WASHINGTON (6/30/14)--Grappling with weak revenue, vapid growth and tightening regulations, credit card lenders are zeroing in more and more on riskier borrowers, perhaps in an attempt to fill in the gaps in their bottom lines.
Lenders distributed 3.7 million credit cards to subprime borrowers in the first quarter, a 39% leap year-over-year and the highest rate since 2008, according to Equifax data used by The Wall Street Journal (June 27).
Credit cards offered to subprime consumers grabbed its largest share of the overall market in six years, according to the data, with about one-third of all credit cards given to the riskiest of borrowers.
As revenue continues to dawdle, banks and other lending institutions have turned squarely to these subprime borrowers, who often pay higher interest rates and, in general, drum up more revenue than safer-bet consumers.
For example, the average interest rate for a subprime consumer was 21.1% in the first quarter, according to CardHub.com, while the highest-quality borrowers maintained interest rates of 12.9% on average.
Banks in the United States reported a 4% drop in net operating revenue in the first quarter annually, per numbers from the Federal Deposit Insurance Corp.; a step-back fueled by sinking mortgage lending and trade activity, The Wall Street Journal reported.
And it appears, despite low credit scores or other paltry financial situations, big banks are only charging harder at these subprime borrowers to recoup their losses.
Wells Fargo reported more than $2.1 billion in credit card balances from borrowers with credit scores in the low 600s in the first quarter, a 9% year-over-year step up.
Capitol One reports that one-third of its credit card balances in the United States come from the wallets of those with credit scores of 660 or lower, or who had no credit score at all by the end of the first quarter.
An environment where issuers are feeling more comfortable extending credit has been emerging, Jason Kratovil, Financial Services Roundtable vice president of government affairs for payments, told The Wall Street Journal. Even though the consumers might be subprime, they're still creditworthy.