Lending standards of 85% of banks remain, disadvantages seen

The Federal Reserve has recently reported in a survey, that the lending standards of 85 percent of the banks issuing credit cards remain the same.

The overwhelming majority of banks did not opt for changes in their lending standards, even if the other 12 percent of large banks loosened their lending standards and another three percent tightened their criteria for new credit card applications, the Federal Reserve said.

The Federal Reserve said there were apparent disadvantages to existing cardholders whose banks did not opt to loosen their lending standards for the past three months. One of which, is the credit card limit decrease that banks entitle their cardholders. Of the 85 percent of banks with unchanged lending standards, the Federal Reserve says 7.9 percent lowered their credit card limits, while the rest maintained the original amount without a single bank that attempted to increase.

Banks that did not change their lending standards, increased credit card interest rates by 7.9 percent, and the minimum credit scores for a consumer credit card were also raised by 2.6 percent of the.

The Federal Reserve is also quick to point out that large banks were almost all unlikely to extend lines of credit to business cardholders. Small banks offer more opportunities; the Federal Reserve then suggests securing lines of credit more from these small banks.

In the Federal Open Market Committee's monetary policy made public recently, the Federal Reserve still maintains that tight credit has contributed to the consumers not using their credit cards anymore. The Federal Reserve says other factors include slow growth in housing, wealth, income and high unemployment rate, stalling household spending, etc.

Direct mail-marketing research firm Synovate financial services group director Anuj Shahani, said the reason why it matters for credit cardholders to actively use their cards is because they overwhelmingly contribute to US GDP. He said that with tight credit and other factors taken into consideration, these are major disadvantages to the existing credit card account owners. The consumers need to realize the impact their spending has on the economy once again.

Shahani notes that 70 percent of the country's GDP is due to consumer spending. This is something he hopes will be apparent in the market, despite the lack of incentives for a lot of credit cardholders to get back at their economic activities.

Shahani concludes that if only the existing cardholders can be given more benefits, then their role in the economy can be better realized.

Doug Nicholas

Doug Nicholas, a financial consultant by profession with a Masters degree in International Business from Brown University, is also an ardent writer. Though he has a full time job at one of the companies listed on Wall Street, he does manage to squeeze in time to follow his passion. He puts his ideas to words in his articles related to finance and business.