Banks are getting more picky about which consumers they’re approving for loans as borrowers with spotty credit histories struggle to keep up with payments, USA Today reports.
The data is surprising in light of an economy and labor market that have been rolling along. Consumers are benefiting from solid job growth, faster pay increases and low debt levels. And the stock market is at record highs.
Yet 11.7% of banks tightened standards for auto loans in the first quarter, up from 3.3% late last year and the highest level on records dating back to 2011, according to the senior loan officer survey released by the Federal Reserve last week and Deutsche Bank.
Credit card standards were toughened by 8.3% of banks, compared to none in the fourth quarter. And criteria for consumer loans excluding credit cards were tightened by 7.3% of banks, up from 2.4%.
The results don’t reflect a suddenly shaky economy or an imminent pullback on lending by banks and other lenders for prime loans, says Matthew Mish, head of global credit strategy for UBS. Instead, he says, with the economic recovery in its eighth year, lenders are extending their reach to borrowers at low- and middle-income levels to increase revenue.
“You are lending increasingly to the type of person that has cash flow pressures,” Mish says.
Joe LaVorgna, Deutsche Bank’s chief economist, says banks are being more cautious with credit cards in part because of low interest rates that have crimped profit margins. He expects standards to ease as rates rise.
