WEBVTT NOTE This file was generated by Descript 00:00:00.460 --> 00:00:02.380 Samantha: Hello, this is Samantha Shares. 00:00:03.107 --> 00:00:07.237 Today’s episode covers key findings from the Consumer Financial Protection 00:00:07.237 --> 00:00:11.387 Bureau’s most recent Consumer Credit Card Market Report, released 00:00:11.387 --> 00:00:12.907 in December twenty twenty-five. 00:00:13.690 --> 00:00:16.330 This is not a regulation and not a proposed rule. 00:00:16.930 --> 00:00:20.390 It is a market-wide report required by Congress that looks at how 00:00:20.390 --> 00:00:24.780 consumers are using credit cards, how issuers are managing risk, and 00:00:24.780 --> 00:00:28.120 where growth and stress are showing up across the credit card system. 00:00:28.886 --> 00:00:32.096 This podcast is educational and is not legal advice. 00:00:32.666 --> 00:00:36.696 We are sponsored by Credit Union Exam Solutions Incorporated, whose 00:00:36.696 --> 00:00:39.786 team has over two hundred and forty years of National Credit 00:00:39.786 --> 00:00:41.686 Union Administration experience. 00:00:42.246 --> 00:00:45.826 We assist our clients with N C U A so they save time and money. 00:00:46.296 --> 00:00:50.326 If you are worried about a recent, upcoming, or in-process N C U A 00:00:50.326 --> 00:00:54.706 examination, reach out to learn how they can assist at Mark Treichel dot com. 00:00:55.096 --> 00:00:59.636 Also check out our other podcast called With Flying Colors, where we provide tips 00:00:59.636 --> 00:01:02.196 on how to achieve success with N C U A. 00:01:02.924 --> 00:01:04.294 Let’s start with the big picture. 00:01:05.046 --> 00:01:09.186 Credit cards remain one of the most widely used financial products in the country. 00:01:09.616 --> 00:01:12.956 According to the report, about two hundred and eight million Americans 00:01:13.166 --> 00:01:15.046 now have at least one credit card. 00:01:15.506 --> 00:01:19.336 That represents roughly three quarters of all adults in the United States. 00:01:19.983 --> 00:01:21.893 That tells us something important right away. 00:01:22.463 --> 00:01:24.373 Credit cards are not a niche product. 00:01:24.823 --> 00:01:27.493 They are deeply embedded in everyday financial life. 00:01:28.023 --> 00:01:31.983 People use them to buy groceries, pay for gas, manage subscriptions, 00:01:32.083 --> 00:01:36.803 cover medical bills, book travel, and smooth out short-term cash flow gaps. 00:01:37.464 --> 00:01:41.344 Total credit card purchase volume reached approximately three point six 00:01:41.344 --> 00:01:43.304 trillion dollars in twenty twenty-four. 00:01:43.774 --> 00:01:47.304 Outstanding balances exceeded one point two trillion dollars. 00:01:48.021 --> 00:01:51.431 The average cardholder now carries a balance of just over five 00:01:51.431 --> 00:01:52.641 thousand three hundred dollars. 00:01:53.131 --> 00:01:56.631 For borrowers with stronger credit profiles, average balances 00:01:56.631 --> 00:01:58.051 are significantly higher. 00:01:58.770 --> 00:02:01.670 Those numbers reflect not just spending, but reliance. 00:02:02.190 --> 00:02:04.870 They show how much households are leaning on credit cards 00:02:04.930 --> 00:02:06.600 as a flexible financial tool. 00:02:07.358 --> 00:02:10.978 But the most important story in this report is not the size of the market. 00:02:11.766 --> 00:02:14.186 It is who is driving growth, and who is not. 00:02:14.989 --> 00:02:18.139 The report shows that nearly all recent growth in credit card 00:02:18.139 --> 00:02:21.599 spending is coming from borrowers with very strong credit scores. 00:02:22.089 --> 00:02:25.699 Superprime and prime-plus borrowers are responsible for most of the 00:02:25.699 --> 00:02:29.479 increase in purchase volume and balances over the past two years. 00:02:30.240 --> 00:02:34.060 By contrast, spending growth for borrowers with prime or lower credit 00:02:34.060 --> 00:02:38.140 scores has been essentially flat since late twenty twenty-three, even 00:02:38.140 --> 00:02:41.740 though the number of cardholders in those tiers has continued to increase. 00:02:42.480 --> 00:02:43.660 That is a critical point. 00:02:44.414 --> 00:02:47.614 It means more people have credit cards, but many of them are not 00:02:47.614 --> 00:02:49.534 using those cards more aggressively. 00:02:49.984 --> 00:02:51.134 They appear constrained. 00:02:51.694 --> 00:02:55.364 Higher-credit-score households, on the other hand, continue to spend, 00:02:55.464 --> 00:02:57.674 travel, and absorb higher prices. 00:02:58.412 --> 00:03:02.132 This uneven growth pattern matters, especially for institutions that 00:03:02.132 --> 00:03:03.962 serve a broad membership base. 00:03:04.625 --> 00:03:06.075 Now let’s talk about pricing. 00:03:06.803 --> 00:03:10.033 Across the broader credit card market, interest rates reached 00:03:10.033 --> 00:03:11.893 historic highs in twenty twenty-four. 00:03:12.523 --> 00:03:15.783 Average annual percentage rates exceeded twenty-five percent for 00:03:15.783 --> 00:03:20.303 general purpose credit cards and topped thirty percent for private label cards. 00:03:21.018 --> 00:03:25.088 New credit card accounts opened last year carried interest rates far higher 00:03:25.088 --> 00:03:27.198 than what was typical just ten years ago. 00:03:27.938 --> 00:03:31.228 These increases reflect the interest-rate environment, but they 00:03:31.228 --> 00:03:33.668 also reflect risk-based pricing at work. 00:03:34.298 --> 00:03:38.188 Banks and nonbank issuers have been able to adjust credit card pricing as 00:03:38.188 --> 00:03:40.648 rates rose and as borrower risk shifted. 00:03:41.421 --> 00:03:44.011 Credit unions operate under a different structure. 00:03:44.766 --> 00:03:48.236 Federal credit unions are capped at eighteen percent on all loan 00:03:48.236 --> 00:03:50.136 rates, including credit cards. 00:03:50.806 --> 00:03:55.006 That cap fundamentally changes how credit unions manage credit card risk. 00:03:55.771 --> 00:03:59.261 Credit unions cannot simply raise rates to compensate for higher 00:03:59.261 --> 00:04:01.571 credit risk or higher funding costs. 00:04:02.091 --> 00:04:05.021 Instead, they manage credit card risk through underwriting 00:04:05.021 --> 00:04:09.031 standards, credit limits, portfolio mix, and ongoing monitoring. 00:04:09.779 --> 00:04:13.029 That difference becomes especially important when we look at who holds 00:04:13.029 --> 00:04:14.739 risk in the credit card system. 00:04:15.486 --> 00:04:19.226 According to the report, issuers with less than one hundred billion dollars 00:04:19.226 --> 00:04:23.576 in assets hold more than half of all below-prime credit card balances. 00:04:24.176 --> 00:04:28.276 Large issuers, by contrast, hold nearly all superprime balances. 00:04:28.561 --> 00:04:31.761 Credit unions overwhelmingly fall into the smaller-issuer category. 00:04:32.211 --> 00:04:35.811 As a result, credit unions often serve more higher-risk credit 00:04:35.811 --> 00:04:37.641 card borrowers than large banks. 00:04:38.131 --> 00:04:41.391 And because they are capped at eighteen percent on loan rates, they 00:04:41.391 --> 00:04:45.521 manage that risk primarily through underwriting, credit limits, and ongoing 00:04:45.521 --> 00:04:47.541 monitoring rather than higher pricing. 00:04:48.285 --> 00:04:50.655 That is not a flaw in the credit union model. 00:04:51.215 --> 00:04:52.775 It is a structural reality. 00:04:53.464 --> 00:04:57.704 It also means credit card portfolios at credit unions will behave differently 00:04:57.704 --> 00:05:01.804 than those at large banks, especially during periods of economic stress. 00:05:02.487 --> 00:05:05.967 Now let’s take a step back and put this into historical context. 00:05:06.708 --> 00:05:10.978 Before the pandemic, credit card usage followed fairly predictable patterns. 00:05:11.458 --> 00:05:12.958 Revolving rates were stable. 00:05:13.448 --> 00:05:16.528 Delinquencies moved gradually with economic conditions. 00:05:16.958 --> 00:05:21.368 Consumers generally used credit cards for discretionary spending and convenience. 00:05:22.076 --> 00:05:24.566 During the pandemic, those patterns broke down. 00:05:24.866 --> 00:05:26.866 Consumers paid down balances aggressively. 00:05:26.866 --> 00:05:28.066 Revolving rates fell. 00:05:28.066 --> 00:05:31.266 Stimulus payments and reduced spending opportunities changed behavior 00:05:31.266 --> 00:05:33.666 in ways that were highly unusual. 00:05:34.156 --> 00:05:37.186 What we are seeing now is not a return to the old normal. 00:05:37.897 --> 00:05:38.967 It is a new normal. 00:05:39.715 --> 00:05:40.965 Balances are higher. 00:05:41.605 --> 00:05:43.775 Minimum-payment behavior is more common. 00:05:44.185 --> 00:05:45.795 Spending growth is uneven. 00:05:46.325 --> 00:05:50.055 And credit cards are increasingly used for essential expenses rather 00:05:50.055 --> 00:05:51.715 than discretionary purchases. 00:05:52.428 --> 00:05:55.358 That context matters when interpreting today’s numbers. 00:05:56.063 --> 00:05:59.173 Now let’s talk more directly about consumer stress signals. 00:05:59.872 --> 00:06:03.632 One of the clearest indicators in the report is minimum-payment behavior. 00:06:04.292 --> 00:06:07.672 About fifteen percent of general purpose cardholders made only the 00:06:07.672 --> 00:06:09.232 minimum payment in twenty twenty-four. 00:06:09.232 --> 00:06:13.662 For private label cards, that figure was closer to twenty percent. 00:06:14.402 --> 00:06:17.692 At the same time, about half of all credit card accounts are now 00:06:17.692 --> 00:06:21.932 revolving balances, meaning balances are not paid in full each month. 00:06:22.492 --> 00:06:25.582 That level is roughly back to where it was before the pandemic. 00:06:26.282 --> 00:06:30.362 The report also notes that delinquencies and charge-offs rose sharply in 00:06:30.412 --> 00:06:33.902 early twenty twenty-four, reaching levels not seen in many years, 00:06:33.962 --> 00:06:35.742 before declining later in the year. 00:06:36.471 --> 00:06:40.571 By year end, delinquency rates moved closer to pre-pandemic norms. 00:06:41.271 --> 00:06:44.641 That normalization sounds reassuring, but it needs context. 00:06:45.378 --> 00:06:47.778 Minimum-payment behavior remains elevated. 00:06:48.308 --> 00:06:50.078 Average balances remain high. 00:06:50.628 --> 00:06:54.568 That suggests many households are still under financial pressure, even 00:06:54.568 --> 00:06:56.448 if they are not yet missing payments. 00:06:57.074 --> 00:07:00.244 In other words, stability does not necessarily mean comfort. 00:07:00.988 --> 00:07:04.298 Now let’s talk about how consumers are actually using their cards. 00:07:04.967 --> 00:07:09.227 The report shows that credit cards are increasingly used for everyday essentials. 00:07:09.677 --> 00:07:12.807 Food, gas, utilities, and healthcare spending make up a 00:07:12.807 --> 00:07:14.537 growing share of transactions. 00:07:15.318 --> 00:07:18.628 Higher-credit-score borrowers tend to use cards more heavily for 00:07:18.628 --> 00:07:20.538 travel and discretionary spending. 00:07:21.168 --> 00:07:25.108 Lower-credit-score borrowers are more likely to use cards for necessities. 00:07:25.820 --> 00:07:29.690 That distinction matters because spending on essentials is harder to cut back. 00:07:30.260 --> 00:07:33.980 When cards are used for groceries and utilities, balances are less 00:07:33.980 --> 00:07:35.450 likely to come down quickly. 00:07:36.154 --> 00:07:38.074 Now let’s turn to operational risk. 00:07:38.798 --> 00:07:42.188 Consumers disputed nearly ten billion dollars in credit card 00:07:42.188 --> 00:07:46.038 charges, resulting in almost six billion dollars in chargebacks. 00:07:46.786 --> 00:07:49.306 The most common source of disputes was not fraud. 00:07:49.916 --> 00:07:53.326 It was canceled recurring transactions, such as subscriptions, 00:07:53.396 --> 00:07:55.016 memberships, and utilities. 00:07:55.706 --> 00:07:57.186 That tells us something important. 00:07:57.887 --> 00:08:00.807 These disputes are not primarily about bad actors. 00:08:01.357 --> 00:08:05.037 They are about servicing clarity, cancellation processes, billing 00:08:05.037 --> 00:08:07.497 transparency, and customer communication. 00:08:08.196 --> 00:08:11.446 That means credit card risk is not just about credit losses. 00:08:11.856 --> 00:08:15.296 It is also about operational discipline and member experience. 00:08:15.962 --> 00:08:18.422 The report also spends time on innovation. 00:08:19.105 --> 00:08:23.315 Artificial intelligence and alternative data are expanding access to credit, 00:08:23.665 --> 00:08:27.305 particularly for consumers with thin or limited credit histories. 00:08:27.875 --> 00:08:32.385 These tools are changing how issuers evaluate applications and manage accounts. 00:08:33.005 --> 00:08:37.135 At the same time, artificial intelligence is accelerating payments fraud. 00:08:37.745 --> 00:08:41.755 Fraud attempts are faster, more sophisticated, and harder to detect. 00:08:42.433 --> 00:08:45.993 Institutions are balancing innovation with control in real time. 00:08:46.761 --> 00:08:50.451 The report also highlights emerging alternatives to traditional card 00:08:50.451 --> 00:08:54.031 payments, including pay-by-bank systems and stablecoins. 00:08:54.541 --> 00:08:58.161 These are not immediate threats, but they represent longer-term changes 00:08:58.161 --> 00:09:00.251 that could affect card usage over time. 00:09:00.967 --> 00:09:03.357 So what does all of this mean for credit unions? 00:09:03.913 --> 00:09:07.263 The takeaway is not that credit unions are underpricing risk. 00:09:07.803 --> 00:09:11.453 Credit unions operate within a legally defined pricing framework. 00:09:12.192 --> 00:09:16.122 The takeaway is that credit unions are managing credit card portfolios 00:09:16.162 --> 00:09:19.842 in a high-rate environment, with uneven consumer stress, while 00:09:19.842 --> 00:09:23.532 serving a membership base that often includes higher-risk borrowers. 00:09:24.263 --> 00:09:27.763 That reality places added importance on underwriting discipline, 00:09:27.893 --> 00:09:31.843 credit line management, portfolio monitoring, servicing controls, 00:09:31.913 --> 00:09:33.823 and clear internal documentation. 00:09:34.520 --> 00:09:38.780 It also places added importance on being able to clearly explain credit card 00:09:38.780 --> 00:09:41.150 strategy to boards and leadership teams. 00:09:41.808 --> 00:09:45.188 This report provides useful context for those conversations. 00:09:45.618 --> 00:09:48.808 It helps explain why credit card performance may look different 00:09:48.808 --> 00:09:52.358 across institutions, and why managing risk through structure 00:09:52.388 --> 00:09:55.908 rather than price is a defining feature of the credit union model. 00:09:56.645 --> 00:09:58.105 This concludes the episode. 00:09:58.525 --> 00:10:02.805 If your credit union could use assistance with your exam, reach out to Mark Treichel 00:10:02.805 --> 00:10:05.305 on LinkedIn or at Mark Treichel dot com. 00:10:05.885 --> 00:10:08.575 This is Samantha Shares, and we thank you for listening.