Subprime card applicants still facing tight credit

Fed loan officers survey shows long-term shift in lending standards


The economy may be sunnier, but people with less-than-perfect credit are still getting a chilly reception from credit card issuers, a survey of bank loan officers found.

Card issuers are less receptive to subprime borrowers now than they have been over the long run, according to the Federal Reserve's Senior Loan Officer Survey.

Subprime card applicants get cold shoulder

The bankers were asked to compare their current credit card lending standards to those in effect since 2005. Almost a quarter -- 23 percent -- said standards were easier for prime borrowers today than in the past. That number fell to just 18 percent for subprime borrowers.

At the other end of the scale, only 19 percent said they were tighter for prime borrowers, while 27 percent of the respondents said standards were tighter for subprime borrowers.

"The issuers are still very much watching for credit risk," said Madeline Aufseeser, senior card industry analyst at Aite Group. "I would say they'll approach that market gingerly."

The survey, included as a special question on July's edition of the quarterly poll, supports the view that the card market has shifted away from the subprime market since the Great Recession. Only 22 banks responded to the question about handing out cards to subprime borrowers, less than half the 47 that answered the question about prime borrowers.

Issuers these days are focusing on the higher tiers of the card market, Aufseeser said. "There's a big push to differentiate cards in the higher end," she said, "adding a lot more features to attract and retain higher-end users." The moves target not only applicants with high credit scores, but also those with high incomes, who can be marketed wealth management services.

The Fed's quarterly survey has chronicled a gradual easing of card lending standards since the great tightening of the Great Recession, and July's edition of the survey followed that pattern.

Quarterly changes
Asked how their standards for card applications changed over the April-May-June period, four of 52 banks said standards "eased somewhat." According to the Fed's summary, "A few large banks reported having eased their standards for credit card loans." None said they had tightened standards. Three of 50 respondents said their credit score requirements and credit limits "eased somewhat," while none tightened. One bank said it eased requirements for minimum balance repayment.

Banks also continued to see demand for cards grow overall. Eight said demand was "moderately stronger," while six said it was "moderately weaker." Most -- 36 -- said demand was "about the same."

The view from the other side of the loan officer's desk is somewhat brighter. In a survey of consumers in June, the Federal Reserve Bank of New York found that rejection of card applications is falling. People who reported being turned down for a card loan in the past year fell to 13.5 percent of card applicants, down from 20.2 percent of applicants in the reserve bank's previous survey in February. However, those results did not detail the experiences of prime and subprime borrowers.

See related: Fed survey finds banks easing grip on cards

Published: August 4, 2015

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Updated: 10-26-2016

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