The drop in credit card balances nationally since 2009 have had more to do with consumers paying down their card balances than from card issuers charging off delinquent card accounts.
That is the central conclusion of an analysis that TransUnion, one of the three large credit bureaus, conducted of consumer debt data collected by the Federal Reserve. The conventional wisdom among many card analysts was that charge-offs, not changes in consumer behavior, had been behind the national balance decline.
According to the analysis, which the credit bureau described as “conservative,” consumers made more than $72 billion more in payments on their credit cards between the first quarter of 2009 and the first quarter of 2010 than they made purchases with those cards. The firm said that if it used less conservative assumptions, consumers made more than $110 billion more in payments than purchases on their cards during the same period.
“Many people in the financial services industry believe charge-offs have been the leading factor in declining credit card debt since the start of the recession,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit. “In fact, some have stated that charge-offs account for the entire change in card balances over the past two to three years. In reality, the dynamic is more complex. Our analysis shows that consumers have made a concerted effort to pay down their credit cards during these uncertain economic times.”
Transunion reported that just five years prior to the its analysis, consumers had made an estimated $2.1 billion more in purchases than payments. That constitutes a nearly $75 billion turnaround in consumer payment dynamics from 2004 to 2009.
“This reversal is even more profound when you consider that alternative forms of revolving credit, e.g. home equity lines of credit, were far more accessible in 2004 than in 2009. So while charge-offs have played a major role in lower credit card debt levels, it was not the only factor. Consumers were also paying down their debt across the risk spectrum,” added Becker.