Banks begin to extend consumer credit, target those with balances
Today all across the country thousands of consumers are receiving a flattering letter, a billet-doux of sorts, that makes them feel accepted and loved by their charming credit card company. The letter, which reeks of enthralling affectation characteristic of a no-good ex hoping to reconnect, informs them that their credit line has been increased, that because of their improved credit or on time payments they can now spend more money they don’t have. The exciting moment causes giddy consumers to forget how bad the relationship was just a few years ago. They begin to daydream about how they will spend this new money—perhaps a trip to Disney, a dinner for two, or simply bills. So begins the sad story of mass recidivism, the return to American overconsumption enabled by those god-awful credit cards.
My hunch just a few weeks ago served me right and was verified by The Wall Street Journal this week: For the first time since the Great Recession started in 2008, banks are beginning to make many more loans to consumers. In general, this isn’t a bad thing, but the extension of credit to consumers who haven’t quite learned the lesson of good credit management will pick up old habits and overextend their obligations. This is likely the case with those who carry balances. These revolvers are the target of credit card companies looking to increase profits quickly. Thus, as revolvers spend more and creditors increase loans, we could see a return to the unhealthy credit card debt levels of early 2009.
Here are a few important statistics from The Wall Street Journal article:
- Bankcard loan originations increased 17% in the third quarter of 2010 as compared to the third quarter of 2009.
- Bank of America CEO Brian Moynihan told analysts last month that industrywide, credit-card holders who carry balances "have actually started to borrow just a little bit more: not a lot, but 3% or 5%."
- At Discover, customers who revolve their credit-card balances increased their spending in September, October and November.
Read the entire article at The Wall Street Journal.