Is there a credit card bubble...and what might happen when it pops?

[sarge12]

Searching for opinions about if there is a credit card bubble, much like the tech stock bubble, and real estate bubble. If so, when it pops, what do you think the result might be? Lowered rewards? Higher interest and fees? Decreases in cards without an annual fee? Is consumer debt headed toward a dangerous era, where defaults will skyrocket. Am I in the minority of those who are concerned about the affect inflation and rising interest rates will have on this industry. What are the thoughts of the members here? Are we nervous? Should we be? More important, how nervous are the issuers? Sound off with your opinions here.

[Remedios]

What do you mean by "pops'? 

Are you talking about current rewards structure being unsustainable, increase in default rate, both? 

How would you define "card bubble", since that particular type of lending is quite different than everything you mentioned. 

Also, why would anyone be nervous about credit cards?  Even in 2008 it wasn't *One Hammer To Smythe Them All!'.

While AA measures lenders took back than were quite draconian, they happened when balances were high and customer was unable to pay them off quickly enough, and those same measures helped consumers default due to CLDs, penalty APRs, universal default, etc. 

There was a lesson in there for lenders to learn, and clearly they did. If they didn't, we'd all be writing checks since 2020. There was no mass shutdowns, nothing really happened, in fact - many pots got sweetened. 

If you don't have balances or if you do have balances but also the ability to pay them off, you have nothing to worry about. 

Each lender is going to treat real or perceived "crisis" differently based on their risk tolerance, not based on what the guy over there is doing. Most importantly, banks (at least major lenders)  are certainly better positioned to handle imaginary crisis, and due to CARD act, so are consumers.  

[Brian_Earl_Spilner]

I honestly could care less if a lender closes a card. There are plenty of lenders out there and at some point the economy will get better. I doubt many others on here will care much either if they truly pif every month. 

[Kforce]

From my point of view, max loss would be 3% cash back.

Cash, check, or debit would cover anything needed.

Need to find my checkbook  

[simplynoir]

The thing is banks learned from the 2008 bubble and are better prepared for it. Even if 2008 didn't happen the data showing the increase in debt taken by consumers should be obvious to them with the increased inflation raising costs of everything from groceries to utilities and rent, and Fed raising interest rates making borrowing more expensive. It's just natural to those with credit cards to use them to keep afloat. Even then the job market is pretty strong even if certain sectors like tech are facing layoffs and the GDP is staying strong for the moment. For banks there is an acceptable amount of losses they can take and are adjusting accordingly. I doubt we see anything major happen with relations to credit card lending, maybe more stringent requirements but nothing that would call about Armageddon

[SouthJamaica]

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@sarge12 wrote:

Searching for opinions about if there is a credit card bubble, much like the tech stock bubble, and real estate bubble. If so, when it pops, what do you think the result might be? Lowered rewards? Higher interest and fees? Decreases in cards without an annual fee? Is consumer debt headed toward a dangerous era, where defaults will skyrocket. Am I in the minority of those who are concerned about the affect inflation and rising interest rates will have on this industry. What are the thoughts of the members here? Are we nervous? Should we be? More important, how nervous are the issuers? Sound off with your opinions here.

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In the event of a 'popping of the bubble' one might expect tightening of underwriting standards, resulting in fewer applications granted, fewer and smaller CLI's, and more CLD's and closures.  That is typically the way banks react. I.e. when times are tough they react like Henry Potter rather than George Bailey

[OmarGB9]

I don't think there is any "bubble" as far as CCs. As others said, '08 taught banks some lessons, and if anything does happen, it'd probably just be more stringent UW requirements/less approvals/smaller CLs I would think. Nothing more. 

[sccredit]

I think this is a legitimate question for anyone who lived through 2007/2008 and the massive CLD that came with it. I'd definitely expect some CLD for those with weaker financial profiles but I am not sure it will be nearly as widespread as 2007/2008.

[sarge12]

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@Remedios wrote:

What do you mean by "pops'? 

Are you talking about current rewards structure being unsustainable, increase in default rate, both? 

How would you define "card bubble", since that particular type of lending is quite different than everything you mentioned. 

Also, why would anyone be nervous about credit cards?  Even in 2008 it wasn't *One Hammer To Smythe Them All!'.

While AA measures lenders took back than were quite draconian, they happened when balances were high and customer was unable to pay them off quickly enough, and those same measures helped consumers default due to CLDs, penalty APRs, universal default, etc. 

There was a lesson in there for lenders to learn, and clearly they did. If they didn't, we'd all be writing checks since 2020. There was no mass shutdowns, nothing really happened, in fact - many pots got sweetened. 

If you don't have balances or if you do have balances but also the ability to pay them off, you have nothing to worry about. 

Each lender is going to treat real or perceived "crisis" differently based on their risk tolerance, not based on what the guy over there is doing. Most importantly, banks (at least major lenders)  are certainly better positioned to handle imaginary crisis, and due to CARD act, so are consumers.  

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That is more of less the question. The Real Estate crisis was described as being a bubble that popped requiring massive bank bailouts. In actuality, it was banks, being pressured by politicians to extend home loans to those who were high risk, leading to defaults that lowered home values. When people owed much more than what their homes were worth, that brought more defaults. I was just posing that as the question. I, personally, always PIF, so if the entire credit card industry collapses, the effects on me will be minimal. The tech stock decline was previously described as a bubble as well. It was more a case of a lot of speculative buying of stocks in companies that never had the revenue or assets to support such high valuation. Now, every idiotic, unsound, banking decisions are being described as a bubble. I have seen the credit card industry being described as also being a bubble. Is it one? Will credit card holders finances later collapse from the massive amount of credit card debt, leading to vast increases in defaults and BK filings. Will these banks go to congress, hat in hand, begging for a bailout? Are they too big to fail?

[Anonymous]

@Remedios

Seems she answered it ...

Only time and officials in higher places will really have much input and effect on the outcome.

As was mentioned, keep our own financial risks managed as we move through this challenging time! This too, will vary for each one of us.