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More credit cards, more debt, more trouble ahead?

by Peter Andrew
More credit cards, more debt, more trouble ahead?

If a big credit bureau can appear to be in a good mood, then TransUnion was when it issued a press release regarding credit card debt on Feb. 22. And, at first glance, the data it contained provided plenty of room for optimism. Nationally, the rate at which credit card accounts were, in the last quarter of 2011, turning delinquent (90 days or more behind with payments) was the lowest for 17 years. No wonder Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit, sounded so bullish in his comment:

2011 closed out with the lowest year-end card delinquency rate nationwide since 1995. This is the net result of riskier loans having worked their way through the system, cautious risk management strategies on the part of lenders and consumers working to maintain the health and good status of their card relationships.

Credit card debt pendulum set to swing back?

So far so good. But, in the same press release, there were three pieces of data that might worry readers:

  1. Between the third and fourth quarters of last year, credit card debt per borrower shot up by 9.27 percent, to $5,204 from $4,762. That’s a huge jump in a single three-month period.
  2. In 2011, credit card companies opened 14 percent more new consumer accounts than they did during the previous year.
  3. Also in 2011, more than one in four of those new credit cards were issued to subprime borrowers.

“Toxic levels”

On Feb. 26, The New York Post ran a story under the headline “U.S. credit card debt nearing toxic levels.” This extract is especially important, if only because it reminds us that it’s not just the poor, the unlucky, the stupid and the subprime who can get into trouble:

Lewis J. Altfest, a Manhattan adviser who targets the professional, high-income client, devotes part of his practice to telling the well-heeled how to cut back on credit card debt.

“It’s still a big problem. Some people want to live life to the fullest even though they are using their cards too much,” Altfest explains. He says many clients last year tried to reduce credit card debt. But some “are falling back into their old ways.”

Credit card offers on the rise

On the same day the Post’s report appeared, another popped up on the website of CBS 42, which is based in Birmingham, Ala. This explored recent large rises in the number of credit card offers being mailed, and the increasing attractiveness of the deals they contain.
As the TransUnion press release revealed, these are increasingly often being sent to subprime borrowers, although they’re highly unlikely to qualify for the best credit card rates that more creditworthy consumers might be offered. CBS 42 quoted American Bankers Association spokeswoman Nessa Feddis: “We are seeing [credit card companies] reaching out and testing the waters with people who maybe have had some problems over the economic downturn or who are new to credit.”
The problem with all this? Well, if Altfest’s rich, professional Manhattan clients are struggling to keep on top of their card debt, what chance are poor, subprime borrowers in Birmingham going to have, especially when they’re likely to be paying sky-high credit card rates? Might high debt and indiscriminate lending prove to be the really toxic combination? It was, last time around.

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