NEW YORK–The country’s largest issuers are reporting cardholders are paying down their debt at levels not seen in years. While good news for consumers, for issuers the paydowns have meant a decline in income, and as a result many are spending more on marketing and loosening their underwriting standards.
The Wall Street Journal reported that during its recent earnings call, Discover Financial Services reported the share of card balances that were paid off at the end of the first quarter was at the highest level since 2000. Capital One, meanwhile, said nearly half of the credit-card balances it had at the beginning of March were paid off by the end of the month, which the company described as historically high, the Journal said, adding the companies’ calculations are based on the credit-card balances that they packaged into securities and sold to investors.
And Synchrony Financial, the largest issuer of store credit cards in the U.S., said payment rates have been higher than they averaged before the pandemic, according to the Journal.
Borrowers ‘Faring Well’
Card balances at the three companies were down 9%, 17% and 7% in the first quarter from a year prior, respectively, the report added.
The trend is the opposite of what many had predicted as the pandemic spread in early 2020.
“Even as Americans return to spending on their credit cards, they are continuing to pay down their card balances,” the Journal analysis stated. “That signals many borrowers are faring well even during the pandemic. But many card issuers rely on growing card usage and balances for their revenue, and they are wondering if the pandemic trends will turn into a long-term shift.”
Discover Chief Executive Roger Hochschild told the Journal, “We are very focused on returning to growing loans. Delinquencies can’t get much lower than where they are now, but if your loans keep shrinking, your revenues come down [and] margins will get worse.”
Lowest Level Since 2009
The Journal cited data from Equifax that showed U.S. credit-card balances totaled $749 billion in March for general-purpose and store-only cards, down 2% from February and down 14.5% from a year prior. Consumers’ credit-card balances on average equaled 18% of their spending limits on general-purpose credit cards in March, compared to approximately 21% a year prior and the lowest level since Equifax began tracking this metric in 2009, the report added.
In response, issuers mailed out an estimated 260 million credit-card solicitations in March, up 23% from February and the highest since March 2020 when they totaled roughly 309 million, according to Mintel Comperemedia data cited by the Journal.