Americans Continue Cutting Credit Card Balances in August, Fed Reports

Oct 16, 2020Banks & Credit Unions, News

The Federal Reserve (Fed) reported last week that Americans cut credit card balances again in August for the sixth month in a row. Despite the predicted increase in credit card spending, revolving debt declined by $9.4 billion in August, leaving it at the lowest figure economists have seen since 2017.

According to a PYMNTS article highlighting the Fed data, credit unions picked up a larger share of outstanding revolving debt in August while finance companies held steady. Banks experienced a slight decline in their share of revolving debt, likely due to many Americans using non-traditional lending sources amidst the COVID-19 pandemic.

Banks, credit unions, and finance companies all increased their holdings of non-revolving debt in August. Non-revolving debt is largely made up of automobile loans, as the Fed’s data does not include residential mortgages.

Alternatively, non-profit institutions like universities and colleges dropped some non-revolving debt to the lowest level they have seen in two years.

Major types of consumer borrowing from commercial banks declined in August 2020 compared to August 2019. Four-year auto loans carried a 4.98 percent rate in August compared to 5.39 percent in 2019. Additionally, the average credit card interest rate with a commercial bank was 14.58 in August 2020, down from 15.05 percent in August 2019.

These figures do not reflect changes in borrower behaviors ⎯ including potential borrowers ⎯ that could have taken place after the CARES Act’s $600 weekly unemployment benefit program ended on August 31.

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