For the first time in years, consumer credit companies are increasing capital reserves. According to the Wall Street Journal, banks such as Wells Fargo, J.P. Morgan, Capital One, and Discover anticipate increasing defaults in the consumer credit market.
However, this news is not necessarily all doom and gloom from the consumer perspective. In an effort to combat decreased revenue due to lower interest rates, banks have been relaxing their lending standards and offering loans and credit cards to consumers with lower credit scores. (Notably, all this has happened over a period of increasing regulation.) Thus, the increase in capital reserves is likely a function of a measured adjustment to a changing consumer base, not a sign of some looming financial disaster.
The article does highlight that defaults on general purpose credit cards did increase 0.24% from a year earlier; however, this too may be best explained by the change in the customer demographic.
Regardless, the evidence is undisputed: Even as regulation and enforcement increases, banks and other consumer financiers are lending to a larger, more diverse customer base.
David J.S. Madgett, Esq.