Increased Consumer Credit Usage = Profits For Banks

After a few years of subdued consumer credit card activity, revolving credit is on the rise again and many card issuers are amping up their efforts to attract new customers by introducing new, enticing marketing campaigns.

According to a recent announcement made by Bank of America, the amount of new accounts opened during the fourth quarter grew some 53% from one year ago. The amount of new purchases charged to cards also increased while the amount of outstanding debt declined. Other lenders have also reported seeing a recent growth in receivables.

While the holiday shopping season very likely helped to cause such an increase, many experts are crediting a growth in consumer confidence as well. After making a concerted effort to control their spending and pay down debt post-recession, consumers are now more comfort in their ability to use credit cards effectively and responsibly.

In addition to more cautious borrowing, card issuers were way more cautious lending. In the years following the Great Recession most banks were only willing to extend lines of credit to the most creditworthy consumers they could find.

All of this caution has caused lenders to come out ahead - account delinquencies and charge offs are at near-record lows for many lenders which has resulted in there being less of a need for them to set money aside, earmarked to cover bad loans. And, because more and more borrowers are paying their credit card bills on time, banks are becoming increasingly more aggressive in their pursuit of new customers.

Throughout the country, American consumers received some 447 million credit card offers in the mail in November alone. That number of solicitations is up from 346 million the year prior, according to data released by market research firm Mintel Comperemedia.

Another contributing factor to the growth of consumer credit card use is perhaps due to the fact that most big banks have raised fees on their other banking products, including checking accounts, and eliminated perks attached to the use of debit cards such as rewards programs.

Banks have been attempting to steer consumers away from paying with debit cards in favor of paying with credit cards ever since the Federal cap on debit card interchange fees was enacted in the fall of 2011.

Reports from the Federal Reserve indicate that revolving credit, the primary bulk of which is credit-card balances, increased at a seasonally adjusted annualized rate of eight-and-a-half percent in November to hit $798.3 billion.

Bryant Park

Bryant Park is a financial consultant for one of the companies listed on Wall Street. He writes on a variety of topics ranging from credit cards to different loans that can be availed by consumers. He holds a bachelor degree in Financial Services from Dartmouth College.