ABA Report: Card Market Continued to Normalize in Third Quarter of 2022

Consumers continued to effectively manage their credit obligations despite economic headwinds in the third quarter of 2022, according to the American Bankers Association’s latest quarterly Credit Card Market Monitor. The report found that the effective finance charge yield (which measures interest payments relative to total outstanding credit) increased, reflecting the Federal Reserve’s interest rate hikes during the spring and summer of 2022, and the share of Revolvers (those who carried over monthly balances) grew. Meanwhile, as a portion of disposable income, credit card credit outstanding rose but remained well below pre-pandemic levels.

The March 2023 Monitor, which reflects credit card data from July to September 2022, shows that real monthly purchase volumes* decreased 3–5% across risk tiers compared to the previous quarter. On an annual basis, however, real monthly purchase volumes increased 3–4% for prime and super-prime accounts. While credit card credit outstanding as a share of disposable income* continued to normalize in the third quarter, the reading of 4.98% remained well below average 2019 levels of 5.37%.

The effective finance charge yield (EFCY) increased by 96 basis points in the third quarter to 13.12%, largely because of upward pressure from the Federal Reserve’s rate increases that began in March of 2022. In the third quarter alone, the Federal Reserve increased their target rate by 150 bps. Most credit cards have variable interest rates that are pegged to the prime rate, which in turn is closely linked to the Fed Funds rate. Because of this, the EFCY generally moves in the same direction as the Fed Funds rate, though it does not always fall or rise by the same magnitude. The EFCY increased alongside the share of cardholders who were Revolvers, which rose to 43.4% (from 42.2%). At the same time, the share of Transactors (those who paid their monthly balances in full) decreased to 33.6% (from 34.2%). The share of Dormant accounts fell to 23.0%.

“Our latest report indicates that consumer credit card use is continuing to normalize to pre-pandemic levels,” said ABA Chief Economist Sayee Srinivasan. “The Federal Reserve’s interest rate hikes are putting added demands on consumer finances. Notably, the labor market remains strong, and consumers have continued to manage their obligations well.”

Other metrics featured in the Credit Card Market Monitor suggest that consumer credit availability remains strong, as card issuers expanded credit availability in the third quarter.

• The total number of accounts rose 7.4% compared to the previous year. Super-prime accounts represented nearly half of all accounts, though the share of super-prime accounts decreased slightly in the third quarter as the share of subprime accounts increased.
• New account creation** increased in the third quarter of last year by 8.2% compared to the second quarter and climbed more than 26% compared to a year prior. Subprime accounts represented more than one-third of new accounts. Subprime account openings fell substantially during the pandemic recession but have since recovered; in the third quarter, they represented more than one-third of new accounts.
• Average credit lines for new accounts rose across risk tiers for the fourth consecutive quarter, led by prime accounts. Among all accounts, average credit lines rose across risk tiers for the third consecutive quarter (not adjusted for inflation).

The full report with detailed charts and statistics is available here.

*Seasonally Adjusted

**New accounts are defined as those opened in the previous 24 months.

About the Credit Card Market Monitor

The American Bankers Association Credit Card Market Monitor is a quarterly report that provides key statistics on industry trends and relevant economic factors affecting the industry. The credit card data used in the report is taken from a nationally representative sample provided by Argus Advisory, a TransUnion Company. In an effort to portray a more accurate picture of the US Consumer Card Industry, Argus has leveraged TransUnion’s data to calibrate changes in the benchmark composition. This change took effect in February 2023. This change begins in the data in Q1 2021. Credit card data are presented as national averages for all accounts based on actual credit card account information. No individual account holder’s information or specific financial institution’s data can be identified from the data set. Other data used in the report are taken from various public and private sources, including the Department of Commerce’s Bureau of Economic Analysis and the Federal Reserve.

Answers to Frequently Asked Questions and definitions of the data presented in the ABA Credit Card Industry Monitor can be found in an Appendix attached to the monitor.

Results of this and all previous reports can be found at www.aba.com.