The State of Credit, April 2009
A quick roundup of current lending news.
In December 2008 we reported a prediction that credit card issuers would be reducing available credit by about 45%, and recently the company behind the FICO score released a report of credit lines being reduced from April to October 2008, right before that prediction was made.
From the study, we find that lenders reduced credit for 16% of consumers, and 31% of those affected had a late payment, collections account or public record (e.g. bankruptcy, foreclosure, garnishment or tax lien). Disturbingly, the median FICO score of those affected was 770, a very good score. So, while a smallish minority of Americans were affected, they were the best customers of the bunch: good scores with few red flags.
The better news is that the average credit line was reduced only 5%, so all other things being equal, the FICO score of someone in this group shouldn’t have been negatively affected. We’ll have to wait and see, of course, what happens to FICO scores after October 2008.
Deceptive Credit Card Practices Update
We haven’t written about this since inauguration day, but it looks like there may be movement again soon on a bill promoting the credit card holder’s bill of rights.
Lawrence Summers, a White House economic adviser said on “Meet the Press” this past weekend that the president will be “very focused in the very near term on a whole set of issues having to do with credit card abuses.“
It’s also possible that instead of passing a new law, credit card issuers may make a whole set of promises during a meeting with the president and his team on Thursday.
Then there’s the issue that banks aren’t lending what they are supposed to be. From Reuters:
Credit card issuers have received over $120 billion in taxpayer funds since October, money the government has asked them to use to expand lending.
But with U.S. credit card defaults at record highs, lenders are trying to protect themselves by tightening credit limits and closing accounts, actions that have infuriated lawmakers, consumers, and even triggered a New York state attorney general inquiry.
Bailouts Not Working?
Put too simply: taxpayers loaned billions and billions of dollars to banks who had stopped lending money to those same taxpayers, in order to get them lending again. Overall, this doesn’t seem to be working when we see headlines like “Bank Lending Keeps Dropping” and “U.S. Banks Line Up to Repay TARP Money“.
Commercial and industrial lending were down in February, but I was glad to see that Home Loan Refinancing was up 42% from January to February. Home equity lines of credit were also being processed at levels typical for the season.
Similarly, Americans feel like this is a good time to buy a house. In fact, 71% of people responded that way, the highest level in four years.