CFPB says credit card debt is back at pre-recession level

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The Consumer Financial Protection Bureau on Wednesday reported that outstanding consumer credit card debt last year had surpassed the peak set during the recession.

Credit card debt hit $807 billion in the fourth quarter of 2016, according to the 352-page report released by the agency. Consumers held average credit card balances of more than $4,800 at the end of last year, the highest figure the CFPB found in its data, which runs through mid-2017.

The report noted that large banks had a return on credit card assets last year that was three times the overall return on assets for commercial banks.

The CFPB said the credit card market is largely stable with one key exception: rising interest rates on variable-rate accounts. Though the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 generally prohibits credit card issuers from raising interest rates on existing balances, the law allows issuers to raise rates on many cards when an index rate increases. Many issuers have taken advantage of that loophole.

"Several increases in background interest rates have occurred, and issuers have generally increased interest rates on their customers’ accounts accordingly," the CFPB said in the report.

Competition for credit cards with rewards has heated up. Annual rewards spending among the six largest credit card issuers more than doubled to $22.6 billion in 2016, from $10.6 billion in 2010, the CFPB said. The top six issuers spent $6.2 billion on rewards in the first quarter of 2017, a 22% jump from the $5.1 billion spent a year earlier.

"The sign-up incentive that one large issuer offered during the launch of a new premium card was so large that employees were reported to be 'questioning whether the card would make money and when,' " the CFPB said, referring to JPMorgan Chase's Sapphire Reserve credit cards.

Annual spending on credit cards hit $3.1 trillion in the fourth quarter of 2016, triple the volume of $1.1 trillion in 2000. Meanwhile, total outstanding credit card debt on general- purpose cards hit $716 billion in the fourth quarter of 2016, just below the peak of $733 billion in the third quarter of 2008, the CFPB said.

Private label credit card debt hit $91 billion in the fourth quarter of 2016, a 20% jump from the fourth quarter of 2014, and a 52% increase from the fourth quarter of 2005. Combined, all credit card balances exceeded $800 billion in the fourth quarter of 2016 for the first time ever, the CFPB said.

The agency said it now is using five tiers in reporting consumer credit scores, up from four tiers previously. The primary change comes from dividing subprime consumers with FICO scores below 620 into two distinct groups. "Subprime" borrowers are those with credit scores ranging from 580 to 619, while "deep subprime" borrowers have credit scores of 579 or lower.

The CFPB said the range it previously referred to as "core subprime," with scores ranging from 620 to 659, is now called "near prime."

"We intend this change in credit score tiering to allow us to examine outcomes for consumers with lower credit scores in more detail," the CFPB said.

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