As Consumers Pay Down Credit Card Debt, Bank Margins Suffer

The Financial Times reported earlier this month that bank card loans declined significantly since the onset of the COVID-19 pandemic as consumers in the United States make progress in paying down their credit card balances. The total amount of card loans held by banks was $755 billion, down $100 billion from prior to the pandemic, and balances have fallen even lower within the last four weeks.

According to Matt Komos, vice president of research at the credit agency TransUnion, consumers “are not spending on restaurants and movies, and a big chunk of the decline is travel too. We used to see a pretty good surge around the holidays, but our survey suggests there is a lot of hesitancy to spend.”

Data from TransUnion show that the number of Americans opening new accounts fell almost 50 percent year over year, down to 8.6 million in the third quarter. This negatively impacted banks profitability; card revenue for Citigroup fell 18 percent compared to 2019 and a Wells Fargo analyst projected that credit card spending would stay down throughout the remainder of the pandemic, according to PYMNTS.

Komos noted that government stimulus checks, increased and improved insurance benefits, and payment holiday benefits had been the main aids to consumers paying down their credit card balances. “I would be surprised if it was a weak Christmas, but it is really hard to forecast,” he said.

PYMNTS reported in October that U.S. consumers had been paying down their credit card balances for the sixth month straight. Additionally, revolving debt was down $9.4 billion in August compared to July, the lowest it has been since 2017.

Also in October, J.P. Morgan reported earnings of $2.92 a share and Citi reported $1.40 a share, both of which are ahead of their consensus estimates. PYMNTS projected that those earnings could fare well for families living paycheck to paycheck.