Consumer gloom about the economy appears to be putting a damper on credit card borrowing.

Fitch Ratings Inc. warns in a report last week that a recent decline in consumer confidence could crimp future spending, meaning revolving-credit growth "should remain in check" despite loosening lending standards.

The Conference Board Inc., a global economic research organization based in New York, on May 29 said its Consumer Confidence Index for May stood at 64.9, down from 68.7 the previous month, triggering Fitch's warning. Fitch publishes monthly advisories to investors in credit card securities.

"Whether any potential slowdown in spending as a result of the confidence erosion translates into lower credit card usage remains to be seen, as lenders have begun loosening underwriting standards," Fitch said in its report.

A recent increase in revolving U.S. consumer credit spending was tied to higher gasoline prices, Fitch noted.

The Federal Reserve Board in its latest G.19 report said consumer revolving credit, 98% of which is credit cards, rose by $5.2 billion in March to $803.6 billion (see story).  The Fed plans to report new consumer revolving-credit data next week.

The recent decline in consumer confidence throws cold water on the theory that card issuers might begin to see an uptick in spending and a resurgence of revolving credit, which drives credit card issuers' profits, Dan Geller, senior vice president at San Anselmo, Calif.-based Market Rate Insights Inc., tells PaymentsSource.

"About a year ago, there were various signs that the economy was poised to improve. But now we are back to reality, and things are not growing as anticipated," Geller says. "Consumers have the notion that we are kind of in a perpetual recession-like environment, and that is keeping them from opening new credit card lines and spending because they are not sure whether they will be able to pay back those loans."

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry