According to new reports, the amount of U.S. credit card (and other types of revolving debt) has exploded to $18 billion in just the last three months – triggering concerns among experts that Americans are getting a little too debt-happy when the U.S. could be staring down the barrel of a recession.
Debt levels via credit cards and overdrafts have started growing at their fastest rate since the pre-crisis days of 2007 – which economists think is somewhat problematic, since the U.S. election is likely to slow down economic growth nationwide for a year, given the level of uncertainty in play (Trump).
At the bank the increases are pretty sobering: credit card loans are up by 10 percent per year at Wells Fargo, 12 percent at Citigroup and 16 percent at US Bank. SunTrust led the pack – with 26 percent growth to $200bn for the Atlanta-based lender.
And as of right now, the card business is a good one to be in – lenders charge between 12 and 14 percent interest annually – and borrower defaults remain historically low.
For now.
“In the present environment it’s probably a safe strategy, but as we saw with housing in 07/08 that environment can change very rapidly,” said Nancy Bush, banking analyst at Georgia-based NAB Research. “They need to be very careful.”
“Times are pretty good right now, but it’s questionable how long it’s going to last,” noted Bob Hammer, a credit-card consultant.
And fault lines are appearing – Synchrony Financial, the largest supplier of store-branded cards in the US, increased its credit loss forecast in June. And they aren’t the only ones predicting a loss uptick – or preparing for one.
Capital One added $375 million to its loan loss reserve for its domestic card business and JPMorgan Chase added a $250m loss allowance for its credit-card portfolio.
“We’re growing our direct consumer lending portfolio at a very rapid pace,” said William Rogers, chairman and chief executive of SunTrust. “That is indeed helping to mitigate the effect of [pressure on profit margins] overall.”