Rising credit card balances: A double-edged sword?

Sure, it signifies growing economic strength and confidence … but what about the downside?

WPRAccording to the latest estimates, U.S. credit card balances are expected to hit $1 trillion by the end of 2016.

It’s a milestone of sorts.  After all, the last time Americans’ total credit card balances exceeded $1 trillion was in 2008, just before the onset of the “Great Recession” as the housing/financial crisis intensified.

Does this new peak herald the end of the frugal consumer spending habits which transpired in the wake of the recession?

Perhaps so … but a good deal of the explanation reflects on the financial institutions themselves, who began opening the spigot by relaxing restrictions on signing up subprime consumers.

They’ve also begun raising credit limit amounts.

All this is a change from before, when credit-tightening was the name of the game from 2009 onwards.

Part of what’s driving the new policies is the fact that credit cards represent one of the few bright spots in consumer finance at the moment.

To illustrate the point, large credit-card issuer Capital One reports a year-over-year gain of nearly 15% in the 1st quarter of 2016 compared to a year earlier.  Other major issuers — Citigroup, J.P. Morgan Chase and Discover Financial Services among them — also have experienced significant gains.

By contrast, other consumer lending activities are far less lucrative, because low interest rates make margins on traditional lending very low.

I wonder if the rush to ply subprime borrowers with new general-purpose credit cards is a smart long-term proposition, however. Nearly 11 million such cards were issued in 2015.  That’s ~25% higher than in 2014 and the highest number of such cards issued annually since 2007.

Couldn’t the next bout of economic turbulence put us right back into a bevy of defaults as before?  And aren’t we seeing hints of this already?

Here’s a clue:  defaults rates appear to be rising along with the issuing activity — including a steady uptick in each of the first four months of this year.

And let’s not forget automobile loans, either.  They’re up significantly as well — along with delinquency rates.

I think history can help guide us here — and with a lot more caution than was the case back in those halcyon days of 2007.  If there are problems, no one can say that we weren’t forewarned, based on recent history.

What are your thoughts?  Please share them for the benefit of other readers.

Bank of America: The Financial Institution Everyone Loves to Hate

Bank of AmericaIf you’ve ever had an unpleasant or unfulfilling experience regarding Bank of America and how it handles transaction fees, branch operations or customer service in general, raise your hand.

Uh-huh.  I thought so. 

Our family’s lone experience working with BofA (when an inherited bank CD matured a few years back) was enough to elicit the famous cry:  “Never again!”

Evidently, we’re not alone.  According to the latest American Customer Satisfaction Index report, customers give Bank of America its lowest satisfaction score in more than a decade.

In fact, BofA’s 2012 score of ACSI score of 66 out of possible 100 points is two points lower than its 2010 score.

There’s more:  Not only does BofA trail all of its main banking competitors, it’s the only financial institution with a customer satisfaction grade that is actually lower than its pre-recession level.

Not surprisingly, the bank is also the least popular one among consumers.  It’s had that ignominious distinction for four years running.

Just how are big banks faring in general?  The ACSI report reveals the following index scores (out of a possible 100):

  • JPMorgan Chase:  74 (up 7 points from 2010)
  • Wells Fargo:  71 (-2)
  • Citigroup:  70 (-1)
  • Bank of America:  66 (-2)

In general, consumers tend to rate smaller banking institutions, with an aggregate score of 79, higher than their big-bank rivals.  But the highest ratings in this sector are reserved for credit unions (82).

Incidentally, the American Customer Satisfaction Index is also calculated for the major insurance carriers — one of the 47 industries and 10 sectors that it surveys quarterly.  Who’s on top there?  Blue Cross/Blue Shield scores best among health insurance firms with a 73 rating, while Aetna brings up the rear with a 67 score.

As for property and casualty insurance providers, the scores are somewhat better.  State Farm and Progressive lead in this category with an 81 score … but none of the other major firms do significantly worse.

If you’re interested in exploring the results in greater depth, you can review the current and historical ACSI scores here.

A surprise? Corporate reputations on the rise.

Corporate reputations on the riseWhat’s happening with the reputations of the leading U.S. corporations? Are we talking “bad rep” or “bum rap”?

Actually, it turns out that corporate reputations are on the rise; that’s according to findings from the 2011 Reputation Quotient® Survey conducted by market research firm Harris Interactive.

Each year since 1999, Harris has measured the reputations of the 60 “most visible” corporations in the United States. The 2011 survey, fielded in January and February, included ~30,000 Americans who are part of Harris’ online panel database. Respondents rated the companies on 20 attributes that comprise what Harris deems the overall “reputation quotient” (RQ).

The 2011 survey contained 54 “most visible” companies that were also part of the 2010 survey. Of those, 18 of the firms showed significant RQ increases compared to only two with declines.

The 20 attributes in the Harris survey are then grouped into six larger categories that are known to influence reputation and consumer behavior:

 Products and services
 Financial performance
 Emotional appeal
 Vision and leadership
 Workplace environment
 Social responsibility

Each of the ten top-rated companies in the 2011 survey achieved between an 81 and 84 RQ score in corporate reputation. (Any RQ score over 80 is considered “excellent” in the Harris study). In cescending order of score, these top-ranked corporations were:

 Google
 Johnson & Johnson
 3M Company
 Berkshire Hathaway
 Apple
 Intel Corporation
 Kraft Foods
 Amazon.com
 Disney Company
 General Mills

At the other end of the scale, the ten companies with the lowest ratings among the 60 included on the survey were:

 Delta Airlines (61 RQ score)
 JPMorgan Chase (61)
 ExxonMobil (61)
 General Motors (60)
 Bank of America (59)
 Chrysler (58)
 Citigroup (57)
 Goldman Sachs (54)
 BP (50)
 AIG (48)

Clearly, BP and AIG haven’t escaped their bottom-of-the-barrel ratings – and probably won’t anytime soon.

What about certain industries in general? The Harris research reveals that the technology segment is perceived most positively, with ~75% of respondents giving that sector a positive rating.

The next most popular segment – retail – had ~57% of respondents giving it a positive rating.

For the auto industry, the big news is not that it’s held in high regard (it’s not) … but that its ratings jumped 15 percentage points between 2010 and 2011. That’s the largest one-year jump recorded for any industry in any year since the Harris RQ Survey began.

What industries are bouncing along the bottom? Predictably, it’s financial services firms and oil companies.

But the news from this survey is, on balance, quite positive. In fact, Harris found that there were actually more individual companies rated “excellent” than has ever been recorded in the history of the survey. Considering the sorry state of the economy and how badly many brands have been battered, that result is nothing short of amazing