Banks reduce balance transfer offers

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Balance transfers are upon us.

Or maybe not.

Google an issuer, take a quick look at the search results, and it looks like any number of balance transfer cards are in the mix, promoting 0% interest – in some cases, as long than 20 months or more.

But again, in the current tough macro climate, and as sites such as CNBC have noted in recent weeks, some banks have cut those offers.

The steady rise in inflation and recent details on consumer debt from the Fed make this pullback somewhat easy to understand. Inflation, of course, is higher than expected, hitting new 40-year highs last week.

Also read: Rising food and fuel problem in the United States leads to an 8.6% increase in inflation in May

At the same time, credit card debt, as a whole, stands at $841 billion, according to Federal Reserve data. Overall, revolving credit was up 19.6% year over year, as measured in April.

And as reported in this space last week, consumers are increasingly turning their credit card debt around and allowing interest to mount instead of paying off what they owe each month.

For banks, withdrawing the balance transfer is like a playbook used during the Great Recession.

The Philadelphia Fed noted in published articles that balance transfer offers had fallen more than 70% by mid-2008 (Figure 3). Along with this period, promotional balance transfers as a percentage of outstanding credit card debt fell from about 40% in early 2008 to a low of about 10% during the recession.

History to repeat itself

History may repeat itself, even if total household debt as a percentage of income seems, at least for now, more manageable than a decade and a half ago. According to the Fed, this measure was around 13% at the start of the Great Recession, and it is around 9% now.

But with a deeper dive into some pressure points, consider that data from PYMNTS has shown that more than 60% of us are living paycheck after paycheck. Paycheck-to-paycheck consumers are three times more likely to have credit card debt than those who don’t have trouble paying their bills. This statistic crosses

With so much debt on hand, as interest rates rise, and without the ability to “switch” to a zero interest rate option, credit card debt becomes a costlier challenge for the household of paycheck to paycheck. The smoke signals are there. In March, Equifax reported that 11.3% of personal loans and lines of credit for subprime borrowers were at least 60 days past due, and 11.1% of credit cards held by this cohort were 60 days past due. This compares unfavorably to the respective rates of 10.4% and 9.8% seen just a year ago.

Also Read: Subprime Loan Delinquencies Signal Trouble for Paycheck-to-Paycheck Economy

We can see a ripple effect here – one that causes banks’ reluctance to launch balance transfer options to open the door for other companies to offer low-interest means – personal loans, for example – to consolidate that debt and pay it off. Last month, we noted that in its latest earnings report, LendingClub’s new loans were $3.2 billion (up 5% from last quarter). The banks are backing down, yes, but others will intervene.

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NEW PYMNTS DATA: THE CUSTOM PURCHASING EXPERIENCE STUDY – MAY 2022

About: PYMNTS’ survey of 2,094 consumers for The Tailored Shopping Experience report, a collaboration with Elastic Path, shows where merchants are succeeding and where they need to up their game to deliver a personalized shopping experience.

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