Consumer Credit Grows on Student, Auto Loans


Consumer credit outstanding grew by a seasonally adjusted annual rate of 3.6%, $126.5 billion, in the month of January 2016, 3.7 percentage points slower than the 7.3% rate of growth recorded in December 2015. Consumer credit outstanding now totals $3.544 trillion.

According to the Federal Reserve Board’s Consumer Credit Report, the increase in total consumer credit outstanding reflected an expansion in the outstanding amount of non-revolving consumer credit. Non-revolving consumer credit includes student loans and auto loans. According to the report, non-revolving credit outstanding rose by a seasonally adjusted annual rate of 5.4%, $139.1 billion, in January, 2.0 percentage points slower than its rate in December, 7.4%. There is now $2.608 trillion in outstanding non-revolving credit.

However, the expansion in non-revolving credit outstanding was partly offset by a contraction in revolving credit outstanding. Revolving credit outstanding, which is largely composed of credit card debt, fell by 1.3%, $12.6 billion, over the month of January. In December, the outstanding amount of revolving credit grew by 7.0%. There is now $935.3 billion in outstanding revolving credit.

Using information from the Federal Reserve Board’s Senior Loan Officer Opinion Survey, a previous post reported that lending standards on consumer loans continued to ease, on net, even as standards on commercial and industrial loans, a large component of business lending, tightened. While lending standards eased across all consumer loan products, the primary loan term banks used to ease standards varied by consumer loan product. The primary credit card lending condition that banks eased was the credit limit, but the primary auto lending condition eased was the loan rate relative to bank’s cost of funds.

Further, while lending standards overall are easing, the aggregate result of eased lending standards on consumer loan products reflects a composition of easing and tightening across the various terms and conditions associated with these consumer loan products. However, the number of loan terms which are easing exceeds the number of conditions that banks are tightening. Although the primary loan term experiencing the greatest number of bank easing varies, the primary method of tightening conditions was the same on both credit card loans and auto loans. On net, banks tightened the extent to which loans are granted to customers not meeting credit score thresholds.


Figure 1 above shows how banks, on net, have changed the following terms and conditions on credit card accounts for individuals or households. The net response represents the difference between the proportion of banks that eased the lending condition and the percentage of banks that tightened the specific condition. On net, 8.1% of banks reported having eased the credit limit associated with credit cards. All else equal, raising the credit limit represents easing while lowering the limit tightens credit.

Meanwhile, a small net percentage of banks, 2.1%, eased the spread of interest rates relative to the bank’s cost of funds. A bank’s cost of funds is determined by the interest rate paid to depositors on such financial products as savings accounts. The difference between the interest rate charged to consumer borrowers, revenue to the banks, and the cost of the bank’s funds, is an important source of bank profit. In isolation, a shrinking gap between the interest rate charged to the consumer relative to the bank’s cost of those funds represents easing while a widening gap tightens standards.

The two easing loan term categories are partially offset with one loan condition that is experiencing some tightening. On net, 2.0% of banks reported that they tightened the extent to which credit card debt is granted to customers not meeting credit score thresholds.


Figure 2 above shows how banks, on net, have changed the following terms and conditions on auto loans for individuals or households. On net, 4.7% of banks eased the spread between the loan rate and the bank’s cost of funds. To a smaller degree, banks, 3.1% on net, eased the maximum maturity. Alone, a longer maturity represents net easing while shortening the maturity horizon tightens standards. However, the two loan conditions that experienced net easing were partially offset by the reported tightening of the extent to which auto debt is granted to customers not meeting credit score thresholds.


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