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Even as credit card delinquencies appear to be leveling out and more consumers are catching up with their credit card debt, card issuers may be poised to tighten credit card lending one more notch. According to a recent FICO study, while experts expect to see an increase in credit demand over the next months, bank risk managers overwhelmingly predict a cut in credit availability across the board.
The study, which was conducted by the Professional Risk Managers’ International Association and sponsored by Fair Isaac, the company that originated FICO credit scores, surveyed 127 bank risk managers from institutions ranging from local financial institutions to global mega-banks with over $40 billion in assets.
While more than half of the bankers expected consumer demand for credit to go up as the economy begins to stabilize, according to the survey, a full 92 percent expected industry lending standards to hold steady or grow tougher. 95 percent of those surveyed predicted that interest rates would either stay at their current, historically high rates or climb even higher; 83 percent anticipated that the average credit limit on new credit cards will shrink further in upcoming months.
Despite that fact that credit card delinquency rates have been improving for many large credit card issuers, many of those surveyed quoted concerns over delinquency rates as one reason they would be tightening credit terms: nearly 60 percent said that they expected to see an increase in credit card delinquencies in the future
In the FICO survey, many bankers also cited the new Credit CARD Act as an influence in the shift of credit supply/demand; 85 percent said that even while the Act intends to protect consumers from predatory lending practices, it is likely to prompt many card issuers to further raise interest rates and cut credit limits on newly issued credit cards.
The FICO survey is yet another indication that after the near-economic collapse at the end of 2008, risk management has moved to the top of bankers’ agenda. With most credit card issuers still smarting from record credit card defaults, it’s no surprise that credit cards lending is a prime focus for such efforts. Despite forecasts for a slowly improving economy, financial institutions are more aware than ever of their vulnerability to macro-economic forces. The majority of bankers interviewed expected risk management to continue its climb up the priority ladder; not a single interviewee expected it to decline in importance.
With card issuers increasingly focused on cutting losses and hedging their bets, consumers with less than excellent credit are likely to have to come to terms with the fact that credit cards no longer may offer readily available credit. For American consumers used to having credit cards to help make ends meet, this could be an unwelcome reminder that, historically speaking, easy access to credit has been the exception, not the rule.
