Fed: banks ease grip modestly on cards in first quarter of 2017
By Fred O. Williams | Published: May 8, 2017
Expert on consumer credit laws and regulations
Banks eased their grip on credit cards somewhat in the first quarter, but demand for new cards slackened, according to a Federal Reserve survey.
"Regarding credit card loans," the Fed survey said, "a modest net fraction of banks reported easing their lending standards on credit cards during the first quarter and most terms on such loans were basically unchanged."
The Fed's Survey of Senior Loan Officers found that seven banks polled said they eased their credit standards for card applicants, while three tightened standards. Most of the 51 banks polled said their standards remained basically unchanged.
Asked about demand for cards, four banks said it was stronger, but nine said it was weaker during the first quarter.
In the previous survey, for the fourth quarter of 2016, whose results were issued last February, banks said they tightened their standards for card applicants, while demand for cards was seen as shrinking.
Minor changes to
credit card rates and practices
The quarterly survey takes the temperature of the lending market by polling a panel of up to 60 large U.S. chartered commercial banks and up to 24 large U.S. branches and agencies of foreign banks. Not all banks respond to every question.
Banks had this breakdown on changes in their terms for credit cards in the first three months of 2017:
- Interest rates: four banks raised their rates while only one decreased them, based on the spread charged over the bank's cost of funds. Forty-six banks said rates were basically unchanged.
- Credit scores: three banks said they reduced the minimum required credit score, while three raised it; 45 were basically unchanged.
- Waiver of credit score thresholds: six banks said they tightened their practices for waiving credit score thresholds for some applicants, while only two banks eased their practices.
- Credit limits: four banks raised credit limits while four banks tightened them; 43 remained basically unchanged.
Impact of weak
economic growth on credit card demand
The easing of card loans contrasted with standards for auto loans. Seven banks said they tightened auto loan standards, while none said they eased standards, and 54 were unchanged, the survey said.
The period covered by the survey was a time of weak economic growth generally, as first-quarter GDP grew only 0.7 percent, perhaps influencing demand for cards. However, economists said the slow growth was probably a blip caused by seasonal factors, not the result of weakness in the economy's fundamentals.
"The underlying drivers of consumer spending remain intact," Regions Bank Economist Richard Moody said in a recent analysis.
Balances on credit cards were essentially in a holding pattern during the first quarter, according to the Fed's consumer credit report. Revolving debt – mainly card balances – fell in January, then rebounded in February and March, ending the quarter about where they began at $999.8 billion.
See related: Fed: Card balances rose $1.9 billion in March
- New delinquencies rising for credit card users, New York Fed finds – Newly delinquent credit card accounts are accelerating, a "potentially concerning" trend, New York Fed economists said ...
- 2017 Credit Card Fee Survey: Consumers catch a break – Changes to credit card fees have decreased, foreign transaction fees are going away, and the rest can be avoided ...
- Fed: U.S. consumers shatter all-time card debt record – U.S. consumers shattered the all-time record for credit card debt in June, according to the Federal Reserve ...