Banks Tightens Lending

For the first quarter of 2010, an estimated 15% of the banks have tightened their credit policies and only 6% has made theirs lax. For the second quarter, 6% of the banks tightened while 3% relaxed. The Federal Reserve surveyed the banks and found out these numbers along with reports detailing the decrease in credit card balances of consumers for the past years and past quarter. Furthermore, about 78% of the banks did not change their credit restrictions as compared to the previous survey which indicated that 90% of banks had theirs unchanged. Certain changes in the policies are lowered credit limits, raised minimum payments, increased credit score requirements and denial of credit for unqualified applicants. The common changes were pressed on lowering credit limits and raising interest rates.

Consumers are getting less credit and relying more on their cash on hand to cover their purchases. The consumer spending has also increased much more than income while the savings rate has decreased. Experts believe this to be a positive sign of economic recovery since the increase in consumer spending has increased the US GDP.

The decrease in credit was somehow contributed by the credit card holders’ good credit behaviors. Many consumers are becoming hard workers in order to pay their credit card bills on time. The delinquency rates dropped to 3.88% in the first quarter of this year from the rate of the last quarter of 2009 which is 4.39%.

Though the numbers can state that something good is happening to the economy, there are still problems regarding plenty of consumers. With the hike of unemployment, it seems that paying credit card bills and budgeting for their necessary expenses are getting difficult. Without income, the basic expenses are charged to the credit cards and whatever money they will have on hand will be applied to the bills. But coming up with the cash is more difficult as these people do not have permanent jobs and must get in one temporary job to another, that is if they are lucky. Banks won’t lend them credit due to more strict policies and people are left on their own to fund their own basic needs. This is another good thing, experts say. This behavior has showed that consumers are prioritizing things and are not spending off their money with useless stuff such as luxury items.

Another positive outcome of this situation is that the government will see the necessity of increasing employment rate seriously. The focus on the job growth will become critical since the government may have to make this as top priority to stabilize the US economy. The government has made donations available through credit cards which should make them responsible to increase the consumer income, regardless of it being voluntary or not.