Fed Reports Card Borrowing Up In December, But Analysts Urge Caution

Published February 08, 2011, 3:23 p.m. EST

Updated February 08, 2011, 2:23 p.m. EST

1 Min Read

U.S. credit cardholders boosted their overall borrowing in December for the first time in more than two years, according to a Feb. 7 Federal Reserve G.19 report. But card issuers should not break out the champagne just yet, analysts say.

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Overall revolving credit, 98% of which is credit card debt, rose 0.3% in December to $800.5 billion from $798.2 billion a month earlier, reversing a 25-month trend of steady declines throughout the recession. Credit card borrowing peaked at $976.8 billion in October 2008.

The data indicate credit cardholders are beginning to dig out of the recession, but the increase in card borrowing most likely is a seasonal blip, Scott Strumello, an associate with Auriemma Consulting Group, tells PaymentsSource.

“Historically, we have seen a bump in overall credit card borrowing over the holidays. And while the last two years were unusual in terms of consistent declines, the latest data are most likely a sign that we are heading back to more normal trends,” Strumello says.

Issuers may be “cautiously optimistic” that the overall declines in credit card borrowing may have bottomed out, but no evidence has appeared yet to suggest consumers are increasing their card borrowing, Strumello says.

In fact, it likely will be “two or three years” before the card industry sees overall loan-growth rates at prerecession levels, Robert Hammer, chairman and chief executive of credit card consulting firm R.K. Hammer, tells PaymentsSource. “This (December increase) was, simply put, a customer fourth-quarter rise in purchases,” he says.

The card industry will not see a significant rise in card loans until 2013 or 2014, when the jobs and housing markets return to healthy growth levels, Hammer predicts. Certain issuers may experience stronger loan growth than others during the next several months, but card-industry borrowing as a whole will not “jump” this year, he says.

The Fed released a study earlier this month suggesting that some banks are beginning to ease credit card underwriting standards (see story). But stricter underwriting standards generally remain in place as the economy continues to be relatively sluggish, analysts say.

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