Credit card use moderated in the first quarter of 2018, according to the American Bankers Association’s latest quarterly Credit Card Market Monitor. Compared to the previous quarter, purchase volumes fell 4-6 percent across risk tiers. On a year-over-year basis, purchase volumes rose across risk tiers, led by an 8.9 percent increase for super-prime accounts and a 6.2 percent increase for prime accounts. Subprime purchase volumes grew more slowly compared to a year ago (up 2.1 percent) and are essentially flat relative to early 2016 levels.
The July 2018 Monitor, which consists of credit card data from January through March 2018, also found that the number of new accounts (those opened in the previous 24 months) declined compared to year-ago levels for the first time in nearly seven years, reflecting a 6.3 percent drop in new subprime accounts. The total number of open credit card accounts expanded in the first quarter on a year-over-year basis, but at its slowest pace in over five years.
Average credit lines among all accounts rose across risk tiers compared to the previous quarter, but remain 10-25 percent below recession-era peaks. Among new accounts, average prime and super-prime credit lines fell 0.5 percent and 0.6 percent, respectively, while average subprime credit lines rose 2.5 percent —remaining 14 percent below post-recession highs.
“As the economy continues to expand at a solid pace, sustained job growth is pulling working-age Americans off the sidelines and back into the labor market,” said Jess Sharp, executive director of ABA’s Card Policy Council. “Now that they’re working again, these consumers are better positioned to manage credit, and card issuers are responding by increasing credit access with lower credit lines that can rise over time with a good payment history.”
Consumers Continue to Prudently Manage Credit Cards
Credit card credit outstanding as a share of disposable income fell 21 basis points to 5.52 percent in the first quarter, the largest quarterly decrease since early 2014. The decline reflects a seasonal pattern of deleveraging following holiday spending in the previous quarter. This metric remains well below recession-era levels and near post-recession lows.
The effective finance charge yield (which measures interest payments relative to total outstanding credit in the market) rose 27 basis points to 12.49 percent. This increase echoes the federal funds rate hike that occurred last December. The Fed has raised rates 50 basis points this year and expects to raise them another 25-50 basis points by year end.
Data from the first quarter also show that the share of Revolvers (those who carry a monthly balance) increased 0.8 percentage point to 44.8 percent, while the share of Dormant accounts fell 0.7 percentage point to 25.8 percent and Transactors (those who pay their monthly balance in full each month) were unchanged at 29.5 percent.
“Lower tax rates are putting more money in consumers’ pockets, and both consumer and business confidence remain elevated,” Sharp said. “It is encouraging to see monthly purchase volumes slowly rise while credit card leverage remains muted. This combination bodes well for consumers and economic growth in the months ahead.”
The full report with detailed charts and statistics is available here.
About the Credit Card Market Monitor
The American Bankers Association Credit Card Market Monitor is a quarterly report that provides key statistics on industry trends and relevant economic factors affecting the industry. The credit card data used in the report is taken from a nationally representative sample provided by Argus Information Services LLC. Credit card data are presented as national averages for all accounts based on actual credit card account information. No individual account holder’s information or specific financial institution’s data can be identified from the data set. Other data used in the report are taken from various public and private sources, including the Department of Commerce’s Bureau of Economic Analysis and the Federal Reserve.
Answers to Frequently Asked Questions and definitions of the data presented in the ABA Credit Card Industry Monitor can be found in an Appendix attached to the monitor.
Results of this and all previous reports can be found at www.aba.com.
The American Bankers Association is the voice of the nation’s $17 trillion banking industry, which is composed of small, regional and large banks that together employ more than 2 million people, safeguard $13 trillion in deposits and extend nearly $10 trillion in loans.