NEW YORK–Credit unions watched other card issuers spend this year raising interest rates, lowering credit limits, and pulling back on direct mailings as charge-offs mounted.
Analysts are now suggesting credit unions can expect much of the same in 2009, when losses are expected to continue rising and new regulations due out from the Federal Reserve Board are expected to curb issuers’ ability to reprice customer accounts. In fact, observers say, issuers’ baseline standards have changed, and they will be marketing to a much smaller pool of consumers for the foreseeable future. This shift, combined with consumers’ newfound economic caution, is expected to magnify the long-running trend for debit card growth to outpace that of credit.
“There will be a large voluntary, and involuntary, migration to debit,” said Brian Shniderman, a director of the banking team at Deloitte Consulting LLP who focuses on credit cards. “Credit is going to be something that not everybody gets to have.” Issuers may, in three to five years, return to “loosened” lending standards, he said, but they “probably won’t ever go back to where it was.”
Duncan MacDonald, a former general counsel of Citigroup Inc.‘s Europe and North America card businesses, said it could take even longer for the pendulum to swing back. “It may be 10 years before we get back to where we were a year ago,” he said. “Bankers today are going to have to do what they did 20 years ago”–segmenting customers and pricing up front for risk.
Late last month, Meredith Whitney, an analyst at Oppenheimer & Co. Inc., predicted that tightening standards at top issuers would cause as much as a 45% decline, or cut up to $2 trillion, in the credit amount available to U.S. consumers during the next 18 months.
According to the Fed, non-mortgage household debt grew at an annual rate of 1.2% in the third quarter, the slowest pace for any quarter since at least 2002, to $2.61 trillion. Revolving consumer debt, excluding loans secured by real estate, contracted at an annual rate of 0.2% in October, to $976 billion, according to the Fed data. It was the first monthly decline since April.
