Report: Loan Originations Decline Across Credit Products


8/17/2017 2:25 PM

TransUnion’s latest industry insights show consumers with subprime accounts have less access to loans and an overall increase in delinquency rates.

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The year-over-year number of loans approved for consumers who may default on payments has declined among major credit products for the first time since 2012, according to TransUnion’s Industry Insights Report for the second quarter this year.

In total, 4.63 million consumers in the subprime loan category, which typically have higher interest rates, opened an auto loan or lease, personal loan or credit card in the first quarter compared to 4.89 million in the first quarter of 2016, according to a news release on the report.

Subprime accounts for credit cards declined, for the second consecutive quarter, by 1.8 percent in the beginning of 2017.

“As subprime consumers gained access to credit cards, lenders kept subprime credit lines low,” according to the news release.

Consumers with subprime loans held 2.6 percent of total credit lines in the first quarter.

“Across product lines, we saw a decline in subprime originations at the beginning of 2017, and for the first time in a number of years we observed this for consecutive quarters,” Ezra Becker, senior vice president of research and consulting for TransUnion, said in the news release. “Immediately following the recession, many lenders pulled back on subprime originations to control delinquency. As the economy recovered, lenders loosened their underwriting standards and allowed more subprime consumers greater access to credit. It appears that this trend may now be changing, though it is a much different environment than what we observed just after the recession. The economy is performing well, and after several years of increased subprime lending, some lenders may simply be taking a pause.”

The report also shows consumers’ total credit card balances are continuing to increase, including among cardholders with subprime accounts. Total balances reached nearly $714 billion in the second quarter of 2017, a 7.8 percent increase from $662 billion in the second quarter of 2016.

The average balance per consumer increased 3.3 percent to $5,422 from $5,247 in the second quarter of 2016, according to the news release.

“Total credit card balances continued to climb in the second quarter, driven by growth in super prime card balances,” Paul Siegfried, senior vice president and credit card business leader for TransUnion, said in the news release. “Throughout 2016, lenders provided rich offers to these consumers, and we saw a spike in super prime originations as a result. Now, we are observing super prime consumers using their credit and growing their card balances.”

Credit card delinquency rates also increased significantly in the second quarter. The rate increased 13.2 percent to 1.46 percent in the second quarter; compared to a total rate of 1.2 percent in the second quarter of 2016.

“This brings the card delinquency rate above the average [second quarter] delinquency reading of 1.27 percent for the last three years,” according to the news release.

The Federal Reserve Bank of New York, in its Quarterly Report on Household Debt and Credit, also recently found that credit card delinquency rates and balances are increasing.

Credit card balances increased by $20 billion—a sharp contrast to the $15 billion decline tracked in the first quarter of 2017—accompanied by an uptick in delinquency transitions, ACA International previously reported.

“While relatively low, credit card delinquency flows climbed notably over the past year,” said Andrew Haughwout, senior vice president at the New York Fed. “This is occurring within the context of loosening lending standards, as borrowers with lower credit scores recover their ability to access credit cards. The current state of credit card delinquency flows can be an early indicator of future trends and we will closely monitor the degree to which this uptick is predictive of further consumer distress.”

In its report, TransUnion also found that auto loan delinquency rates increased while rates for mortgages and personal loans declined.

Personal loan and auto loan originations declined for all consumers, mortgage originations (all viewed one quarter in arrears) remained stable, according to the news release.

“Consumers with subprime credit who want to increase their likelihood of credit approval, or secure more favorable lending terms, should focus on building their credit,” Heather Battison, vice president of consumer communications for TransUnion, said in the news release. “Consistently paying bills on time, even if just the minimum due, combined with regularly monitoring your credit report, both go a long way toward achieving and maintaining credit health.”

View the complete TransUnion Industry Insights Report online for more data on loans and delinquencies across credit products.

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