Consumer Lending Dynamics Change as Rates, Economy Fluctuate

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Annualized loan growth has been slowing for all types of lenders in the U.S. financial services marketplace — credit unions, banks, fintechs and others — and will probably continue in 2020 according to a recent forecast by TransUnion.

That was the sentiment expressed during the company’s recent “Q4 2019 Financial Services Industry Insights Report” and forecast webinar, followed up by a question-and-answer session (click here for presentation slides). This late-February credit overview of U.S. consumers was hosted by Chris Huszar, senior manager of financial services research and consulting.

“We have projections, but there’s always a level of uncertainty,” Huszar said. “In addition, we have an election cycle coming up. We’re in a very long economic expansion cycle. We’ve seen slowing economic growth a little, but not from the consumer side. Recession may or may not be the case going forward, but ultimately there has been no self-fulfilling prophecy so far when it comes to those forecasting a recession.”

Huszar noted the recent concerns within the financial markets regarding volatility and a possible economic recession, but he said U.S. consumers are mostly being propelled by positive economic conditions.

“This continues to be an ongoing theme as hourly wages continue creeping up,” Huszar said. “There are pretty good expectations for modest economic growth for several months to come as interest rate cuts in 2019 helped consumer debt continue to grow.”

The following are highlights:

  • Mortgages continue to be a bright spot for lenders as long-term interest rates remain historically low and have recently continued to drop even lower and defy some experts’ projections.
  • Auto lending’s noticeable recent slowdown has moderated for the time being. A small uptick was noticed, but it remains to be seen whether this can be sustained or has plateaued.
  • Home-equity lending (HELOCs and second mortgages) continues, but at much slower growth rates than 12 – 15 years ago. This category has never truly “recovered” from the Great Recession of 2007 – 2009 (but unsecured personal loans could be soaking up new borrower demand in this area instead).
  • Unsecured personal loans remain a huge hot spot for lending activity as competition has heated up over several years now. It is finally showing some signs of slowing, but overall growth still remains solid — especially among a growing number of low-risk borrowers with high credit scores and high annual household income.
  • Traditional credit cards versus private-label retail credit cards are exhibiting unique up-and-down characteristics due to lender competition, as well as a long-term reshaping of the retail store environment from physical locations to e-commerce.

Click here to view all slides in the presentation on first mortgages, unsecured personal loans, auto loans, traditional credit cards, private-label credit cards, and home-equity lending (HELOCs and second mortgages) for credit unions, banks, fintechs and other lenders — including annual growth trends, credit cohorts, demographics, delinquencies, and more.

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