Lenders, wake up; Collectors, Stand Down; Credit card issuers, get ready

In a letter to JPMC shareholders, Jamie Dimon gave a perspective that “Biden administration’s $ 2.3 trillion infrastructure plan could lead to ‘Goldilocks’ economic moment“. Goldilocks moment has nothing to do with blondes or bears. For the uninitiated, that means “Fast and sustained growth alongside inflation and slowly rising interest rates.

Jamie continued in an interview with WSJ editor-in-chief Matt Murray. Dimon’s noted that “the economy is strong through 2023. Consumers are doing great, house prices are rising and the world is recovering better than it did during the Great Recession.” In short: “there will be a windfall.”

What it means for credit card lenders

The collect function worked better than expected. The results came from a well-enriched risk management scenario, driven by the accounting requirements of the CECL (see here for more on current expected credit losses). Collection technologies, the effective use of FICO scores and government interventions helped weather the economic storm.

Credit begins to open. The Federal Reserve’s Senior Lending Officials Opinion Survey on Bank Lending Practices (also known by the genius acronym of SLOOS), reports that “banks have also relaxed standards in all three categories of consumer loans: credit card loans, auto loans and other consumer loans.”

Unlike the Great Recession, when U.S. revolving debt slipped over $ 150 billion and took two years to rebuild, 2020 saw a more modest drop. According to the most recent publication, the metric stands at $ 974.4 billion, up $ 8 billion from January 2021 and around $ 100 billion behind the pre-Covid high of 1.1 trillion dollars. This is good news for well-positioned borrowers, merchants and credit card companies.

A $ 100 Buy Now Pay Later fintech loan is one thing, but start pushing credit cards with $ 5,000 limits and expect consumers to buy from coast to coast. We anticipate some changes in the market, most of which will be positive. Major banks such as Bank of America, Chase, Citi and specialty card companies such as American Express, Capital One and Discover appear to have resumed their loan approvals. Now is the time for credit unions, community banks and regions to start fighting each other again. Slow action will be costly in terms of lost revenue and account attrition.

As we commented two years ago, don’t let fintechs scare you. Now is a great time for credit card issuers to get back to credit and thank their collection colleagues for keeping the ship steady.

Overview provided by Brian riley, Director, Credit Advisory Service at Mercator Advisory Group

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