Credit card use increased in the third quarter of 2019, according to the American Bankers Association’s latest quarterly Credit Card Market Monitor. Seasonally adjusted purchase volumes rose among prime (+0.8% or $3.85/month) and super-prime (+0.2% or $1.07/month) accounts compared to the previous quarter, consistent with solid consumer spending growth during the same period, while subprime purchases fell slightly (-0.3% or $0.67/month). On a year-over-year basis, purchase volumes increased moderately for super-prime (+4.4%) and prime (+5.5%) accounts, while subprime account spending grew more modestly (+1.9%).
The February 2020 Monitor, which consists of credit card data from July through September 2019, also found that the number of total accounts eased slightly compared to the prior quarter, marking only the second decrease since 2013. On an annual basis, total open accounts increased for super-prime (+3.0%) and subprime (+2.0%) accounts, but fell for prime accounts (-0.9%). Meanwhile, new accounts (accounts opened in the previous 24 months) declined on a year-over-year basis for the seventh consecutive quarter, a trend driven by declining subprime and prime account originations.
Average credit lines grew across risk tiers for all accounts compared to the previous quarter, including new accounts. Prime accounts led the third quarter’s growth, with credit lines increasing 1.4% among all prime accounts and 1.3% among new prime accounts. The steady rise in credit lines in recent years reflects solid wage growth and unemployment near a 50-year low, enabling issuers to slowly expand credit lines across risk tiers. Credit lines remain 8 to 22% below post-recession highs. Moreover, after adjusting for inflation, credit lines have grown only modestly over the last three years for subprime and prime accounts and have actually fallen for super-prime accounts.
“The rise in credit lines across risk tiers reflects a healthy financial base for consumers fueled by a solid labor market and rising wages,” James Chessen, ABA’s chief economist. “Consumers today have more resources, are better able to meet their obligations, and are responsibly managing the greater flexibility that a slightly higher credit line provides.”
Consumers Sustain Sound Credit Card Management
In the third quarter, the share of Transactors (those who pay their monthly balance in full each month) remained at 31.1%, holding near the highest level in over a decade. The share of Revolvers (those who carry a monthly balance) increased 0.7 percentage point from a two-year low to 43.9%, while Dormant accounts fell 0.6 percentage point to an all-time low of 25.0%.
The effective finance charge yield (which measures interest payments relative to total outstanding credit in the market) edged up two basis points to 13.23%. This movement suggests that the slight growth in the share of revolving accounts was enough to offset declines in the bank prime loan rate following the Federal Reserve’s third-quarter decision to ease borrowing costs. Meanwhile, credit card debt as a share of disposable income (seasonally adjusted) ticked down two basis points to 5.31% in the third quarter, well below recession-era highs and essentially unchanged over the past six years.
“Consumers continue to carefully manage their debt relative to their available resources,” said Chessen. “Income growth has helped support this, but there is no substitute for sound financial management.”
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.