Credit conditions remained strong in the first quarter of 2021, as U.S. consumers continued to drive the economic recovery, according to the American Bankers Association’s latest quarterly Credit Card Market Monitor. While monthly purchase volumes were mostly unchanged compared to the fourth quarter of 2020 and were roughly equivalent to early 2019 levels, credit card debt as a share of disposable income fell to an all-time low.
The August 2021 Monitor, which reflects credit card data from January to March 2021, saw little movement in monthly purchase volumes, with spending levels expanding modestly for super-prime cardholders and falling slightly for prime and subprime groups. At the same time, outstanding credit card credit measured as a share of disposable income* dropped by 70 basis points to 3.97%, its lowest all-time reading and more than 140 basis points below its pre-pandemic level. The movement was driven by a sharp 13% increase in disposable income — reflecting labor market improvements and $575 billion in federal Economic Impact Payments December through March —which helped consumers pay down credit card debt to the lowest level since 2017.
The share of cardholders who are Transactors (those who pay their monthly balance in full) fell by 0.5 percentage points to 34.6% but remains near an all-time high. Meanwhile, the share of Revolvers (those who carry over a monthly balance) rose by 0.8 percentage points to 40.5% but remains at its second-lowest reading since 2008. The share of Dormant accounts ticked down 0.3 percentage points to 24.9%.
“The data suggest consumers are managing their financial obligations well, in part due to federal relief efforts,” said ABA Chief Economist and Head of Research Sayee Srinivasan. “We expect credit to rise from all-time lows in the months ahead as the economy continues to normalize, and banks remain well positioned to meet the credit needs of their customers.”
The effective finance charge yield (which measures interest payments relative to total outstanding credit in the market) increased from 12.38% to 12.74% during the first quarter, consistent with the uptick in the share of Revolvers.
The report also found that credit lines continued to drop on a quarterly basis for both new and total accounts across all risk tiers, particularly new subprime accounts (-6.6%). On an annual basis, credit lines also remained well below year-ago levels; the decline was led by prime accounts (-17.5 % year over year), while lines for new subprime and super-prime accounts each fell by roughly 13% year over year.
New account volume (the number of new accounts opened in the previous 24 months) fell again in the first quarter, continuing a trend that began in mid-2017 and accelerated during the pandemic. The decline in new accounts was driven by the super-prime risk tier, where accounts fell 6.3% compared to the fourth quarter of 2020. Compared to a year ago, new account volume is down nearly 35% for subprime accounts and roughly 18% for both prime and super-prime accounts. Among all accounts, volume fell 2.2% to a four-year low, driven by the subprime tier. Subprime accounts comprised 17.5% of all accounts in the first quarter, just above an all-time low, while super-prime accounts comprised more than 55% of all accounts, just below an all-time high.
“All things considered, consumer credit conditions were in a relatively good place in this year’s first quarter,” said Srinivasan. “Looking forward, ABA’s latest Credit Conditions Index suggests that the outlook is bright for consumer credit availability during the second half of the year given rising wages and the uptick in employment activity — though the path the pandemic takes will be an important factor to watch.”
The full report with detailed charts and statistics is available here.
*Seasonally Adjusted
About the Credit Card Market Monitor
The American Bankers Association Credit Card Market Monitor is a quarterly report that provides key statistics on industry trends and relevant economic factors affecting the industry. The credit card data used in the report is taken from a nationally representative sample provided by Verisk Financial | Argus. Credit card data are presented as national averages for all accounts based on actual credit card account information. No individual account holder’s information or specific financial institution’s data can be identified from the data set. Other data used in the report are taken from various public and private sources, including the Department of Commerce’s Bureau of Economic Analysis and the Federal Reserve.
Answers to Frequently Asked Questions and definitions of the data presented in the ABA Credit Card Industry Monitor can be found in an Appendix attached to the monitor.
Results of this and all previous reports can be found at www.aba.com.