Credit Card Borrowing To Grow ‘Modestly’ During Second Half, Moody’s Predicts

Signals are mounting that consumer credit card borrowing will begin to grow again this year after going into a decline at the start of the recession in fall 2008. But it will be at least a few more months until that trend is solid, according to economists at Moody’s Investors Service.

It is “probably too early” to expect to see sustained growth in the overall pool of card outstandings, but the Federal Reserve Board’s latest data on consumer revolving credit show that card outstandings are close to hitting bottom and by the second half of this year will begin to grow again “at a modest rate,” Moody’s said in a Feb. 18 report.

Card outstanding balances in December grew for the first time in more than two years, increasing by $2.3 billion to $800.5 billion from $798.2 billion the previous month, according to the Fed (see story).

Moody’s is closely watching to see if January’s outstandings data, which the Fed plans to release March 7, will show a continuation of that trend.

“One month ... does not make a trend,” but by the second half of this year, card outstandings should begin to grow steadily again, “supported by firmer consumer spending, reduced net charge-off rates, and some loosening lending standards by issuers,” Moody’s analysts noted in their report.

But overall credit card borrowing also is likely to “bounce along the bottom” for several more months before showing steady growth, Robert Hammer, chairman and chief executive of credit card consulting firm R.K. Hammer, tells PaymentsSource.

The lack of certainty in housing prices and jobs could prevent consumer borrowing from resurging for “a year or two,” Hammer says.

Evidence that some issuers are seeing more customers who pay off their balances each month instead of those who carry over balances also will keep a damper on credit card outstandings, Hammer suggests.

Capital One Financial Corp. was among a handful of issuers that told analysts when reporting fourth-quarter earnings that “transactors,” or those who pay off their bills each month, are driving the most significant growth in their credit card purchase volume (see story).

But at least one issuer, Cherry Hill, N.J.-based TD Bank Group, seeks to counter that trend with a new card product that encourages borrowing by rewarding only those who revolve their balances (see story).

“The recession caused a systemic change in the way consumers handle their finances, so more people are spending within their means and using debit cards. And issuers are seeking to find a balance in the mix by going after responsible borrowers,” Hammer says. “Credit card borrowing will come back, but in a more disciplined fashion, and it will not return to the levels we saw during the first several years of this century.”

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