Credit Card Debt Growth Rate to Remain High in 2008: Report

Now that the U.S. real estate bubble has burst and lenders are restricting access to home equity credit lines, consumers are pulling out their credit cards more frequently to cover their expenses, according to a report from Standard & Poor’s.

“We expect credit card receivables to grow in the high single digits for the year 2008,” S&P said in the report, “As Credit Card Use Increases, Issuers Take Actions To Manage Risk.”

Credit card debt in the U.S. is growing faster today than in recent years, following historically low annual growth rates of about 3.3 percent, between 2002 and 2006, according to the report. In May, the Federal Reserve reported that credit card debt grew at an annual rate of 7.1 percent (“Credit Card Debt Surges in May After Falling in April,” July 9). The Fed’s numbers for June are expected to be released Thursday afternoon.

Current debt service is about 14 percent of income, the highest since 1980, so chargeoffs and receivables are continuing to grow. However, the May 2008 average loss rate rose to 6 percent, still below the peak of 7.1 percent after the 2001 recession.

As the receivables grow, issuers are attempting to protect themselves by limiting portfolio risk, the report added. “We will continue to monitor revolving debt growth to see the impact on collateral performance. In addition to the incentives present for banks to manage portfolio credit risk, credit card ABS transactions have structural features that allow issuers to add higher quality receivables.”

“It’s no surprise that these recent increases have sparked concern about the potential impact on credit card asset-backed securities (ABS), especially in light of limited alternative funding sources, the weakening job market, a low savings rate, and high energy prices,” wrote report author Vinayak Gurjar, an S&P analyst.