Subprime credit card borrowers are on the move again, opening significantly more new accounts than they did during the recession as lenders ease up on their ultra-tight underwriting standards.
But while new-account growth rates contrast sharply with 2010, card issuers are maintaining careful discipline in opening up lines to new consumers, especially those with shakier credit histories, a TransUnion economist says.
And because credit card charge-offs and delinquencies are riding at record-low rates, card issuers are in no danger of seeing immediate, crippling losses like those that devastated card profits beginning in 2009, Ezra Becker, vice president of research and consulting at Chicago-based TransUnion, tells PaymentsSource.
"Consumers are feeling more confident about their card relationships as the economy very gradually improves," Becker says.
But the economy's recovery so far has been "fitful," so neither borrowers nor lenders are making any dramatic shifts in their behavior, he says.
"Lenders have slightly loosened underwriting standards, and certain subprime borrowers are beginning to get card offers in their mailboxes again and respond to them. But lenders are well-controlled in making such offers, and they are not opening the floodgates and issuing new cards willy-nilly to everyone," Becker says.
Total new credit card account originations increased by more than 20% in 2011 compared with 2011, TransUnion data show.
And subprime borrowers represented a larger share of new accounts than in the past. Last year, 24.2% of new credit card accounts went to consumers with a VantageScore lower than 700 (on a scale of 501 for the highest-risk borrowers to 990 for lowest-risk borrowers), compared with only 21.8% that did in 2010.
The trend continued during the first quarter this year, with 24.1% of new accounts going to nonprime, higher-risk borrowers, TransUnion says.
And so far the influx of higher-risk borrowers has not rocked the boat in terms of consumers meeting their monthly payment obligations.
The national credit card delinquency rate for borrowers whose accounts were at least 90 days past due fell to 0.73% during the first quarter, based on TransUnion's analysis of individual U.S. credit card accounts, down 5 basis points from the fourth quarter of 2011.
"It's a good sign that delinquency rates are remaining low, proving that consumers are maintaining good discipline even as the mix of borrowers changes," Becker says.
But consumers overall are leaning less on credit.
"Consumer preference has moved away from credit since the recession, and more toward debit and cash," he notes.
As a result, credit card issuers' receivables generally have declined over the past two years, although total borrowing slightly last month (see story).
The Federal Reserve Board is expected to report its monthly figures for consumer revolving credit, the majority of which is credit cards, on June 7.
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