Competition Heating Up for Consumer Loans

Headlines indicate banks are opening up the lending tap, but where is that data coming from? And what consumer products are they talking about?

The Federal Reserve Board conducts a regular survey of senior loan officers from large banks around the country. Survey participants answer questions regarding the direction of their underwriting standards. Here is how the Fed describes the survey:

The Senior Loan Officer Opinion Survey on Bank Lending Practices addresses changes in the supply of, and demand for, bank loans to businesses and households. This summary is based on responses from 55 domestic banks and 22 U.S. branches and agencies of foreign banks

A chart reflecting a portion of the survey data, specifically consumer loan standards, is embedded below. This chart highlights the net percentage of respondents tightening standards on consumer loans including auto loans, unsecured loans, and credit cards. Click on the chart to view a larger image, or download a PDF.

Net Percentage of Domestic Respondents Tightening Standards on Consumer Loans
Net Percentage of Domestic Respondents Tightening Standards on Consumer Loans

Note that the data shows a net percentage. Net percentages equal the percentage of banks that reported having tightened standards (“tightened considerably” or “tightened somewhat”) minus the percentage of banks that reported having eased standards (“eased considerably” or “eased somewhat”). In other words, a negative number means that survey respondents are making it easier to obtain loans. A positive number means survey respondents are making it harder to obtain loans.

The chart shows that during the depth of the financial crises there was substantial, universal tightening on all consumer credit products. As of the latest survey data, however, there is moderate (though not universal) easing of standards.

As you look at the chart, also make note of the fact that for data starting in 2011:Q2, changes in standards for auto loans and consumer loans excluding credit card and auto loans are reported separately. Prior to that date, they were included as one set of data.

What does this mean for you…

At the height of the “frozen” credit markets, it was hard for consumers with less than “A” credit to get loans from large, national banks. Many credit unions worked to fill the void, marketing heavily to entice borrowers to establish lending relationships with credit unions. As of this survey, the credit union market advantage obtained as a result of tighter bank standards continues to diminish. Consumers will more and more be able to meet their lending needs (i.e. get approved) at larger, national banks as well as credit unions.

In other words, the competitive landscape is heating up. In fall strategic planing sessions credit union will need to address competitive strategy in response to easing bank standards.

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