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Middle-income consumers over age 35 are under the greatest economic pressure and pose the highest default risk for credit card issuers during the present economic downturn, a recent study by Javelin Strategy & Partners suggests. In "Credit Card Issuer Profitability in a Difficult Economy," the Pleasanton, Calif.-based financial-consulting firm surveyed cardholders and credit card executives to gauge the downturn's effects. Javelin found that consumers between 35 and 64 years old with annual household incomes of $25,000 to $49,000 reported the greatest difficulty in paying off their credit cards and were most likely to default on their card accounts. Some 38% of surveyed consumers in this middle-income sector reported a decreased ability to pay off their monthly card bills compared with 28% of respondents overall. "To remain profitable, card issuers must increasingly rely on interest income from cardholders that carry a balance, yet this group is associated with higher risk," the researchers wrote. To offset heightened risk, Javelin's researchers concluded that issuers must "constantly analyze the changes in lines of credit offered (to existing cardholders) and the payment changes those cardholders make to assess the risk level of the (card) portfolio." Nearly 70% of credit card executives responding to the survey said their institutions had reduced cardholder-acquisition efforts, and 60% said they had reduced credit lines to existing customers. Some 53% of executives said their institutions had experienced losses related to the economic downturn, while 46% said their institutions had not been hurt by the downturn. Javelin gathered the report data in April through an online survey of 1,500 U.S. consumers and from interviews with 13 credit card-industry executives.
