Fed Data Shows Credit Unions Making Gains With Cardholders and Non-Revolving Debt

Spending on the cards may be slowing, non-revolving debt is still rising, and credit unions — as shown by the Federal Reserve’s latest data on consumer trends — are seeing account balances swell a bit.

Which speaks to some of the hallmarks of these smaller banks, as detailed in PYMNTS own coverage: Personalized approaches seem to be paying off.

The Fed’s data showed that overall total outstanding credit grew at a seasonally adjusted annual rate of 2.1% in August, after rising at a rate of 6.3% in July.

During August, revolving credit decreased at an annual rate of 1.2%, while nonrevolving credit increased 3.3% as measured against a year ago.

Not Yet Factoring in the Rate Cuts

August’s data is decidedly backward looking, and the latest Fed survey does not capture the impact of the central bank’s first rate cut in four years that came in September. If inflation continues to wane, the read across is that consumers may feel a bit more sanguine about recharging the charge cards. The jury’s still out, as noted in Monday coverage of the Fed’s release, as to what the holiday shopping season will bring.

Looking through the tables that accompanied the Fed’s release, the data shows some of the progress made by credit unions, as they’ve been holding more revolving credit on the books. The total revolving credit outstanding held by those firms stood a $83.9 billion in August, up from $83.1 billion in the previous month; August’s reading does not indicate where things stood at the end of the quarter (that would need September’s results), but the tally’s up from $82.5 billion at the end of the second quarter.  And though the third quarter data is not complete yet, the third quarter of 2023 showed $79.2 billion in revolving debt held by credit unions.

There’s a bit more lumpiness seen in non-revolving debt trends. At the end of August, the Fed data shows, consumer credit outstanding in this category at credit unions was $575 billion, up from $573.8 billion in July, which in turn was a consecutive gain over $572.1 billion in June. The third quarter of 2023 outstanding non-revolving level of $582.3 billion was the recent high water mark, but as the more recent month-over-month trend indicates, the account balances at credit unions are moving up.

It may be more telling to gauge the percentage increase seen since before the pandemic: The Fed’s levels of credit outstanding since 2019 were $66.5 billion, and so the latest amount represents a roughly 26% jump. That’s a faster pace than the roughly 22% pace estimated for the larger depository institutions (read: bigger banks), albeit off a much larger base, as revolving credit outstanding grew from $983.6 billion to $1.2 trillion over the same timeframe.

The Fed’s data comes at a time when PYMNTS Intelligence, in the report “Local Roots: How Community FIs Can Win the Digital-First Generation,” estimated that more than half of Gen Z and millennial consumers were contemplating a switch to community banks, with 47% eyeing CUs as viable alternatives.

“The trend underscored a growing dissatisfaction with the impersonal service often associated with larger banks,” we wrote. In a separate interview with PYMNTS, Jeremiah Lotz, senior vice president, product and data experience at Velera, said that digital tools and engagement have been key to helping smaller banks find favor with consumers, adding that  “all generations have had higher demand, and higher expectations, of digital capabilities” from their financial institutions.

“Every generation is asking for new functions and new features, and even providing information through the digital channels that maybe we didn’t expect a few years ago when it comes to applying for credit cards and loans, for example.”