Credit card and loan applications may not be slowing yet, but banks need to contract their lending, as reported by the WSJ. As the global economy braces for a downturn and several industries face rapid shock, credit card issuers need to shift away from aggressive lending to risk avert strategies.This is not the end of lending, rather a tightening to let the dust settle.
Says the Wall Street Journal:
Banks and financial-technology firms are starting to toughen their approval standards for new loans to consumers and small businesses. That means many people could find it hard to get credit just when they most need it, as the novel coronavirus pandemic puts thousands out of work.
Large U.S. lenders, including JPMorgan Chase Co., Bank of America., Capital One Financial Corp., and Santander Consumer USA Holdings SC -3.26% Inc. are among the companies reviewing and revising certain lending criteria, according to people familiar with the matter. Planned moves include approving fewer consumers with lower credit scores, asking for more income documentation, and placing lower spending limits on the new credit card.
Although the list is short, you can be sure any lender worth its salt thinks twice before hitting the “APPROVED” key.
And do not feel safe if your card application or loan request in the pipeline. Lenders service clients, but they are responsible to stockholders. Rest assured that lending standards used in January 2020 are much less conservative than those in place right now.
“Even people who applied [for credit] in the last two weeks are more vulnerable [now] than when they applied,”
Loan solicitations by email have dropped for both credit cards and personal loans, according to market-research firm Competiscan. AmEx, Bank of America and JPMorgan have sent almost no card solicitations in more than a week.
Installment loans, which were the darlings of lending in 2019, will have to struggle to find their place, which supports Mercator’s recent viewpoint titled “Credit Card Lenders: Hone Strategies and Do Not Let the Fintechs Scare You.”
But, for now, think twice about applying for credit. There will likely be forgiveness on credit reporting. Still, small businesses and consumers should not clutter their credit bureau files with desperate loan applications, which might affect their FICO scores when the economy recovers.
Don’t look for solicitations in the mail. Based on my personal experience of no less than four per week by credit card issuers and Fintechs, I have not received an offer in three days and do not expect another for 90 days.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
