April 13, 2010
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News: Americans Getting Back On Track
A recent report by the Federal Reserve showed that Americans are getting back on track with paying their credit card bills. The American Bankers Association reported that although consumer loan defaults improved, home equity loans worsened. Credit card defaults also improved as they fell in fourth quarter to 4.39 percent from 4.77 percent the previous quarter. Overall consumers decreased borrowing by 5.6 percent in February after increasing in January by 2.1 percent as a result of the holiday shopping season. Consumer borrowing includes credit card spending as well as consumer loans, automobile loans, recreational vehicle loans, and mortgages.
Credit card spending continued to decline sharply over the past 12 months to 13.1 percent in February. As banks reduced the availability of credit and Mother Nature took its toll, consumer and student loans also fell during the previous 12 month period to 1.6 percent. Although good for the consumer, not good for the U.S. economy which depends on consumer spending and could slowdown economic recovery. Experts say the trend could be a sign of a lack of consumer confidence and trust in the banking system; more specifically, the credit card industry. Meanwhile, lenders continue to reduce credit lines and close card accounts in an attempt to reduce risk.
Unemployment greatly influences credit card defaults and consumer spending. While the U.S. watched as unemployment continued to rise, they also witnessed record breaking numbers of loan and card defaults. In order for the country to successfully recover from the recession, card defaults must continue to level off and unemployment levels must decline. A number of executives from financial institutions were asked to talk about their company's expectations in regard to employment numbers. Several indicated that although they do not expect to lose any more employees, they do not expect the numbers to rise any time soon. Most felt it was too early to tell if the worst over.