Six of the biggest credit card issuers country wide are bracing themselves for higher loan balances in 2012. This increased in debt load is due to a heightened sense of confidence experienced by consumers and credit quality continuing to improve at a steady pace.
If such predictions come to pass, it would signify a positive turning point for an industry that has been rather hard hit by a slew of new Federal regulations and reluctant borrowers who significantly decreased their reliance upon credit post-recession.
“Consumers are feeling somewhat more confident [in] their ability to take on debt,” claimed Curt Beaudouin, the vice president and a senior analyst with Moody`s Investors Service, according to The Wall Street Journal.
According to Moody`s, the average combined balances of the six largest credit card companies is expected to grow by 6% this year to hit $517 billion. This is after it fell over 5% last year to $488 billion. The “Big Six” are Discover Financial Services, Bank of America, Citigroup, J.P. Morgan Chase & Co., American Express and Capital One Financial. The last year over year balance increase seen by the industry was back in 2008.
Consumer cautiousness has not been all bad. In fact, it has had the very positive result of decreasing the amount of loan write-offs and delinquency rates. However, the portfolios of the biggest lenders have also shrunk which has ultimately stunted revenue growth. Despite card use remaining strong for many banks, a greater amount of consumers have prioritized paying down their credit card balances which has hindered loan growth.
A prime source of income for credit card lenders is the interest charges that accrue on revolving loan balances, in addition to account fees like late-payment fees and annual cardmember fees. 2009`s Credit Card Accountability, Responsibility and Disclosure Act has restricted card issuers` ability to increase interest rates in some circumstances without ample notification and has eliminated the possibility of their collecting certain penalty fees.
The recent data cited by analysts indicates a greater willingness on the part of consumers to carry balances on their credit cards. Primarily comprised of credit card balances, revolving credit grew at
Revolving credit, which is primarily comprised of credit-card balances, grew at an 8.5% annualized rate in November to reach $798.3 billion, revealed the Federal Reserve recently, according toThe Wall Street Journal.
Additionally, several of the country’s largest credit card issuers reported a growth in their portfolios throughout December due to an improvement in loan performance.