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Spooked Banks Slash Subprime Credit Card Exposure For First Time In Three Years

• by Tyler Durdan

According to the latest Transunion Industry Report, in the second quarter of 2018, credit-card issuers slashed the average credit line availability to subprime borrowers by 10% from a year earlier. That contributed to a 3% decrease in the average borrowing cap on new credit-card accounts, to $5,649, the first drop in at least three years. However, even as they trimmed total credit availability, banks tried to make up for declining balances with more clients and subprime originations rose 4% Y/Y.

As Bloomberg notes, the pullback is a reversal after years of banks easing their underwriting standards as part of push to grab market share in credit cards, and paradoxically comes at a time when senior loan officers told the Fed that loan standers had loosened in recent weeks. Meanwhile, investors are growing skittish over the potential for defaults to rise, and their worries increased last year when the amount of outstanding card loans passed a record set just before the global financial system almost collapsed in 2008.

"The origination decline was led by near-prime and above credit tiers, reversing the growth in the prior quarter and shifting back to the declining trend seen in the previous five quarters" said TransUnion's Paul Siegfried. "Despite originations decreasing overall, subprime bankcard originations grew for the first time in five quarters. However, this expansion has been deliberate as lenders have reduced credit lines on subprime accounts" he added.

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