Light Still Distant in Tunnel to Card-Loan Rebound

As business lending begins to show some vigor, fainter signs of life have cropped up in other credit categories.

But while card portfolios have been fading away more slowly recently, the industry remains far from growth (see charts).

In November, the most recent month for which data is available, seasonally adjusted card receivables stood at $796 billion, 9.9% less than the year earlier, after accounting for inflation.

That is down from year-over-year drops of more than 12% in late 2009 and early last year, but households remain mired in debt.

Overall, the pullback in credit card borrowing has been unprecedented. Receivables have continued to shrink 17 months after the recession officially ended in the middle of 2009. In contrast, expansions in receivables immediately followed all of the five previous recessions, except after the one in 1980 when the economy was headed for a double dip slump.

(Total consumer credit excluding real estate loans, which has been propped up by borrowing to finance relatively robust auto sales, fares better under the historical comparison but is still weaker this far into a recovery than during the previous cycles.)

Still, chargeoffs, a major force behind the slide in card debt, have declined sharply, and lenders are chasing customers more aggressively.

In a report last month, Moody's Investors Service predicted that card receivables would begin to grow again in the second half of this year.

In its fiscal fourth-quarter earnings report last month, Discover Financial Services said that balance transfers rose $500 million from the year earlier and that "revolvers" — cardholders who consistently carry an account balance — had joined "transactors" — customers who pay off their bill each month — in driving sales transaction growth beginning in September.

The company said it hopes to achieve a modest year-over-year increase in card receivables in the second half of 2011.

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