Banks are raising credit card interest rates, increasing minimum payments and slashing consumer credit lines. But all that hasn't deterred Americans from seeking out the plastic.
Credit card sales, applications and collections all rose in April, according to the Credit Managers' Index latest report, released Friday. April continued a three-month positive streak. Until February, credit card applications had declined along with the amount of money collected by credit card companies and the amount of credit extended to consumers.
"The consumer is more confident than expected," said Chris Kuehl, an economist with the National Association of Credit Management, which issues the report. (In fact, consumer confidence rose 46% in April from the Conference Board's March reading.) Kuehl cautioned that the NACM's findings still indicate that credit overall is contracting, but that it is contracting less.
"The trending is in the right direction," he said.
Kuehl went so far as to say the April data indicate that credit markets have finally thawed and that the economy is ready to rebound. Americans owed about $817 billion on bank credit cards as of February, according to Federal Reserve data, but that number is declining 10% annually.
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Better, but far from well
But while credit cards may be slightly easier to get now than earlier this year, banks have not returned to the bad old days of handing out plastic to just about anyone with a pulse. Political pressure to lend, spurring economic growth, is tempered by mounting concerns about the ability of consumers to pay their bills if the economy worsens. Fitch Ratings said Monday that it expects the charge-off rate on bad debts to hit 10% next year; it was just 3.1% in 2006.In data released today, more than half the bankers surveyed by the Federal Reserve said they'd raised the minimum credit score requirements for new credit cards in the past three months, and 65% said they had lowered limits on existing accounts.
By contrast, only about 5% said they had tightened requirements for installment loans such as those for autos.
It is still too early to declare the consumer credit crisis over. Investors and bank executives are still bracing for the potential fallout from the Treasury's stress tests. The government has said it plans to announce some results as early as Thursday, giving investors a better idea of which banks are best positioned to weather a sustained recession and which institutions need more capital.
Results leaked to date have not looked good for financial giants such as Citigroup (C, news, msgs) and Bank of America (BAC, news, msgs). The fear is that the Treasury will reveal that these major financial institutions and others do not have enough cash reserves to handle likely defaults stemming from a continued rise in unemployment. If they don't, higher interest rates and further reductions in consumer credit lines could be on the horizon -- spurring a consumer credit freeze just as the market appears to be thawing.
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m.j., that's what got so many people in hot water in the first place! Instead of NOT paying your CC bills, pay them all in full - and NEVER GO BACK! The only way to get off the CC treadmill is to get off now.