Source: CreditandCollectionsWorld.com and SourceMedia, Inc.
Research and advisory firm TowerGroup says that banks have loosened approval
standards for credit cards to attract balances from consumers who are no longer using home equity lines of credit, and that consumers are increasingly relying on credit cards to manage their debt.
Dennis Moroney, senior analyst in TowerGroup’s Bank Cards practice, cites data from the Federal Reserve Board’s Senior Loan Office Opinion Survey on Bank Lending Practices, which indicates that banks have tightened standards for non-credit card loans – such as mortgages and home equity loans ¬– but loosened standards for credit cards. An example is accepting lower FICO scores for card applicants.
Consumers who previously used home equity lines of credit to repay their credit card bills and can no longer tap into that resource will begin to revolve credit card debt at higher rates, Moroney predicts. Both card balances outstanding and delinquencies will continue to grow as a result.
“Consumers will not adjust their spending behavior and high-risk consumers will increase their dependence on credit cards to revolve their balances now that the escape hatch [provided by home equity] has been closed,” Moroney writes in his report, released Monday. Americans’ credit card debt currently exceeds $880 billion, according to TowerGroup. Issuing more new credit cards will stimulate consumer spending, Moroney says.
In analyzing four economic factors that influence both the U.S. economy and consumers' spending behaviors – unemployment, consumers’ debt, confidence and savings – TowerGroup forecasts that even if many Americans do moderate their spending in the coming months, the number of consumer loan delinquencies will continue to rise.
The loosening of standards will mean business opportunity for those companies that support credit risk management. Software providers, scoring companies, call centers, automated customer interactive communication providers, collection agencies and debt buyers can all “expect business increases from this shift,” Moroney says.