Americans slightly hungrier for credit, but banks remain cautious
Americans want more credit cards -- but their appetite isn't very strong, according to research released Monday by the Federal Reserve. Banks are doling out more cards with easier terms -- but the portions remain small.
In its quarterly report from senior loan officers on consumers' demand for credit and banks' willingness to supply it, the Fed found that while demand for auto loans stepped up, "only modest net fractions of banks
reported stronger demand for credit card loans and for other consumer loans."
Every quarter, the Federal Reserve polls loan
officers across the country and asks them for a three-month snapshot of what lending
was like at their bank. Monday's release covers the second quarter of 2012, as seen by loan officers representing 64 domestic banks and 23 U.S. branches of foreign banks.
The summary of their reports shows another example of how slowly the economy is recovering from 2008, when banks slammed the door on consumer credit during the worst of the recession. Since then, both banks and consumers have slowly warmed to each other, and Monday's report showed the temperature up, but by just another degree.
A small number of banks -- 10.9 percent --
said they made it slightly easier for consumers to qualify for a new credit
card. The rest left their credit standards alone.
The good news for consumers is that none of the
banks said they made it harder to qualify for credit. However, many of those who have applied for credit recently likely found that the amount of credit
they qualified for hasn't changed much.
More than 13 percent of banks said they observed a moderately
stronger demand for credit in the third quarter of 2012; almost all the rest said
that the volume of demand is about the same.
Despite the slight uptick in demand, most banks say
that gaining access to credit hasn't
changed much at all from the previous quarter. For example:
Just 11.6 percent of banks said they increased
consumers' credit limits in the second quarter of 2012, while 7 percent said
they cut them somewhat. Meanwhile, more than 79 percent of banks said that they
kept their credit limit standards the same.
Most banks also reported leaving
consumers' credit card interest rates alone. One respondent said his bank raised
consumers' APRs somewhat, while another reported lowering them.
Two banks said the minimum
amount due on a credit card was raised somewhat, while one bank said it lowered it
considerably. However, most banks -- 93 percent -- left that part of a consumer's
A slightly larger number of banks -- 7 percent
-- said that they lowered the minimum required credit score to qualify for a credit
card, and none of the banks said they raised it. However, 93 percent said they
left that critical threshold the same.
Similarly, most banks remained reluctant
to change their existing policies for consumers who don't meet the minimum
required credit score for a card. Almost all (97.7 percent) of banks said they did not
increase or decrease the number of loans extended to consumers who didn't
meet their credit score requirements. Just one bank said it relaxed its
cautious, but still hungry, say experts
Fed survey isn't the only report to show that banks are reluctant to take
bigger risks on consumers. Researchers outside the Fed have also found other indications
that credit card issuers remain guarded. For example, the
number of credit card mailings sent to U.S. households is down
significantly compared to the same time last year, according to new research from Mintel Comperemedia.
Issuers sent slightly more offers to U.S. consumers
in the second quarter of 2012 than in the first quarter -- 831 million offers
in the third quarter compared to 819 million in the first, according to Mintel
However, during the same period in 2011, the number of offers that consumers
received in the second quarter hit
1,301 million, says
Andrew Davidson, senior vice president at Mintel Comperemedia.
"In 2012, card issuers have adopted a more cautious
approach due to an uncertain economic environment," wrote Davidson in an email.
"Citi and Chase who dominated the mailbox last year have cut back significantly
along with issuers such as Bank of America and American Express."
Despite the fewer offers, however, experts don't believe
that the smaller volume of credit card mailings means lenders are less eager to
court new customers. "I don't think they're
pulling back," says the Tower Group's Dennis Moroney. "I think they're trying
to figure out the best channel" to reach consumers. Credit card mailings are expensive,
he says, and issuers are responding by becoming more targeted with the offers
Moshe Orenbuch, a managing director at the financial
services firm Credit Suisse, cites J.P Morgan Chase as an example of banks'
different approach to reaching new consumers. Chase cut back its number of
credit card mailings the most of any issuer. However, the issuer is "still
marketing in a meaningful way," he says. "They said earlier this year ... that they expected to spend a comparable amount on marketing, just
less on mail," added Orenbuch in an email.
expect that higher volumes of credit card mailings will likely return later on.
"The latest downturn likely reflects a pause in activity rather than signifying
a permanent reduction in direct mail," said Mintel Comperemedia's Andrew
Davidson. "A tough competitive environment and continued innovation within the
credit card space suggest the decline may only be a temporary hiatus rather
than a longer term trend, as card issuers seek ways to stand out from
It's also likely that issuers will pick up their activity
once the economy improves, he added. "Credit card direct mail is cyclical, with
volume trends reflecting the peaks and troughs of the Dow as a barometer for
the health of the U.S. economy," explains Davidson. "Once the long-term outlook
for the economy gains more solid footing, confidence -- and direct mail
volumes -- will return."
See related: Americans want more credit, banks slowly ease credit restrictions
Published: August 6, 2012