Credit Card Spending Returns for Credit Unions

Credit unions and banks have been reporting strong debit and credit card spending during the third quarter, and signs that balances might soon be emerging to pre-pandemic levels.

PSCU’s payment index released Tuesday showed credit card purchases at member credit unions in September were 22% higher than in September 2020 and 28% higher than in September 2019. Debit purchases were 14% higher than a year earlier and 34% higher than two years earlier.

“Consumer spending remained strong throughout September, once again adapting to the changing environment despite continued declines in consumer confidence,” Jack Lynch, an SVP at PSCU, said.

PSCU found consumer goods were the strongest sector. “As global supply chain disruptions are projected to worsen, the weakest link may be a shortage of truck drivers, likely resulting in consumers facing limited choices and higher prices this holiday shopping season.”

“We expect to see seasonal balance increases begin in October with the earlier start of the holiday shopping season and further influenced by supply chain concerns,” the PSCU report said.

CO-OP Financial Services, the payments CUSO based in Rancho Cucamonga, Calif., on Wednesday reported retail spending from August to September was steady among its base of credit union members.

“We expect higher than typical spending activity in October and November,“ John Patton, CO-OP’s senior payments advisor, said. “Consumers will be getting their holiday shopping done early to beat the rush and purchase their desired gifts in light of the current supply shortages.”

The Fed’s G-19 Consumer Credit Report showed credit card balances continuing their recovery in August, but still short of their levels before COVID-19 was declared a pandemic in March 2020. Credit unions are 5.7% below February 2020’s balances, while banks are down 9%.

Average credit card account balances for PSCU’s same-store population held steady from August to September 2021. The average credit card balance per gross active account was $2,637 in September, down 13% from two years ago and down 5% from a year earlier.

“We expect to see seasonal balance increases begin in October with the earlier start of the holiday shopping season and further influenced by supply chain concerns,” the PSCU report said.

Terrance R. Dolan, vice chair/CFO of U.S. Bank, told investors Oct. 14 that he expected consumer spending to continue to show strength into the fourth quarter, and that balances will start to rise as federal stimulus payments dissipate and payment rates decline from their current historic highs.

“We’ve also been investing in terms of account growth and various sort of promotional activity so that will help to drive it,” he said.

Banks and credit unions have also been reporting low delinquency rates. PSCU said the credit card delinquency rate has been rising slightly since June but was still only 1.30% in September.

One effect of abnormally low delinquency rates and lower credit card balances has been an increase in credit scores. FICO credit scores for PSCU’s fixed population were flat in 2019 and through early 2020, hovering around 730. They began rising sharply in June 2020 and in the 24 months ending Sept. 30, scores had risen to 737. By age group, PSCU found:

• Gen Z (18-24) scores rose 10 points to 697.
• Younger millennials’ (25-32) scores rose 12 points to 705.
• Older millennials’ (33-40) scores rose 10 points to 716.
• Gen X (41-56) scores rose 10 points to 727.
• Boomers and beyond (57+) scores rose 6 points to 763.

PSCU’s index is based on a “same-store” population of credit unions with $120 billion in credit and debit card spending in the 12 months ending Sept. 30.

By comparison, a sample of four early-reporting big banks handled $1.23 trillion in consumer spending on credit cards alone in the same 12-month period. The banks were Bank of America of Charlotte, N.C., JPMorgan Chase & Co. of New York, Wells Fargo of San Francisco and U.S. Bank (U.S. Bancorp) of Minneapolis, Minn.

The banks set a two-year record at $339.4 billion in credit card spending in the three months ending Sept. 30. Spending was 22% higher than two years earlier, 29% higher than 2020’s third quarter and 3.6% higher than the second quarter.

Jeremy Barnum, CFO for JPMorgan Chase, said the bank’s combined credit and debit card spending in the third quarter was 24% higher than two years ago and about the same as in the second quarter.

Even travel and entertainment spending was up 8% from 2019’s third quarter “and very closely track the patterns of the Delta variant within the quarter, softening in August and early September and reaccelerating in recent weeks.”

Credit card balances were 1% higher than a year earlier and 4% higher than on June 30.

“While the payment rate is still very elevated, it’s come down from the highs and revolving balances have stabilized,” he said. “We’re optimistic about the growth prospects of revolving card balances.”

“However, we expect it to take some time for revolving credit card balances to return to pre-pandemic levels given the amount of liquidity in the system,” Barnum said.