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Equifax Sub-prime borrowers grew across lending sectors
ATLANTA (3/30/12)--Lending to sub-prime borrowers rose across all lending sectors during 2011, says Equifax's March National Consumer Credit Trends Report and, a joint product of  Equifax and Moody's Analytics.

New credit in 2011 totaled $782 billion--below pre-recession levels but gaining more than 10% over 2009 and 2010 levels, which were $695 billion and $709 billion, respectively.

Total retail credit card limits rose 6% from December 2010 to December 2011. Total bank credit card limits jumped 24% during that period, while consumer finance credit limits increased a modest $1.2 billion.

U.S. consumer debt totaled $11 trillion, down 11% from the $12.4 trillion peak in fourth quarter 2008. Equifax said the drop is driven by an almost 12% decline in home financing balances, which totaled  $8.7 trillion this past February, compared with $9.8 trillion in 2008.

Non-mortgage and non-student consumer debt balances dropped 22% from 2008's peak of $2.05 trillion.  After reaching a post-recession low of $1.6 trillion last May, consumer debt balances have risen about 2%, said the report.

"Year-over-year results show borrowers are taking advantage of the new opportunities and seeking to diversity their financial activity, which is building momentum toward economic improvement," said Equifax chief economist Amy Crews Cutts.

Here are the findings in several key areas.

Bank credit cards:

  • Lending to sub-prime consumers increased 41% from 2010 to 2011 as sub-prime borrowing hit a four-year high last December, with 1.1 million new bank credit cards issued.
  • New sub-prime card limits grew 55% for the period to $12.5 billion, the highest level since $27.4 billion in 2008.
  • Bank credit card growth continued, with 39.9 million bank cards opened in 2011--an 18% increase from 2010 and the highest total since 2008. However, the total is still below pre-recession levels.
  • The increase in total bank card originations was accompanied by a 31% hike in total credit limits. 2011 was the first time in more than four years that credit lines increased, reaching $163 billion.
Auto finance:

  • Subprime borrowers gained share in the new-auto loan market, especially in the auto finance segment where they now make up more than 46% of the market.  Prime borrowers make up 83% among auto bank originations but also lost share the past two years to subprime borrowers.
  • New-auto finance loans amounts rose $11.6 billion--to $176.2 billion--in 2011 from $164.6 billion in 2010. 2011 hit the highest originations level since the $221.1 billion loaned in 2007.
  • Auto bank loan amounts were up 14%--to $187 billion in 2011--from $162.1 billion in 2010.
  • The number of new auto loan originations increased 2% to $19.6 million from 2010's $17.3 million.  Equifax noted that the 2011 figure surpasses 2008 totals and is 9% lower than the six-year high reached in 2007 at $21.5 million.
  • Severe delinquency rates for auto finance loans were worse than for auto bank tradelines; however, both rates have returned to pre-recession levels.
  • For 2011, total new-auto loan originations hit a six-year high in December, although total originations for the year were at a four-year peak.
Consumer finance:

  • New consumer finance loans originated in 2011 totaled $20.2 million, up 4% from 2010, and the highest since 2008.
  • Delinquency rates dropped to 7% in February 2012, the lowest since July 2007.
  • These loans' originations fell from 2007 to 2010, but the trend reversed in 2011, with $1.2 billion of new loan amounts added.
  • Originations in December reached $5 billion; the highest since December 2008 when it was $5.1 billion.
  • Although consumer finance loans typically served high-risk consumers, in February 2011, low-risk borrowers became the dominate market segment. As of February 2012, over 33% of these loans (by dollars) were to high-risk borrowers; 39% went to low-risk borrowers.
Student loans:

  • New student loan originations are dominated by higher-risk (little income, young credit histories) borrowers . However, the share shifted slightly the past two years to low-risk student borrowers.
  • As of December 2011, nearly 66% of newly originated student loans were held by higher -risk borrowers.
  • Among total outstanding student loan balances, low-risk borrowers have declined in share, although they still dominate. As of February 2012, low-risk borrowers accounted for 37% of outstanding student loan balances; high-risk student borrowers accounted for nearly 35%.
  • Average loan size for new student loans declined in December 2011 from December 2010, but total new student loan debt per consumer rose to a five-year high. In December 2011, the average loan size decreased 8% to $6,333 from December 2010. Total student loan debt per consumer for that period increased 3% to $9,558.
The report also addressed retail credit card balances, which increased markedly among low-risk borrowers, who hold just below 42% of these balances. High-risk borrowers make up 26%.  During the period,  retail card originations to sub-prime borrowers rose  4.7 percentage points to 31% of originations.  Retail card limits grew nearly 6% in 2011, totaling $60 billion for newly originated cards.  Retail card tradelines grew 4% over December 2010, adding 4.2 million new accounts. Delinquency rates and write-offs continued to decline, said the report.


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