Financial Inclusion

U.S. Credit Card Debt Is Surging

According to new reports, the amount of U.S. credit card (and other types of revolving debt) has exploded to $18 billion in just the last three months - triggering concerns among experts that Americans are getting a little too debt-happy when the U.S. could be staring down the barrel of a recession.

Debt levels via credit cards and overdrafts have started growing at their fastest rate since the pre-crisis days of 2007 - which economists think is somewhat problematic, since the U.S. election is likely to slow down economic growth nationwide for a year, given the level of uncertainty in play (Trump).

At the bank the increases are pretty sobering: credit card loans are up by 10 percent per year at Wells Fargo, 12 percent at Citigroup and 16 percent at US Bank. SunTrust led the pack - with  26 percent growth to $200bn for the Atlanta-based lender.

And as of right now, the card business is a good one to be in - lenders charge between 12 and 14 percent interest annually - and borrower defaults remain historically low.

For now.

“In the present environment it’s probably a safe strategy, but as we saw with housing in 07/08 that environment can change very rapidly,” said Nancy Bush, banking analyst at Georgia-based NAB Research. “They need to be very careful.”

“Times are pretty good right now, but it’s questionable how long it’s going to last," noted Bob Hammer, a credit-card consultant.

And fault lines are appearing - Synchrony Financial, the largest supplier of store-branded cards in the US, increased its credit loss forecast in June.  And they aren't the only ones predicting a loss uptick - or preparing for one.

Capital One added $375 million to its loan loss reserve for its domestic card business and JPMorgan Chase added a $250m loss allowance for its credit-card portfolio.

“We’re growing our direct consumer lending portfolio at a very rapid pace,” said William Rogers, chairman and chief executive of SunTrust. “That is indeed helping to mitigate the effect of [pressure on profit margins] overall.”

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NEW PYMNTS DATA: HOW WE SHOP – SEPTEMBER 2020 

The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.

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