Fed Reports Emphasizes that card lending standards are tightening further

If the latest reports from federal experts are to be believed, getting a credit card is a lot more tougher, come 2010.

The report which revealed the data accumulated from senior loan officials revealed that banks are getting more stringent about their lending standards. This will impact both small business and consumer credit cards. It must be noted that since 2007, this is the 11th consecutive quarter where measures are bing taken to tighten the process of getting credit cards. The banks, however, are trying to negate this effect by making it much easier to obtain other kinds of loans as the noncard loan standards are seeing more flexibility.

Banks are quoting conditions like worsening economic conditions and Credit CARD Act's restrictions as the reasons for getting more choosy about lending. This hesitancy to lend is compounded with high interest rates, slashing credit limits and requiring higher minimum credit scores. Though only 66 percent of the banks have acknowledged the tightening lending standards, getting credit cards seems a lot tougher than before.

Banks Extend Lending Limit

The latest survey reveals that while a mere 6 percent of banks eased the lending standards, nearly 15 percent of them tightened the credit card lending. The past survey had shown that 90 percent of banks had made no amendments to their leading standards but this time, the number fell to 78 percent though this still signifies the majority.

The Fed has been conducting surveys on banking executives to understand the lending standards and the changes in supply of loans and demand for loans in the past three months. The summary of results from 56 domestic banks and 23 US branches and agencies of foreign banks were analyzed. The results revealed that as part of the changes for new or existing cardholders for the past three months, 27 percent have raised interest rates while 12 percent have increased the credit scores required for the credit card.

The direct impact of this is seen on the saving patterns of the people. While getting loans is getting tougher, people are relying more on their savings account for their purchases which is contributing to the dip in the savings.

Anuj Shahani, director of competitive tracking services for Synovate, a direct-mail marketing research firm said "U.S. consumer spending rose at the fastest rate in three years and contributed to a 3.2 percent growth in the GDP gives us confidence to believe in the U.S. Consumer". His e-mail said "We probably got into this mess due to our lending standards (or a lack thereof), and so it's not a bad thing that the issuers are observing some type of restraint and are being more selective. This certainly looks like a move in the right direction."

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.