Credit Card Balances Anticipated Growing in 2011
Good news. The hard times getting credit are over— well for some. According to the January 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices, it seems that the banks are becoming more lenient when issuing credit for commercial and industrial loans, in addition to business, household, and consumer loans.
Strict rules and regulations that previously stopped consumers from getting credit cards and loans have changed. Large banks in particular reported more lax standards on commercial and industrial loans, but the changes in terms for household loans were small and mixed. Banks seemed to be more willing to make installment loans and a small percentage reported an easier application process for approving credit cards, according to the survey.
The survey reported that about 50 percent of banks are expecting to see an improvement in the quality of credit card and other consumer loans.
Chairman and CEO of Discover Card believes that a reduction in credit acquisition policies means that it will be easier for new credit consumers to run up credit balances. He may be wishfully thinking, as statistics show that consumers have wised up and are taking better care of their credit, if they in fact choose to use credit over debit and cash methods.
According to a Credit-Land.com financial analyst, Rupert McAllister, “it is in the consumers’ hands whether or not easier access to credit cards means more spending. We do not have the adequate data, but reports have shown that consumers are taking better care of their credit, which leads us to believe that credit card debt will not increase.”
In the fourth quarter, a small percentage of banks reported easier standards on consumer credit cards and non-credit-card loans. Twenty percent of banks reported that they expected improvement in nontraditional closed-end loans. Thirty five percent of banks expect improvement in home equity loans, and close to 40 percent expect to see improvement in prime closed-end loans. Large banks were more likely than smaller banks to express these high expectations.
Contradictorily, a few banks admitted to reducing credit lines on existing consumer credit card accounts. Approximately 20 percent of banks explained that they reduced lines of credit for commercial construction, and demand for prime and nontraditional closed-end residential real estate loans had fallen. The demand for closed-end loans has declined for two consecutive surveys.