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.”

——————————–

Latest Insights:

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. In the November 2019 Mobile Order-Ahead Report, PYMNTS talks with Dan Wheeler, Wahlburgers’ SVP, on how the QSR balances security and seamlessness to secure its recently launched WahlClub loyalty program.

Click to comment

TRENDING RIGHT NOW