A small percentage of banks tightened their credit card lending standards in the second quarter, according to the Fed, and the ABA finds that credit card use slowed down in the first quarter.
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A rising trend in credit card balances tapered off in June, according to the Federal Reserve, with consumers marginally cutting down on credit card debt.
Consumer sentiment has been positive as consumers benefit from job growth in the longest ever U.S economic expansion.
Consumer revolving debt – which is mostly based on credit card balances – dipped by $100 million on a seasonally adjusted basis to $1.072 trillion, the Federal Reserve reported in its G.19 consumer credit report. Card balances decreased by 0.1 percent on an annualized basis.
Total consumer debt – which includes student loans and auto loans, as well as revolving debt – was up $14.6 billion to $4.1 trillion, making for an annualized growth rate of 4.3 percent in June.
Student loan debt has increased by $6.8 billion to $1.605 trillion since the Fed last reported it in March. Auto loan balances have increased by $14.6 billion to $1.174 trillion since March.
Credit card lending tightens in second quarter
Banks tightened their credit card lending in the second quarter of 2019, according to the Federal Reserve’s Senior Loan Officer Opinion Survey.
“A modest net percentage of banks reported tightening lending standards on credit card loans during the same period, while most terms associated with credit cards were basically unchanged on net,” the Fed reports.
While 83 percent of reporting banks noted that their lending standards on credit cards had remained “basically unchanged,” 12.8 percent of the respondents reported that they had “tightened somewhat,” with more large banks (about 21 percent) engaging in tightening. More than 13 percent of banks had also “tightened somewhat” their credit limits for cards.
Minimum credit score requirements were also pushed up by about 13 percent of banks, with 11 percent of banks engaging in a tougher scrutiny of applications from those who did not meet their minimum credit score thresholds.
Consumers cut back on card use in first quarter
The Fed also noted that demand for credit card loans was up in the second quarter for 10.6 percent of reporting banks.
However, the American Bankers Association reports consumers slowed down their use of credit cards in the first quarter of the year. In its August 2019 Credit Card Market Monitor, which is based on input from the first quarter, the bankers’ trade group said the total number of credit card accounts rose 1.9 percent from last year’s first quarter, as the number of “super prime” accounts rose.
The numbers of these accounts, which have been growing for 14 quarters in a row, are now at a record high. The number of new accounts (which the ABA counts as those opened in the last 24 months) was down by 5 percent from a year ago, driven by a drop in subprime (down 10.3 percent) and prime (down 7.5 percent) accounts.
Credit lines were up across all categories, but they haven’t crossed the peaks reached during the recession. While average credit lines for new super-prime accounts ($10,165) were down 1.5 percent from the year-ago quarter, credit lines for subprime accounts ($2,709) rose a modest 0.3 percent.
“Weaker consumer spending and slower monthly job growth likely contributed to modestly lower monthly purchase volumes,” said Dan Smith, executive director of ABA’s Card Policy Council. “Issuers are also continuing their cautious approach in extending credit.”
Consumers well-positioned to make payments
Consumers are also cautious in their spending behavior, with credit card debt making up 5.4 percent of their disposable income in the first quarter.
“It is encouraging that credit card debt relative to income levels has remained low and steady as the economic expansion enters its eleventh year,” added Smith. “Consumers continue to be well-positioned to meet their financial obligations.”
The share of those who pay off their balances in full each month, or transactors, was down from 30.4 percent to 30.1 percent, while that of those who carry a balance, or the revolvers, was up marginally to 44.5 percent, from 44.4 percent.
In July meeting, Fed cut rates for first time since 2008
The ABA also reports that banks saw their “effective finance charge yield,” or the interest payments on the total credit they have extended, increase to 13.33 percent. This measure has moved up 2.24 percent since late 2015, in tandem with a 2.25 percent hike in the fed funds rate over this period.
The banks’ interest rate spreads over their cost of funds remained essentially unchanged for about 93 percent of the lenders, the Federal Reserve reported in its loan officer survey.
The Fed initiated a 0.25-percentage-point cut to its target federal funds rate in its July 31 meeting, as insurance against a slowing global economy and uncertainties over trade tensions with China. It remains to be seen how this will impact consumers.