According to the Federal Reserve Board, consumer credit outstanding, which is composed of credit not secured by real estate, expanded at a seasonally adjusted annual rate of 7.0% to $2.8 trillion in November. This is the fourth consecutive monthly increase in consumer credit outstanding and the second consecutive month that the monthly increase has risen. Following a 0.8% decline in July, consumer credit outstanding rose by 8.4% in August, 5.3% in September, 6.2% in October, and 7.0% in November. Earlier work demonstrated that the expansion in non-revolving credit card outstanding accounts for the growth in consumer credit while growth in revolving credit remains moderate.
The expansion in consumer credit reflected an increase in student loan and auto debt outstanding, components of non-revolving credit. While education and auto debt outstanding has risen, credit card debt outstanding continues to fall. The recent decline in credit card debt outstanding, which accounts for the relatively tame growth in revolving credit, partly reflects fewer credit card accounts. As Chart 1 above illustrates, the dramatic decline in the number of credit card accounts between the second quarter of 2008 and the third quarter of 2010 is the result of both an increase in the number of closed accounts and a decrease in the number of opened accounts. Since the third quarter of 2010, the number of opened credit card accounts has begun to increase, however, its growth has not offset the number of closed credit card accounts.
Between the fourth quarter of 2004 and the second quarter of 2008, the number of opened accounts generally exceeded the number of closed accounts. During this period, 266.0 million more credit card accounts were opened than were closed. However, between the second quarter of 2008 and the third quarter of 2009, the number of closed accounts soared while the number of opened credit card accounts fell. Over this 5-quarter period the number of closed accounts grew by 153.8 million to 375.5 million. Meanwhile the number of opened accounts fell by 60.3 million to 168.4 million. Previous analysis demonstrated that the charge-off rate, the amount of unpaid credit card balances absorbed as a loss by banks as a share of total credit card debt outstanding, rose from 5.5% to 10.1% over this same period. The increase in the number of closed accounts during this period was likely the result of credit card holders defaulting on their credit card loans.
After peaking in the third quarter of 2009, the number of closed accounts declined dramatically as the charge-off rate fell below pre-recession levels. Meanwhile, the number of opened credit card accounts has begun to grow. However, until the fourth quarter of 2011, the declines in closed credit card accounts were not fully offset by the increases in the number of opened accounts. Between the third quarter of 2009 and the fourth quarter of 2011, the number of closed credit card accounts fell by 210.0 million to 165.6 million while the number of accounts opened rose by only 5.3 million. In the fourth quarter of 2011, 173.0 million accounts were opened. Since the fourth quarter of 2011, the total number of credit cards accounts has continued to fall. Over this period, the number of closed credit card accounts has risen by 19.5 million, but remains below its third quarter of 2009 high, while 3.7 million additional accounts have been opened.
Although the soaring number of closed credit card accounts likely reflected an increase in the credit card charge-off rate, the number of credit card accounts opened may have decreased because banks were less willing to lend or as a result of consumers’ growing aversion to revolving credit. Data from the Federal Reserve Board’s Senior Loan Officer Opinion Survey, shown in Chart 2 above, illustrates that the decrease in the number of credit card accounts opened between the second quarter of 2007 and the third quarter of 2010 reflects both tighter lending standards imposed by banks and lower demand for revolving credit by consumers. The combination of lower demand for credit cards and tighter lending standards suggests that the reduction in credit was not solely a lender driven credit crunch or a one-sided pull-back on the part of consumers. However, the recently reported easing of credit standards combined with stronger demand for credit cards indicates that the number of opened credit card accounts should continue to recover as lenders and consumers find their way back to a more sustainable balance.
A growing share of banks reported weakening demand for consumer credit in the third quarter of 2005. In this quarter, a net of 9.8% of banks surveyed experienced strengthening demand for credit card products. By the fourth quarter of 2008, a net of 48.1% of bank respondents experienced weaker demand for credit cards. During this same period credit card lending standards tightened considerably, though at a slightly different pace. Over the two year period between the third quarter of 2005 and the third quarter of 2007 senior loan officers at surveyed banks maintained easier lending standards. However, in the fourth quarter of 2007, credit card lending standards began to tighten. By the third quarter of 2008 a net of 66.6% of banks tightened their lending standards on credit cards. The majority of banks continued to tighten their lending standards through the end of the recession.
Net demand for credit cards began their ascent in the third quarter of 2010. By the first quarter of 2011, a net of 5.6% of banks reported experiencing stronger demand for credit cards. After a slight decline in the second quarter of 2011, the measure returned to positive territory in third quarter of 2011. Since the third quarter of 2011 a net percentage of banks continued to experience stronger demand for credit cards. At the same time, credit card lending standards began their descent following the end of the recession. By the third quarter of 2010 a net of 7.9% of banks reported easing standards on credit cards. Since this period banks, on net, report continued easing of standards on credit cards.