Overall consumer debt – that is not secured by real estate – declined for the 12th time in 13 months in February – a symptom of a still severely contracted lending environment. The slump was led by a sharp 13 percent drop in credit card balances.
The Federal Reserve today reported that consumer credit fell at an annual rate of 5.6 percent to $2.448 trillion in February, a decline of $11.5 billion compared to January — far from broad expectations for a decrease of about $1 billion.
Revolving credit – mostly credit card debt - fell 13.1 percent to $858.1 billion, while non-revolving credit – mostly auto, boat and mobile home loans – fell 1.6 percent to $1.589 trillion.
February’s revolving credit decline was the 16th decrease in 17 months.
However, January’s increase in overall consumer credit was upwardly revised to an increase of 5.2 percent – from the initial level of 2.4 percent. January registered the only increase in revolving credit – 2.1 percent – in a year and a half.
The Fed’s monthly report does not include borrowing secured by real estate.
Still, the Fed’s February update is reflective of a broad decline in lending among all banks.
“Consumer loans originated by banks declined, primarily reflecting a large drop in credit card loans,” Fed officials concluded at their March 16 monetary policy meeting. Notes from the meeting were released yesterday.
Total bank credit “contracted substantially” in January and February, Fed officials said.
The credit card businesses of the largest lenders are expected to continue seeing declining revenue, in large part because of reform laws that took effect in February restricting interest rate hikes and certain penalty fees.
JPMorgan Chase CEO Jamie Dimon referred to the Credit CARD Act and Chase’s policy modifications to accommodate the stricter rules in his annual letter to shareholders released last week.
Dimon said the impact would reduce after-tax income by about $500 million to $750 million – “but this could possibly change as both consumers and competitors change their behavior.”
Chase is the largest general-purpose credit card issuer.
