Credit Card Trends: “Lies, Damned Lies, and Statistics”

Writers often have odd lives, which may explain why last Thursday afternoon this one was listening online to a business program being broadcast by the London Broadcasting Company (LBC). That’s London, England. You see? Odd.

An analyst was being interviewed down-the-line from New York, and he was discussing that day’s American financial news. He was particularly enthusiastic about the latest figures from the Federal Reserve about consumer credit in general and credit card debt in particular.

The Fed, he correctly said, had reported that Americans had reduced their credit card balances by $7.4 billion in May, which was an annualized rate of 10.5 percent. He then went on to comment that this was proof of a new prudence and resilience among consumers. You are lucky (although you may not think so) to be reading this column, because his remarks very nearly resulted in the computer on which it is being written exiting a first floor window at speed.

Credit Card Debt–The Reality

The analyst could also have told LBC’s listeners that the Fed’s G.19 Consumer Credit Report shows that credit card debt fell by $19.5 billion in the first quarter of this year. However, he is unlikely to have celebrated the fact that only $800 million of that was a result of Americans paying down their balances. According to the Federal Deposit Insurance Corporation (FDIC), the other $18.7 billion was written off (“charged off” in industry jargon) by credit card companies because they’d given up hope of collecting the debts.

Cheerful headlines reporting some other credit card trends need to be taken with similarly large pinches of salt. Over the last couple of weeks, S&P, Fitch Ratings, and the American Bankers Association have all published data that show declines in card delinquencies (overdue accounts), and these have largely been covered in the media uncritically.

However, some analysts believe that these figures are partly a result of all those charge offs. Because they’ve already eliminated so many of the long-term unemployed and uncreditworthy from their customer bases, credit card companies are left with a greater proportion of cardholders who have had healthy credit reports all along. Other experts think that struggling consumers are prioritizing making minimum payments over everything else (including their mortgages) because they see maintaining the line of credit that their credit cards provide as an overwhelming need. They may not be able to keep that up for ever.

Some Good News

All of this doesn’t mean that there are no signs of Americans tightening their belts and being more financially responsible. The Discover® U.S. Spending Monitor, published July 7, showed that consumer spending intentions dropped two points in June. Unfortunately, much of that was due to a fall in economic confidence.

Of course, after all that gloom, it’s important to recognize that life remains more than comfortable for the huge majority of Americans. Indeed, with so many refinancing at record-low mortgage rates, a large section of the population has never had it so good. And if you still have a pristine credit report, you should regularly review the credit cards in your wallet to make sure you’re still getting the best possible deals.

Published 07/12/10 (Modified 03/24/13)