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Reference

Fed G.19 consumer credit background

Summary

9 Jun 2011.

The monthly Federal Reserve Statistical Release G.19, “Consumer Credit”, is the primary source for aggregate outstanding consumer credit not tied to real-estate. It is divided into revolving (mostly personal credit card) and non-revolving (e.g. auto, school loans).

Over the long term, consumer credit has grown greatly. For example, revolving credit grew at a 17% annualized rate (CAGR), from 1968 to 2009. No doubt credit is more pervasive now, but in part this merely reflects a new medium of exchange rather than an increase in indebtedness – the monthly G.19 includes all oustanding balances, and a large percentage of those are paid off every month.

The G.19 comes out about 5 weeks after the end of the month reported. Although many people try to guess spending trends based on consumer credit, in fact spending data come out on about the same schedule, making such analysis largely redundant.

Highlights

Definitions from Fed (7 May 2008) Consumer credit overall “Covers most short- and intermediate-term credit extended to individuals, excluding loans secured by real estate.” The non-revolving component covers “automobile loans and all other loans not included in revolving credit, such as loans for mobile homes, education, boats, trailers, or vacations. These loans may be secured or unsecured.” (These definitions are in each report.)


Definitions commentary (7 May 2008) The G19 is widely regarded as being an accurate picture, from the lender point of view, of total consumer borrowing excluding mortgages and home equity loans / lines of credit. The “revolving” component is mostly credit card debt, but also includes, for example, overdraft protection loans. On credit cards, it does include recent charges, unlike some other sources that only include balance after most recent payment. It also includes some business use of cards that are in the names of individuals. In 2004, for example, the G19 total for revolving debt was $791bn (of which $133bn were new charges); non-card outstandings were $33bn (4%); and business uses of personal card were $7bn - $51bn (difficult to estimate) (1% - 6%) (Zinman).


Growth in credit card debt is overestimated (21 Jun 2008) Much is made of the long term growth in revolving credit. However there are several major caveats:

  • Business use of personal cards (21 Jun 2008) Small businesses often use personal cards. In addition, large businesses often supply cards in employees' names, which may be counted in the G19. Zinman estimated business use is 1-6% of the revolving debt total.
  • Cash alternative (27 Oct 2008) Checks and cash dropped from three-fourths of spending in the early 1990s to a about a third in 2008. 31% of cardholders pay off their balances every month. The recent charges are included in G.19, but this is really a cash alternative, not a build-up of debt. New charges were perhaps 17% of the total in 2004. (The number of establishments accepting MC has approximately doubled in the last 20 years.)



Other related reports (7 May 2008) Total consumer credit from G.19 is also included in tables B.100 and L.100 of the Flow of Funds report. The Survey of Consumer Finances includes a credit card total derived from a consumer survey; both the definitions and the results are different (Zinman). The Household Debt Service and Financial Obligation Ratio report provides a perspective on what fraction of consumer income is devoted to debt service. The Charge-off report provides the bad debt perspective.

Sources

See also

Selected commentary:

Clippings below were used in the construction of this page

Comparing different sources of data on credit card debt outstanding

Sep 2007. Research paper on web site of J. Zinman, professor of Economics at Dartmouth College.

http://www.dartmouth.edu/~jzinman/Papers/Zinman_MissingCardDebt_sep07.pdf

“Where is the Missing Credit Card Debt? Clues and Implications. Jonathan Zinman”

“Researchers draw on two main sources for measuring credit card use. The Federal Reserve Board of Governors’ Statistical Release on Consumer Credit (the G.19) collects data from consumer credit card issuers (lenders). The available evidence suggests that the G.19 accurately reflects outstanding debt owed to issuers (Furletti and Ody 2006). The Survey of Consumer Finances (the SCF) collects data from credit card users (households). Aggregating up the SCF’s measure of revolving credit card debt and comparing it to the G.19’s measure of revolving credit outstandings suggests that SCF households underreport credit card borrowing by a factor of three. I show that about one-third of the wedge between SCF and G.19 estimates is due to definitional differences. The G.19 measure of outstandings includes several types of credit card use that are excluded from the SCF measures of credit card revolving by design. These include float (as other researchers have recognized),4 business use of personal cards, and non-credit card lines of credit. Accounting for the definitional differences reduces SCF underreporting of credit card balances to a factor of two. … The G.19 takes a snapshot estimate of outstandings (amounts owed to credit card issuers) on all consumer credit card accounts at month-end, making the appropriate adjustments so that securitized receivables do not get double-counted. … The G.19 also includes amounts owed on non-mortgage personal lines of credit that are not issued through credit cards (e.g., prearranged overdraft plans, or check-accessed lines of credit). … The Survey of Consumer Finances (SCF) is the household-level data source used in my comparisons. It is the most comprehensive nationally representative source of data on credit card use and household finance more generally. The SCF is conducted every three years and surveys around 4,000 households each wave. … The G.19 includes all personal credit cards; in contrast recall that the SCF instructs respondents to “not count…. any business or company accounts.” This implies that the G.19 includes some outstandings on personal cards that are used for business purposes and excluded by design from the SCF. I add an estimate of such outstandings to the SCF revolving number using the 1998 and 2003 Surveys of Small Business Finances (SSBFs). The SSBF asks: “On average, what is the balance of business charges on all owners’ personal credit cards after payments are made”?” … The adjustment is quite small– only $1 billion to $7 billion, or 1 to 3% of unadjusted SCF revolving balances. These magnitudes are probably too conservative because the SSBF does not represent many types of businesses where personal cards are used. Nilson (various issues) finds that many large businesses provide cards that are in employees’ names; these may be counted as personal cards in the G.19. Moreover the SSBF only represents the 6.3 million small businesses in Dun’s Market Identifier file, while Nilson (#772) reports that over 20 million small business owners used personal cards for business purposes in 2002. Unfortunately I could not find any evidence that would permit a more accurate (and presumably larger) adjustment, although one can use Nilson data to bound the true adjustment at something less than $51 billion for 2001. … whereas the SCF revolving balance estimate includes only balances after the last bills were paid, the G.19 takes a snapshot of current debt outstanding. As such the G.19 includes “transaction balances” that include both float [charges in the grace period, if previously paid in full, with no interest] and “borrowing-to-charge” (charges since the last payment on accounts that were not paid in full). Making the SCF and G.19 comparable requires adding an estimate of recent charges to the SCF revolving estimates … I estimate non-card revolving debt using two different methods. For 2001 and 2004 the Call Reports provide the separate line item needed to back out the non-card debt from the issuer side. Prior to 2001 this level of disaggregation did not exist in the Call Reports, so I use the SCF. It is straightforward to identify non-card, non-mortgage revolving debt using SCF questions. [adjustments on the order of $28bn to $62bn]”

Example, data for 2004, to give an idea of the overall magnitude of the adjustments (taken from Table 1): G19 unadjusted total for revolving debt $791bn; non-card outstandings $33bn; G19 adjusted for comparison to SCF $758bn. SCF unadjusted $254bn; business uses of personal card $7bn; new charges $133bn; SCF adjusted for comparison to G19 $394bn.

Increase in revolving debt due in part simply to greater acceptance of cards

8 Feb 2008. WSJEE pA1.

“Credit-Card Pinch Leads To Pullback In Spending. Robin Sidel, Sudeep Reddy and Jane J. Kim.”

“Cards emblazoned with the MasterCard logo now are accepted at more than seven million merchant locations in the U.S., up from 4.3 million in 2001 and 2.9 million in 1991. As a result, three out of four American families have credit cards. Their balances averaged $5,100 in 2004, up 16% from 2001, according to the Federal Reserve. Much of the card industry's growth has come from debit cards, which aren't included in the government's revolving-credit data because they immediately draw funds out of purchaser's checking account. Still, credit-card portfolios managed by card-issuing banks are growing at single-digit percentage rates each year as consumers put more small payments and everyday purchases on their cards.”

About 31% of cardholders pay off their debt each month

18 Feb 2008. BW p34.

http://www.businessweek.com/magazine/content/08_07/b4071034382063.htm?chan=magazine+channel_in+depth

“Over the Limit. Mara Der Hovanesian, Christopher Palmeri, Nanette Byrnes and Jessica Silver-Greenberg”

[From one of the figures: About 31% of cardholders pay off their debt each month.]

Prevalence of CC

15 Oct 2008. FTUSA p16.

“Melted plastic”

“In the US, for example, cheques and cash already have dropped from three-fourths of spending in the early 1990s to a little over a third today. Worldwide, though, these represent an $80,000bn untapped market for cards.”

Paydowns or chargeoffs, and the FRBNY credit panel

Nov 2010.

Have consumers become more frugal?

http://www.ny.frb.org/newsevents/news/regional_outreach/2010/an101108.html

An Introduction to the FRBNY Consumer Credit Panel. Donghoon Lee Wilbert van der Klaauw

http://www.ny.frb.org/research/staff_reports/sr479.html

Additional ref on credit report content:

Avery, R.B., P.S. Calem, G.B. Canner and R.W. Bostic, “An Overview of Consumer Data and Credit Reporting”, Federal Reserve Bulletin, Feb. 2003, pp 47-73.

http://www.federalreserve.gov/pubs/bulletin/2003/03index.htm

“For the discussion that follows, credit accounts are grouped according to their status and whether or not they are currently reported. An account is currently reported if either (1) its status had been reported to the credit reporting company within two months of the date that the sample of credit records was drawn or (2) it was last reported (at any time) to be closed and had a zero balance at the date of last report. All installment and mortgage accounts paid down to a zero balance are treated as currently reported and closed. With these definitions, accounts fall into one of four mutually exclusive groups, two of which are currently reported and two not currently reported.

  • Open credit accounts are currently reported and are not reported as closed. These include accounts that a consumer can use to incur additional debt, such as an open-end revolving account, and closed-end accounts that the consumer is paying down on a scheduled basis, such as a mortgage or an installment loan.
  • Closed credit accounts are currently reported (as defined here) and are reported as closed. Closed accounts cannot be used to incur additional debt. Virtually all these accounts have been fully repaid and have a zero balance, although a positive balance remains on a small number of closed revolving accounts.
  • Dormant accounts are non-installment, nonmort- gage accounts that were last reported as open with no outstanding balance but for which the last reporting was more than two months before the sample was drawn. These accounts are inactive, but from the data, one cannot determine whether they are open or closed.
  • An unknown accounts category contains all other accounts that are not currently reported. All these accounts were reported as having a balance at their last reporting date. The category includes installment, mortgage, and to a smaller extent, revolving accounts that may have been paid off but lack a final record of disposition. It also includes accounts that were sold or transferred to another creditor or collection depart- ment or agency but not reported as closed by the selling or transferring institutions. Finally, it includes accounts that have encountered such severe pay- ment problems that the creditor no longer reports the account.

The accounts in the unknown category, which comprised about 8 percent of all the credit accounts in the sample, present a particularly vexing problem for users of the data because this category includes accounts that had a positive or unknown balance at the date of last report. This category includes accounts that may have been sold, transferred, or paid off but are not reported as such. Also included are accounts, particularly derogatory accounts, that are still outstanding but on which the lender has ceased reporting. …

Among accounts with balances, more than one-fourth of the balance dollars at last date of reporting were associated with accounts in the ‘unknown’ category. The large share of outstanding balances that fell in the unknown category highlights the importance of decisions about how to treat accounts in this category when using the data for credit evaluations or other purposes. …

Recognizing the high likelihood that many noncurrently reported accounts have had a change in status, the credit reporting companies have adopted ‘stale account’ rules. The credit reporting company’s rule in place at the time the sample was drawn was to define all revolving and nonrevolving accounts with positive balances and no major derogatories as stale if they had not been reported within six months. Stale accounts were treated as closed and were assigned a zero balance. The data reflect this rule. Sixty-one percent of the revolving and nonrevolving accounts in the unknown category had been reported within six months before the date the sample was drawn (and more than 80 percent within the year before). These accounts are likely candidates for the stale account rule, and the probability that they have been closed or transferred is significant. The remaining accounts, constituting about 3 percent of all nonclosed revolving and nonrevolving accounts, were exceptions to the stale account rule. The actual status of these accounts is less clear. …

about 36 percent of all accounts that were last reported as minor delinquencies were in the unknown category. For four-fifths of the installment accounts and about two-thirds of the other accounts in the unknown category with minor delinquencies shown at the date of last report, the account had not been reported within six months of the date the sample was drawn. Thus, their status had likely changed, but because the information remained unchanged in the files, these accounts could disproportionately affect the assessment of current minor delinquency. …

Fifty-nine percent of the accounts last reported as unpaid (positive balance) major derogatories were in the unknown cate- gory. Of these, more than one-quarter had not been updated for more than four years. …

Accounts not currently reported. About 8 percent of all accounts in the sample showed positive balances but were not currently reported. Moreover, of those accounts reported as a major derogatory at the most- recent report, almost three-fifths were not currently reported. The authors’ evaluation suggests that many of these accounts, particularly mortgages and installment loans, are likely to have been either closed or transferred but were not reported as such. Many of these accounts were reported by creditors that were not reporting data to the credit reporting company when the sample was drawn, and thus information on these accounts is unlikely to have been updated. The significant fraction of not currently reported accounts that are likely closed or transferred implies that some consumers will show higher current balances and a larger number of open accounts than they actually hold. Some of this overrepresentation is mitigated by credit evaluators’ assumption that accounts unreported over a long period are closed. However, they may not make the assumption for derogatory accounts, thus penalizing consumers who have paid off a delinquent account since it was last reported.”

Federal consumer credit is all student loans

16 Mar 2011. e-mail from G.19 staff.

“The Federal Government sector shown on the G.19 consists entirely of student loans. It is made up of the Federal Direct Student Loan Program, the Guaranteed Student Loan Accounts, the Federal Student Loan Insurance Fund, and the Student Loan Purchase Program (now over). The recent increase shown in the sector is due almost entirely to the Federal Direct Student Loan program.”