Bank Card Issuers Prepare for Next Downturn

Recent comments by two large credit card issuers suggested that the card industry has moved into a new stage of preparation for the eventual end of the nation’s decade-old economic expansion.

Discover CEO Roger Hochschild said that loan growth across the credit card industry is modestly slower than it was last year.  This development is attributed partly to softening retail sales and partly to card companies’ tighter credit policies.  “Most issuers are becoming marginally more conservative,” Hochschild said.

Revolving consumer credit grew by 3.1% across the industry last year, according to the Federal Reserve, its slowest increase since 2013.

Capital One Chairman and CEO Richard Fairbank said that his company has held back on the amount of credit it offers to customers who carry a balance on their card each month.

These remarks were the latest sign that the credit card companies, which are more exposed to recessions than many other lending businesses, are anticipating another downturn.  According to a recent Fitch Ratings report, some of the largest card issuers have reduced credit lines and terminated inactive accounts over the past year — moves that should limit their eventual losses.

There are also some signs that a weakening U.S. economy has already started to hit the credit card business, though the evidence on that front is more mixed.

Typically, the percentage of credit card customers who are delinquent on their bill falls between the fourth quarter of one year and the first quarter of the following year, as consumers use their tax refunds to pay down debt, Fitch stated.  But that trend did not hold last quarter – 2.3% of credit card loans at the largest general-purpose card issuers were at least 30 days late in the first quarter.

Fitch expects asset quality in the credit card business to deteriorate further during the rest of 2019, due to both a weaker economic environment and seasonal trends.

Source: American Banker/Fitch Ratings