Card Industry Goes Through Changes


As U.S. consumer credit soars to all time highs, and as credit card lenders face waves of competition that threaten base rates and card fees, the market may see changing yields in the credit industry that may affect the pricing of credit card-backed ABS deals going forward, according to analysts.

However, Bonnie Lee Tillen, an ABS analyst at Standards & Poor's, said ratings agencies, such as S&P, have already factored in industry changes when rating credit-backed deals, which should minimize yield-related impact on pricing.

According to a review by S&P, with rising customer resistance, and increased industry competition, it is projected that card issuers will no longer be able to raise fees, and in turn, according to some analysts, will be unable to be so reliant on fees as a major source of revenue.

On the other hand, according to a report by Fitch IBCA, consumer re-payment rates are at the highest they've been in more than eight years. Fitch IBCA's index takes into account factors such as chargeoffs, serious delinquencies, and personal bankruptcies.

The improved monthly payment rate comes at a "paradoxical" time, said the report, as current "spending and borrowing patterns soar."

However, Fitch maintains that rising monthly payment rates will positively affect credit card ABS bondholders, as "higher payment rates return principle faster in a deteriorating credit environment, meaning bond holders will be subject to rising portfolio losses for a shorter period."