Credit Card Balances Fall to New Lows for Credit Unions

Reports show weakening auto lending, and continued mortgage strength.

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The end of October found the lowest balances on credit cards in two years for credit unions and three years for banks, according to Fed data.

The Fed’s G-19 Consumer Credit Report released Monday showed lenders of all types held $942.8 billion in credit card debt on Oct. 31, down 10.3% from a year earlier and the lowest balances since it stood at $936.5 billion in May 2017.

October was also another poor month for auto lending for credit unions, while the largest gains from a year earlier continued to come from first mortgages and unsecured personal loans, according to CUNA data.

A report Wednesday from the Mortgage Bankers Association showed the demand for refinance and purchase mortgages remained strong going into December.

Fed data showed credit card balances began falling in April, a month after COVID-19 was declared a pandemic, and have fallen each month since then.

The pattern, unlike the Great Recession, when monthly balances compared with a year earlier had median growth of 11.3% at credit unions and 7.5% at banks.

As of Oct. 31, credit unions held just over $61 billion in credit card debt, down 5.6% from October 2019 and the lowest since $60.5 billion in October 2018.

Banks held $844.1 billion in credit card debt in October, down 10.5% from a year earlier and the lowest since $837.7 billion in September 2017.

The reward for a slower descent in a shrinking pool is that credit unions’ share has risen slightly in the past year. It was 6.5% in October, compared with 6.5% in September and 6.2% in October 2019.

Banks’ share was 89.5% in October, compared with 89.6% in September and 89.7% in October 2019.

The Mortgage Bankers Association reported Monday that mortgage applications for the week ending Dec. 4 were 1.2% less than the previous week after adjustments for the Thanksgiving holiday.

Joel Kan, MBA’s assistant vice president of economic and industry forecasting, said refinances accounted for 72% of applications in the week ending Dec. 4, up from 69.5% the previous week.

“Refinance activity increased last week in response to mortgage rates for 30-year, 15-year and FHA loans hitting their lowest levels in MBA’s survey,” Kan said.

“The ongoing refinance wave has continued through the fall, with activity last week up 89% from a year ago,” Kan said. “The purchase market is also poised to finish 2020 on a strong note.”

Those trends were reflected in CUNA’s Monthly Credit Union Estimates. It showed credit unions held $512.5 billion in first mortgages on Oct. 31, up 10.4% from a year earlier. In the previous 12 months, from October 2018 to October 2019, first mortgages rose 8.9%.

Second liens fell 7.9% to $86.6 billion. They rose 4.7% in the previous 12 months.

Overall, lending growth over the past two years looks similar. CUNA found the nation’s 5,336 credit unions held $1.19 trillion in total loans on Oct. 31, up 5.9% from a year earlier — down from 6.2% growth from October 2018 to October 2019.

Besides the shift away from credit cards, some of the changes are continuations of pre-pandemic trends — including slowing car lending and strengthening first mortgages.

Car lending has been generally slowing since 2015, with peak growth of 22.4% for new cars and 16.4% overall in February 2015.

New auto loans fell 3.3% to $143.6 billion in October. In the previous 12 months, from October 2018 to October 2019, they rose 0.7%. Used auto loans rose 4.6% to $242 billion in October. In the previous 12 months, they rose 4.5%.

New car loan balances began falling in December 2019, with the steepest 12-month drop being 4.1% for September. Used car lending growth peaked at 13% in April 2016.

CUNA’s estimates showed credit unions had 125.7 million members in October, up 2.9% from October 2019. The previous 12-month growth was 3.6%. The Madison, Wis., trade group’s report also showed:

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