencies were an advance warning of the parlous state of consumer finances. Yet rather than an impending downturn, current non-payment reflects a divergence in American household finances—not just between stronger and weaker borrowers, but between stronger and weaker lenders as well.

Rising interest rates are part of the explanation for the struggles of American borrowers. The average rate on credit cards has risen from under 15% in 2021 to over 21% today, the highest in modern history (see chart 2). Whereas homeowners are protected from rising rates by extremely long mortgage maturities, credit-card borrowers feel them almost immediately.

The current rise in delinquencies is concentrated among a group of particularly overextended borrowers, who stand out on three counts: for their age, location and creditworthiness. Much like Mr Hammer’s guests, the cohort skews young. Some 11% of borrowers between the ages of 18 and 29, and 9% aged between 30 and 39, fell into serious delinquency in the final three months of last year, compared with just 5% of those in their 60s.

Debt strugglers are most likely to be found in the poorest parts of America. According to Juan Sánchez and Masataka Mori, both of the St Louis Fed, the share of people with credit-card debt at least 30 days overdue in the least affluent tenth of American neighbourhoods rose by almost seven percentage points, to 18%, from mid-2021 to the end of last year. The share in America’s richest tenth has grown by under two percentage points, to 6%. As such, the gap between the two is the largest it has been in at least 25 years.

Delinquency is also concentrated among subprime borrowers, who have lower credit scores. Indeed, research by Jordan Pandolfo of the Kansas City Fed finds that delinquency rates among prime borrowers have not risen at all in recent years, and are still lower than in 2021, when interest rates were at rock-bottom levels.

This sort of concentrated suffering limits the risk of a broader economic slump. Most American household balance-sheets are in a much healthier condition. Although the country’s credit-card balances reached their highest nominal level on record in the final quarter of last year, they are—at about 6% of personal disposable income—comfortably in line with the norm over the past decade and a half, and well below the 8% that was reached during the borrowing binge of the early 2000s.

Yet just as America’s borrowers are divided by the health of their finances, so are its lenders. The country’s numerous small banks report delinquency rates that are more than twice as high as those in the country’s 100 biggest institutions.?In the face of stiff competition, small banks have chased customers with lower credit scores since before the covid-19 pandemic. As a consequence, they report higher charge-offs, via which unpaid customer debts are written off as a loss. As Brian Riley of Javelin Strategy & Research, a consultancy, notes, unlike larger institutions, smaller banks lack the resources to closely monitor credit scores, or to chase debtors and quickly resolve delinquencies.

With more money becoming overdue, banks are at last beginning to tighten their lending standards. A growing proportion of credit cards are being issued to “prime plus” and “super prime” borrowers—those with the strongest credit ratings—and a falling proportion to riskier debtors. Fitch, a credit-rating firm, expects delinquencies to stop rising this year.?That will be a relief for banks under pressure. But for as long as interest rates stay high, troubled borrowers face a much grimmer situation. For them, any relief looks painfully distant.?