Banks expect credit card troubles to mount in 2017

In quarterly Fed survey, loan officers predict rise in delinquency, charge-offs

Fred O. Williams
Senior Reporter
Expert on consumer credit laws and regulations.


Banks expect credit card holders to have more trouble making their payments on time during 2017, according to the Federal Reserve’s quarterly survey of senior loan officers.

Asked about their outlook for delinquencies and charge-offs, 12 of 48 banks said they expect card loans to “deteriorate somewhat.” Just one bank expected on-time payments to “improve somewhat." The rest expect delinquencies to remain around current levels.

While the outlook for mortgage and home equity loans was steady, “A significant net fraction of banks reported they expect asset quality of credit card and auto loans to deteriorate somewhat over 2017,” the report released Monday said.

The sour outlook comes as balances on cards climb toward pre-recession levels. Card balances are at the $1 trillion mark, Fed reports indicate. Meanwhile, the cost of carrying a balance is going up, as rates on variable credit cards rise.

On the brighter side, if late credit card payments do start to increase, it will be from historically low delinquency levels. Only 7.08 percent of all card balances, measured in dollars, were 90-plus days delinquent in the third quarter of 2016, according to the Federal Reserve Bank of New York. That was the healthiest figure on record since the series started in 2003.

Despite the gloomier outlook for timely payments this year, banks indicated they don’t plan to pull back on issuing new cards – at least not on average. Asked about the standards they will use for approving card applications, 9 of 50 banks said they expect to “tighten somewhat” – however, the same number expect to “ease somewhat.” The 32 others said their standards will stay basically unchanged.

A look ahead
Banks’ outlook for 2017 was based on a set of special questions added to the quarterly survey. Banks were asked to make their predications based on consensus estimates for economic growth and the job market this year.

In the fourth quarter of 2016, banks tightened their grip on credit cards slightly, a departure from the general easing trend in previous quarters, the survey found.

A “modest net fraction of banks reported tightening lending standards on credit cards during the fourth quarter," the report said. Terms for auto loans tightened as well, while other consumer loans remained mainly unchanged.

Asked about consumers’ demand for credit cards, more banks saw the appetite for revolving credit diminishing rather than growing. Five of 48 banks said demand was “moderately stronger,” but eight called demand “moderately weaker,” and one bank reported demand being “substantially weaker.” The remaining 34 banks said demand was about the same.

See related: Credit card resolutions abound in 2017

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Updated: 03-26-2019