Subscribe
Share
Share
Embed
This podcast provides you the ability to listen to new regulatory guidance issued by the National Credit Union Administration, and occasionally the F D I C, the O C C, the F F I E C, or the C F P B. We will focus on new and material agency guidance, and historically important and still active guidance from past years that NCUA cites in examinations or conversations. This podcast is educational only and is not legal advice. We are sponsored by Credit Union Exam Solutions Incorporated. We also have another podcast called With Flying Colors where we provide tips for achieving success with the N C U A examination process and discuss hot topics that impact your credit union.
Samantha: Hello, this is Samantha Shares.
Todayâs episode covers key findings
from the Consumer Financial Protection
Bureauâs most recent Consumer
Credit Card Market Report, released
in December twenty twenty-five.
This is not a regulation
and not a proposed rule.
It is a market-wide report required
by Congress that looks at how
consumers are using credit cards,
how issuers are managing risk, and
where growth and stress are showing
up across the credit card system.
This podcast is educational
and is not legal advice.
We are sponsored by Credit Union
Exam Solutions Incorporated, whose
team has over two hundred and
forty years of National Credit
Union Administration experience.
We assist our clients with N C
U A so they save time and money.
If you are worried about a recent,
upcoming, or in-process N C U A
examination, reach out to learn how they
can assist at Mark Treichel dot com.
Also check out our other podcast called
With Flying Colors, where we provide tips
on how to achieve success with N C U A.
Letâs start with the big picture.
Credit cards remain one of the most widely
used financial products in the country.
According to the report, about two
hundred and eight million Americans
now have at least one credit card.
That represents roughly three quarters
of all adults in the United States.
That tells us something
important right away.
Credit cards are not a niche product.
They are deeply embedded
in everyday financial life.
People use them to buy groceries,
pay for gas, manage subscriptions,
cover medical bills, book travel, and
smooth out short-term cash flow gaps.
Total credit card purchase volume
reached approximately three point six
trillion dollars in twenty twenty-four.
Outstanding balances exceeded
one point two trillion dollars.
The average cardholder now carries
a balance of just over five
thousand three hundred dollars.
For borrowers with stronger
credit profiles, average balances
are significantly higher.
Those numbers reflect not
just spending, but reliance.
They show how much households
are leaning on credit cards
as a flexible financial tool.
But the most important story in this
report is not the size of the market.
It is who is driving
growth, and who is not.
The report shows that nearly
all recent growth in credit card
spending is coming from borrowers
with very strong credit scores.
Superprime and prime-plus borrowers
are responsible for most of the
increase in purchase volume and
balances over the past two years.
By contrast, spending growth for
borrowers with prime or lower credit
scores has been essentially flat
since late twenty twenty-three, even
though the number of cardholders in
those tiers has continued to increase.
That is a critical point.
It means more people have credit
cards, but many of them are not
using those cards more aggressively.
They appear constrained.
Higher-credit-score households, on
the other hand, continue to spend,
travel, and absorb higher prices.
This uneven growth pattern matters,
especially for institutions that
serve a broad membership base.
Now letâs talk about pricing.
Across the broader credit card
market, interest rates reached
historic highs in twenty twenty-four.
Average annual percentage rates
exceeded twenty-five percent for
general purpose credit cards and topped
thirty percent for private label cards.
New credit card accounts opened last
year carried interest rates far higher
than what was typical just ten years ago.
These increases reflect the
interest-rate environment, but they
also reflect risk-based pricing at work.
Banks and nonbank issuers have been
able to adjust credit card pricing as
rates rose and as borrower risk shifted.
Credit unions operate under
a different structure.
Federal credit unions are capped
at eighteen percent on all loan
rates, including credit cards.
That cap fundamentally changes how
credit unions manage credit card risk.
Credit unions cannot simply raise
rates to compensate for higher
credit risk or higher funding costs.
Instead, they manage credit
card risk through underwriting
standards, credit limits, portfolio
mix, and ongoing monitoring.
That difference becomes especially
important when we look at who holds
risk in the credit card system.
According to the report, issuers with
less than one hundred billion dollars
in assets hold more than half of all
below-prime credit card balances.
Large issuers, by contrast, hold
nearly all superprime balances.
Credit unions overwhelmingly fall
into the smaller-issuer category.
As a result, credit unions often
serve more higher-risk credit
card borrowers than large banks.
And because they are capped at
eighteen percent on loan rates, they
manage that risk primarily through
underwriting, credit limits, and ongoing
monitoring rather than higher pricing.
That is not a flaw in
the credit union model.
It is a structural reality.
It also means credit card portfolios at
credit unions will behave differently
than those at large banks, especially
during periods of economic stress.
Now letâs take a step back and
put this into historical context.
Before the pandemic, credit card usage
followed fairly predictable patterns.
Revolving rates were stable.
Delinquencies moved gradually
with economic conditions.
Consumers generally used credit cards for
discretionary spending and convenience.
During the pandemic,
those patterns broke down.
Consumers paid down balances aggressively.
Revolving rates fell.
Stimulus payments and reduced spending
opportunities changed behavior
in ways that were highly unusual.
What we are seeing now is not
a return to the old normal.
It is a new normal.
Balances are higher.
Minimum-payment behavior is more common.
Spending growth is uneven.
And credit cards are increasingly
used for essential expenses rather
than discretionary purchases.
That context matters when
interpreting todayâs numbers.
Now letâs talk more directly
about consumer stress signals.
One of the clearest indicators in the
report is minimum-payment behavior.
About fifteen percent of general
purpose cardholders made only the
minimum payment in twenty twenty-four.
For private label cards, that
figure was closer to twenty percent.
At the same time, about half of
all credit card accounts are now
revolving balances, meaning balances
are not paid in full each month.
That level is roughly back to
where it was before the pandemic.
The report also notes that delinquencies
and charge-offs rose sharply in
early twenty twenty-four, reaching
levels not seen in many years,
before declining later in the year.
By year end, delinquency rates
moved closer to pre-pandemic norms.
That normalization sounds
reassuring, but it needs context.
Minimum-payment behavior remains elevated.
Average balances remain high.
That suggests many households are
still under financial pressure, even
if they are not yet missing payments.
In other words, stability does
not necessarily mean comfort.
Now letâs talk about how consumers
are actually using their cards.
The report shows that credit cards are
increasingly used for everyday essentials.
Food, gas, utilities, and
healthcare spending make up a
growing share of transactions.
Higher-credit-score borrowers
tend to use cards more heavily for
travel and discretionary spending.
Lower-credit-score borrowers are more
likely to use cards for necessities.
That distinction matters because spending
on essentials is harder to cut back.
When cards are used for groceries
and utilities, balances are less
likely to come down quickly.
Now letâs turn to operational risk.
Consumers disputed nearly ten
billion dollars in credit card
charges, resulting in almost six
billion dollars in chargebacks.
The most common source of
disputes was not fraud.
It was canceled recurring
transactions, such as subscriptions,
memberships, and utilities.
That tells us something important.
These disputes are not
primarily about bad actors.
They are about servicing clarity,
cancellation processes, billing
transparency, and customer communication.
That means credit card risk is
not just about credit losses.
It is also about operational
discipline and member experience.
The report also spends time on innovation.
Artificial intelligence and alternative
data are expanding access to credit,
particularly for consumers with
thin or limited credit histories.
These tools are changing how issuers
evaluate applications and manage accounts.
At the same time, artificial intelligence
is accelerating payments fraud.
Fraud attempts are faster, more
sophisticated, and harder to detect.
Institutions are balancing
innovation with control in real time.
The report also highlights emerging
alternatives to traditional card
payments, including pay-by-bank
systems and stablecoins.
These are not immediate threats, but
they represent longer-term changes
that could affect card usage over time.
So what does all of this
mean for credit unions?
The takeaway is not that credit
unions are underpricing risk.
Credit unions operate within a
legally defined pricing framework.
The takeaway is that credit unions
are managing credit card portfolios
in a high-rate environment, with
uneven consumer stress, while
serving a membership base that often
includes higher-risk borrowers.
That reality places added importance
on underwriting discipline,
credit line management, portfolio
monitoring, servicing controls,
and clear internal documentation.
It also places added importance on being
able to clearly explain credit card
strategy to boards and leadership teams.
This report provides useful
context for those conversations.
It helps explain why credit card
performance may look different
across institutions, and why
managing risk through structure
rather than price is a defining
feature of the credit union model.
This concludes the episode.
If your credit union could use assistance
with your exam, reach out to Mark Treichel
on LinkedIn or at Mark Treichel dot com.
This is Samantha Shares, and
we thank you for listening.