Consumer credit card debt fell at an unprecedented pace last year, according to the annual Consumer Credit Card Market Report.
The report, issued by the Consumer Financial Protection Bureau, found that total outstanding consumer credit card balances peaked in 2019 at $926 billion, decreasing to $811 billion by 2Q 2020, the largest six-month reduction in U.S. history. A declining share of consumers were late in making payments as of 2Q 2020.
Direct consumer relief through the federal government during Covid-19 — economic impact payments, enhanced unemployment benefits, suspension of student loan payments, interest accrual for federally held loans, mortgage forbearance and the federal eviction moratorium — helped, according to the report. Also, credit card issuers provided voluntary relief to consumers by offering payment deferral and waiving fees.
“Despite macroeconomic shocks to the financial system, credit card market conditions remain relatively stable at the time of this report writing, with that stability likely supported by robust fiscal measures, lower consumer discretionary spending, and voluntary industry relief programs,” the report stated.
Measures of consumer stress, such as late payment incidence and the share of accounts delinquent, hit record lows. Fewer customers applied for new credit cards last year than in 2019, and existing cardholders paid off the highest share of their credit card debt in recent years during the pandemic. Additionally, late payment and default rates dropped to historic lows, especially for consumers with below-prime scores.
The report also highlighted components of the credit card market that could entail risks for consumers — automatic payment processes and implementing relief programs. Overall reported satisfaction with credit card issuers significantly fell during the pandemic but remained elevated compared to post-Great Recession levels. Despite that, credit card issuers continued generating profitable annual returns.
Other report findings included:
- General credit card purchase volumes fell 21 percent in 2Q 2020, a decline attributed to reduced spending on travel, restaurants and entertainment during the pandemic. A drop in new customer applications and moderate declines in the percentage of approvals by issuers led to the origination of 21.5 percent fewer new credit cards last year than in 2019.
- U.S. consumers submitted more than 140 million credit card applications last year, a major decline from the more than 172 million in 2019.
- Credit cards offering rewards remain popular with cardholders, despite pandemic-related declines in travel that temporarily reduced the utility of some forms of rewards. Approval rates on general purpose cards decreased from 41 percent in 2019 to 36 percent last year.
- More consumers than ever are paying their credit card bills online or through a mobile app. The use of paper-based payments has declined. Also, the share of consumers enrolled in automatic payments increased last year.
- In 2020, cardholders were assessed $20.8 billion in fees, less than the $23.6 billion the previous year, due mainly to major increases in fee waivers during the pandemic. Also, late fees decreased to $12 billion in 2020 from nearly $14 billion the year prior.