Banks Unlikely to Ease Lending Standards: FICO

Banks aren't likely to ease lending standards anytime soon due to continued worries about delinquencies, according to a survey by FICO, a decision management and analytics firm that determines consumer credit scores.

“On one hand, consumers are wanting more credit, but there’s reasons to be concerned because we’re not over the hump yet in terms of some of the delinquencies that consumers are still going to face in terms of mortgages, credit cards, and even home equity loans,” said Mark Greene, FICO's CEO. “So the bankers are worried. They see an extra demand for credit, but they’re not really willing to open up the credit lines quite yet.”

In fact, some 92 percent of the 127-surveyed bankers believe lending standards will hold steady or get tougher this quarter.

Meanwhile, the federal Credit Card Accountability, Responsibility and Disclosure Act [CARD], which intends to protect consumers from unfair credit card billing practices, may actually widen the gap between credit supply and consumer demand, said Greene.

“For people who have credit cards, they will either find out that they have less credit available or their lines have shrunk or their rates go up,” he said. “We’re also worried that the low end of the market, this will actually chase people out of the credit card market to even less savory forms of borrowing—payday lenders and those kinds of situations.”

The surveyed bankers remain skeptical as to whether American and European consumers can drive the global economic recovery.

“If you’re looking for the consumer to be the engine of growth here in the United States, the answer is not quite yet,” he said.

Bankers are also concerned whether austerity measures taking shape in Europe will impinge on consumer spending there. Rather, look towards China for strength in the consumer, he said.

“The banks are happy to lend the money and the consumers are happy to take it on,” he said. “Maybe the Chinese consumer will actually pull the economy out of the world recession, not necessarily those in the Unite States.”