CFPB Study Finds Credit Card Debt Near Pre-Recession Heights
As part of the Credit Card Accountability Responsibility and Disclosure Act (CARD Act), the Consumer Financial Protection Bureau (CFPB) issued its biennial report on American credit card usage and trends. The CARD Act was originally passed to simplify the cost structures for credit cards and bring more transparency to the industry. The CFPB noted that the act has mostly done these things while maintaining access to credit for all types of Americans.
The Bureau noticed a few trends over the past 2 years, including the expansion of rewards programs, digital account servicing tools (like online bill pay), and a slight uptick in delinquency and charge off rates. In another study earlier this month, the New York Fed also found delinquencies on the rise for subprime auto loans.
Total outstanding credit card debt has now returned to near pre-recession levels. Much of this gain has likely come from many prime users shifting common purchases and bills to their credit cards, abandoning the use of cash and checks. While credit card spending is up as a result, overall household expenses remain the same, so there is little concern that such users are living beyond their means or racking up needless debt.
Creditcards.com voiced concern over the rise in deferred interest credit card promotions. Such cards offer consumers a low introductory rate that can aggregate once the promotional period ends. If the consumer fails to pay off the balance by the end of the period, the remainder will be charged a compounded interest. This deferred interest cost borrowers about $2 billion in 2016.
Right now, more than half of all credit card debt is held by superprime borrowers with credit scores above 720. Credit card ownership for individuals with a credit score less than 620 is only 18% of the total.
As reported earlier this year, millennials have been slow to adopt credit cards, often because of recent experiences watching a family member struggle with debt during the recession a decade ago. The CFPB report did find, however, that younger generations are turning to secured credit cards, a form of credit card that requires a deposit, as a means of entering the credit field. Millions of Americans, especially young adults, are credit invisible and lack the necessary credit data to accurately calculate a credit score. In many ways, alternative financial services have ascended to fill the gap between credit needs and availability, but secured credit cards are also having a growing influence on the market.
