Consumer Debt Expands on Mortgages, Student and Auto Loans


The Federal Reserve Bank of New York recently reported that aggregate consumer debt, which includes mortgages, rose by 1.1% or $129 billion over the first quarter of 2014. There is now an estimated $11.7 trillion in aggregate consumer debt outstanding. Total consumer indebtedness has now risen for 3 consecutive quarters; however, it still remains 8.1% below its peak of $12.7 trillion that was reached in the third quarter of 2008.

Growth in aggregate consumer debt reflected quarterly increases in student loans, mortgages, and auto loans. According to Figure 1, student loans rose the fastest, increasing by 2.9% over the quarter, while both mortgage debt and auto loans outstanding expanded by 1.4%. However, mortgage debt outstanding accounted for the largest portion of the $129 billion increase in aggregate consumer debt, $116 billion, because it represents 70.1% of all consumer debt outstanding. Mortgage debt outstanding has now increased in three consecutive quarters, rising by $324 billion or 4.1% over that period. The increases in these three consumer debt categories were partly offset by declines in home equity lines of credit, other consumer debt, and credit card debt, with credit card debt outstanding contracting the most. Other consumer debt includes consumer finance (sales financing, personal loans) and retail (clothing, grocery, department stores, home furnishings, gas, etc) loans.


The first quarter decline in credit card debt follows a recent period of nearly imperceptible growth. The most recent iteration of the Federal Reserve Board’s Senior Loan Officer Opinion Survey contained a set of special questions about factors that affected banks’ consumer credit card loan growth because it noticed that “after contracting for several years, credit card loans on banks’ books grew modestly in 2013, a bit less than 1 percent,amid a moderate pace of expansion in economic activity.” In contrast, “between the years 1998 and 2007, the Federal Reserve Board’s Assets and Liabilities of Commercial Banks in the United States showed that aggregate consumer credit card loans on banks’ books grew about 6 percent annually, on average.”

The results of these special questions are shown in Figure 2. According to the figure, senior loan officers believe that the factors constraining credit card growth include heightened federal government regulation via the Credit CARD Act of 2009, changing preferences for credit card debt, and the prevalence in consumers’ use of substitute payment methods. The Credit CARD Act of 2009 is notable for introducing a series of restrictions on banks’ credit card lending activity. For example, the Credit CARD Act of 2009 required banks to apply credit card payments made by consumers to the debt with the highest interest rate. These restrictions were aimed at strengthening consumer protections, but they also restricted the revenue that banks could collect from credit card accounts.

According to the figure, a net fraction of 51.2% of senior loan officers believed that the Credit CARD Act of 2009 was constraining growth in credit card debt outstanding while a net fraction of 38.9% of senior loan officers believed that consumers’ preferences for debt levels were constraining this growth. Consistent with the perception of a weaker preference for debt, a net fraction of senior loan officers also noted that growth of credit cards debt outstanding was constrained by consumers’ use of substitute payment mechanisms such as debit cards and other payment mechanisms, as well as their tendency to use credit cards for transactional use only.



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