For years credit card lenders have been reaping profits, but rising losses and consumers who demand more rewards for their business have lenders on their heels. AnnaMaria Andriotis writes:
“The easy money has been made in card lending,” said Don Fandetti, consumer finance analyst at Wells Fargo & Co.
While cards remain highly lucrative for banks, the benefits of a rising interest-rate environment have been muted lately. The added revenue of cardholders paying more in interest payments each month has also been offset by growing competition from lenders trying to poach card customers by offering lower rates.
Credit cards became an appealing loan category for banks in the wake of the last recession. Card balances grew at an accelerating pace in recent years, reaching a 7% year-over-year growth rate early last year. Total balances exceeded $1.03 trillion in January, the highest on record, according to the Federal Reserve.
But that coincided with an increase in loan losses from historically low levels, as banks set aside more money for future write-offs. They also tightened their underwriting standards, resulting in slowing growth. Card-balance growth in March was up 4.8% from a year earlier, compared with a 6.1% increase in March 2017 from the year-earlier period.
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