U.S. banks have ramped up lending to consumers through credit cards and overdrafts at the fastest pace since 2007, triggering concerns that they are taking on too much risk in a slowing economy.
The industry has piled on about $18 billion of card loans and other types of revolving credit within just three months, as consumers borrow more and banks battle for customers with air miles, cashback deals and other offers.
The surge in lending has come as economists expect the U.S. election to create sufficient uncertainty to impede growth for the rest of the year, increasing the stakes for lenders at a time when the credit cycle appears to have passed a peak.
Recently disclosed second-quarter results showed that credit card loans increased 10 per cent year-on-year at Wells Fargo, 12 per cent at Citigroup and 16 per cent at U.S. Bank, according to Deutsche Bank research. Expansion was an especially aggressive 26 per cent at SunTrust, the $200 billion Atlanta-based lender.
Across the U.S. banking industry, credit card and other revolving loans rose at a seasonally adjusted annual rate of 7.6 per cent in the second quarter to $685 billion, according to Federal Reserve data.
The credit card business remains among the most profitable in banking. Lenders can charge much higher interest rates — the U.S. average is between 12 and 14 per cent — than for other types of credit, and borrower delinquencies are still low by historical standards.