Research and Statistics

Fed: Banks modestly lower barriers to credit cards


Banks are swinging open their vault doors wider for businesses, but consumers are seeing only slightly easier access to loans — including credit cards

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Consumers are clamoring more loudly for credit cards, and banks are making it slightly easier to get them, the Federal Reserve said in its senior loan officer survey for the first quarter.

Of the surveyed banks, 7.4 percent said they had “eased somewhat” their credit standards for credit card applications from individuals and households. The rest said that their standards were about the same.

Despite the modest loosening of restrictions, demand for credit cards is outpacing access to them. Of banks in the survey, 18 percent said that demand for plastic is “moderately stronger” over the first three months of the year, excluding normal seasonal factors.

The quarterly survey, which includes 68 U.S. banks, polled loan officers between April 2 and April 16 about conditions for consumer and business lending during the first quarter.

Since the financial crisis in 2008, the Fed’s loan officer survey has tracked a sharp crackdown in the availability of credit, followed by a gradual return of both access and demand for it.

During the recession, banks cut credit limits on cards and balances plunged — partly as a result of charge-offs of unpaid loans, and partly because of belt-tightening by wary households.

While demand for credit cards seems to be outpacing lenders’ willingness to open new accounts, that doesn’t mean consumers have entirely recovered their confidence and are seeking a return to the pre-recession days of go-go spending, said Michael Walden, economics professor at North Carolina State University.

“I think consumers will remain cautious,” he said. However, the tightening of household budgets in response to the financial crisis and recession has built a pent-up demand for durable goods such as appliances, which in turn is generating more need for credit.

Bank loan officers indicated they are more interested in making secured loans and business loans than riskier, unsecured credit card loans.

  • Credit limits on new and existing cards showed more progress than other credit standards, as 10.4 percent of banks said limits “eased somewhat” and 2.1 percent said they “eased considerably.” Only 2.1 percent said that credit limits “tightened somewhat.”
  • Interest rates on outstanding balances showed little movement, with only 6.3 percent of bankers saying that the spread between their rates and the cost of funds narrowed — meaning lower rates for consumers — while 2.1 percent said the spread widened.
  • Credit score requirements for card applicants “eased somewhat” at 8.3 percent of surveyed banks, while 2.1 percent tightened their standards.

“There’s some evidence the very strict FICO scores you previously needed have come down a bit,” said James Marple, senior economist at TD Economics. But while consumers’ have seen the door open wider for auto loans, “on the revolving [credit] side, it’s still been very weak.”

The survey found that 12.1 percent of banks “eased somewhat” their standards for consumer auto loans during the first quarter, while only 1.7 percent tightened.

Demand for prime home mortgages strengthened for the fifth consecutive survey, the Fed said, while access to home loans eased marginally.  Of surveyed banks, 9.1 percent said standards for prime mortgages “eased somewhat” and 1.6 percent said they tightened.

Businesses had an easier time getting access to bank credit, the survey revealed. Of banks responding, 19.1 percent said they eased access to commercial and industrial loans for large and middle-market firms during the quarter, and none said they tightened access.

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