Offbeat Why the Credit-Card Boom May Have Just Peaked

14:30  17 may  2018
14:30  17 may  2018 Source:   online.wsj.com

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Why the Credit - Card Boom May Have Just Peaked (WSJ). The transport secretary, Chris Grayling, is expected this week to cancel the troubled Virgin Trains East Coast (VTEC) franchise, just three years after it began. ind.pn/2rKwq5v.

Effective immediately, some consumers may have a higher credit score. The process can determine the interest rate a consumer is going to pay for credit cards , car loans and mortgages — or whether they will get a loan at all.

a hand holding a piece of paper © Elise Amendola/Associated Press Following some of their strongest years ever, credit-card issuers are grappling with an uneasy future.

Rising loan losses and increased rewards expenses are putting pressure on card lenders’ returns. The result is that one of the most profitable consumer-lending categories in recent years may become more of a middling player.

“The easy money has been made in card lending,” said Don Fandetti, consumer finance analyst at Wells Fargo & Co.

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In fact, they have reduced now significantly with recession now, but I have lived through the boom Why NOT to apply for credit cards that come in Mail ? It may seem very tempting to see that mail It is very tempting for those who just came to US without any credit history to apply for credit card

By Rachel Bachman. Published: May 5, 2016 7:25 p.m. ET. Why every investor should be terrified by the slide in Home Depot stock. Don’t ever do this with your credit card . Paul Ryan is just two years away from collecting a federal pension — here’s how much he’ll get.

While cards remain highly lucrative for banks, the benefits of a rising interest-rate environment have been muted lately. The added revenue of cardholders paying more in interest payments each month has also been offset by growing competition from lenders trying to poach card customers by offering lower rates.

Credit cards became an appealing loan category for banks in the wake of the last recession. Card balances grew at an accelerating pace in recent years, reaching a 7% year-over-year growth rate early last year. Total balances exceeded $1.03 trillion in January, the highest on record, according to the Federal Reserve.

But that coincided with an increase in loan losses from historically low levels, as banks set aside more money for future write-offs. They also tightened their underwriting standards, resulting in slowing growth. Card-balance growth in March was up 4.8% from a year earlier, compared with a 6.1% increase in March 2017 from the year-earlier period.

Goldman, Wells Fargo look to credit cards for bigger returns

  Goldman, Wells Fargo look to credit cards for bigger returns Two of the biggest U.S. banks, Goldman Sachs Group Inc. and Wells Fargo & Co., are on the brink of piling into credit card lending, seeking a share of the $183 billion in fees and interest tied to the product. Goldman Sachs is weighing the move as part of a push into consumer finance with its Marcus online lender, Chief Financial Officer Marty Chavez said during a conference call with analysts last month. Wells Fargo plans to resume targeting U.S. non-customers with mailed credit-card offers later this year and began accepting new applicants from outside affiliates in 2016.The firms have pressing reasons to jump into card lending.

Sonic Drive-In acknowledged just this week that its credit card customers may have been affected by a security incident after the company was alerted to “unusual activity” by one of its card processors.

Long story short, credit cards are a business. Nothing is for free. But if you're gonna pay for a service, you might as It’s just boom , there it is, money directly deducted off your balance. My newest card is enabled with a chip, too, which makes it more secure ( why the U.S. is lagging behind the rest of

Five of the largest credit-card issuers—American Express Co., Capital One Financial Corp., Citigroup Inc., Discover Financial Services and Synchrony Financial—generated a median return of 2.1% on their assets for common shareholders in the first quarter, up from 2% a year earlier but down from 2.6% two years prior, according to analysis by Autonomous Research. The recent peak was 3.7% in the second quarter of 2011, according to an industry analysis by Autonomous at the time.

“The industry was at an unsustainable high…so coming down is expected,” David Nelms, Discover’s chief executive, said in an interview.

The pickup in returns for most banks in the first quarter was primarily the result of tighter underwriting, which helped slow the rate of loan loss increases and the amount of money banks are setting aside for future losses. U.S. tax-law changes that lowered corporate tax rates also helped.

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Why has credit card use increased? As of May , 2017, the total household debt on plastic cards, was recorded at USD.7 trillion, which was slated as the peak in post recession era.

Why Millennials Are Ditching Credit Cards . Credit cards appear to be next in line. Just one out of three millennials carries plastic, according to a Bankrate.com That compares to, at their peaks , 26 percent for Generation X; 13 percent for Baby Boomers; and 3 percent for the Silent Generation.

Still, returns remain largely unchanged—and in some cases down—from about 2½ years ago when the Fed began raising rates. “Rising rates [are] a mixed blessing for the card issuers at this point,” said Brian Foran, analyst at Autonomous Research. Companies aren’t getting the full benefit of the higher rates because while interest charges on cards are rising, so are the interest rates card issuers are having to pay bank customers for their online deposit accounts.

Some analysts predict that profitability will keep falling, though it remains significantly higher than many other banking products. Credit cards delivered a projected 3.8% return on assets to 14 large banks highly concentrated in the card business last year, compared with an overall 1.35% projected return for all commercial banks, according to payments consulting firm Mercator Advisory Group Inc. Mercator projects that card returns will fall in 2018 to 3.5% due to losses and challenges cutting further costs.

Stocks of card companies have reflected the concern, with Discover shares down 0.8% so far this year, and Synchrony Financial, the largest U.S. store credit-card issuer, down 11.4%, compared with a 4% gain in the KBW Nasdaq Bank index.

Americans' household debt edges up to $13.21 trillion

  Americans' household debt edges up to $13.21 trillion U.S. household debt grew by $63 billion, or 0.5 percent, to $13.21 trillion in the first quarter, driven largely by the increase in mortgage balances, a New York Federal Reserve quarterly report released on Thursday showed.The amount of mortgage balances rose by $57 billion in the first three months of 2018 to $8.94 trillion. Families, however, paid down their home equity loans, which fell by $8 billion to $436 billion, according to the report.

That is getting close to the all-time peak of .2 trillion hit in July 2008, just as the financial crisis was intensifying. According to a Wall Street Journal report, credit card companies are enjoying the boom Larry says: May 25, 2016 at 8:26 pm. No wonder why today I got an unsolicited credit limit

So what are we to make of the news from CreditCards .com that credit card APRs have just hit a record high, their fifth in this year alone? “It’s very difficult to raise rates now,” says Zywicki. “You have to raise rates across the board for everybody.” This might sound bad, or unfair to people who

Credit-card losses have been mostly rising over the past two years after hovering around near-record lows. The average net charge-off rate—the share of outstanding debt that issuers wrote off as a loss—for eight of the largest credit-card issuers reached a nearly five-year high of 3.46% in the first quarter, according to Fitch Ratings. The increases have become worrisome indicators for some shareholders of consumers’ inability to pay debts at a time when unemployment is low. 

Another pain point for card issuers is the cost they incur from so-called gamers, who search for the highest rewards on their cards. These consumers sign up for credit cards with rich sign-up bonus offerings and then stop using the card once they have tapped out the early rewards.

U.S. credit-card attrition rates, a measure of how many cards consumers and card issuers close, reached 15% in 2017, up from less than 10% a year earlier, according to Mercator.

Meanwhile, banks and fintech lenders that originate personal loans have been increasing solicitations in recent quarters. Many of these offers are targeting consumers with credit-card debt and pitching the opportunity to roll over that debt into a personal loan at a lower interest rate. Their prime targets are the customers who card issuers want to keep most: those with high credit scores who carry a card balance each month.

A record 516 million personal loan solicitations were mailed out in the first quarter, up 46% from a year ago, according to estimates from market research firm Competiscan. This marked the fifth-consecutive record-breaking quarter.

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