Bankers are split on whether consumers' use of credit cards will stabilize over the next two years and if their level of card debt may eventually return to pre-financial crisis levels, according to a report released Monday by the Federal Reserve Board.
The senior loan officer opinion survey, released by the Fed every three months, found considerable variance among the 28 large U.S. banks that weighed in on the issue.
"Among those that did expect such growth to stabilize, reports were varied as to whether growth would stabilize at a rate that would be higher or lower than the average their banks recorded in the years prior to the financial crisis," according to the survey.
Almost 29% of banks said they expected card growth rates to stabilize in 2016, while a substantial portion of institutions, nearly 18%, reported that growth had already stabilized. Another 32% of banks said they didn't expect their bank's credit card loan growth to stabilize at a certain rate over the next few years.
The Fed's survey examined how credit card growth had changed in the past year and what, if any, were the constraining factors, as well as bankers' predictions for the rest of 2014.
Looking ahead, a majority of large banks expect somewhat higher growth in outstanding consumer credit card loans in 2014.
Roughly 75% of large banks said there would be at least somewhat higher growth over the course of the year for borrowers that were considered either prime or super prime.
A dozen large banks said they had already seen an increase in applications from prime and super prime borrowers, while the majority of survey respondents said they had seen little change.
But the outlook was not as strong for subprime credit card loan growth. Only six banks said they expect growth in that area during the next year, while roughly 74% of banks said they did not expect major changes.
Only a handful of banks said that applications from borrowers they considered nonprime had increased last year. The majority of large banks — roughly 81% — said the number of applications remained the same.
As for why credit card loan growth has been constrained, roughly 46% of respondents cited the Credit Card Accountability Responsibility and Disclosure Act of 2009 as a factor, while three other banks said it was a "very important" factor.
Specifically, bankers pointed to certain provisions of the law, including the prohibition on raising interest rates on existing balances, a requirement that card payments be applied first to debts with higher interest rates, restrictions on borrowers under the age of 21 and new disclosures.
Two institutions also considered consumers using their debit cards and other payments as a factor in constraining credit card growth while the preponderance of banks that responded — roughly 86% — said it was not an important factor.
Financial institutions generally offered mixed opinions on the effect of other factors, like underwriting standards and terms, consumers' expectations for their households' income growth, consumers' self-perceived creditworthiness, and consumers' tendency for transactional use versus revolving credit.
When it came to underwriting standards, a dozen banks said underwriting standards had little impact on growth, while six banks said it was "somewhat important" in constraining growth and another eight relayed the opposite, arguing it was "somewhat important" in strengthening growth.
Additionally, use of credit cards for transaction use was seen by most respondents as a relatively non-important factor, however there were seven and six institutions, respectively, that held opposing views on its impact on constraining growth.
Banks were in more agreement when it came to consumers' preference for debt levels, with 59% said it was at least "somewhat important" in restraining credit card growth.