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Trends in Consumer Underwriting Standards

Did you know that the Federal Reserve conducts a quarterly survey of senior loan officers at large domestic banks and U.S. branches and agencies of large foreign banks? The survey, called the Senior Loan Officer Opinion Survey on Bank Lending Practices, is among the data considered by the Federal Open Market Committee (FOMC) in preparation for its policy discussions and decisions.

What good is that survey to you? Well, for credit union leaders the data, which can be downloaded via the Fed’s website, provides some indication of how credit underwriting standards and demand are changing at large institutions – standards than can impact many thousands of consumers and businesses across the country and influence overall industry policy. In your own strategic assessment of these trends you may be able to pick up on potentially harmful market changes, or emerging untapped opportunity.

What to Know About the Data

Here are a few things to know about the survey and survey data…

Question Types

The survey reports on three types of questions, each important to understanding underlying national lending trends. The first question pertains to demand, the second to underwriting standards, the third to willingness to make loans.

Net Percentage Responses

The survey reports data in terms of net percentage of respondents. For example, one of the reported results fields tracks the following:

Net percentage of domestic banks reporting stronger demand for auto loans

If the net percentage is a positive number, then a greater percentage of bank respondents are reporting that demand for auto loans has increased over the last survey period. Conversely, if the number is negative then there is a decrease in demand.

Using the Data

Knowing how loan demand and underwriting standards are moving in the marketplace is very helpful in terms of strategy planning. So what does the data look like and how can it be helpful to you? Consider the chart below. It tracks the net percentage of domestic banks tightening standards for credit card loans.

Let’s focus on the time period right before the Great Recession, which ran from December 2007 to June 2009. The prevailing trend at the beginning of 2007 was that the industry was not tightening standards, meaning the majority was not making it harder to get a credit card. This is evidenced by the chart dipping below 0% in Q2 and Q3.

By Q4, however, the line moved above 0% to 3.2%, and by Q4 2008 it hit 67% – an incredible mass movement to make it harder for consumers to get credit card loans.

Banking institutions using the survey data during that time would have definitely seen that “something was up” as the tide changed and could, perhaps, have used the data as inspiration to take a harder look at their own marketplace risk. This certainly would have helped some credit unions as many were slow to tighten in the early days of the recession and as a result ended up with an abundance of risky loans – in some cases to the demise of the credit union.

Current Data Trends

So what does the latest survey tell us about key consumer product underwriting standards? In the chart above we highlighted the net percentage of domestic banks tightening standards for credit cards – with data current as of Q1 2023. Let’s look at a few other consumer loan types…

Auto Loans

Net Percentage of Domestic Banks Tightening Standards for Auto Loans

Personal Loans

Net Percentage of Domestic Banks Tightening Standards for Consumer Loans Excluding Credit Card and Auto Loans

We see that tightening has occurred for the majority of consumer loan types – with a greater focus on tightening credit card standards.

How about mortgage loans? Even there we see tightening.

Net Percentage of Domestic Banks Tightening Standards for Qualified Mortgage Non-Jumbo, Non-GSE-Eligible Mortgage Loans

The predominant trend is reflective of financial institutions trying to guard against risk, and in particular uncertainty. And it sure seems like we have an abundance of uncertainty right now.

Your Response

So large financial institutions are tightening up, generally speaking. But what should you do? One of the unique attributes of credit unions is the uniqueness of “common bond.” A thorough understanding of your market in the context of your common bond should inform your risk assessment and underwriting standards response.

How does your common bond-informed market behave? If “positively” differently than the national average, then this may be an opportunity for you to capture some market share by lagging the tightening trends of large bank competition.

Of course that presumes you have some liquidity to play with. That is a post for another day.

In the meantime, I encourage you to keep an eye on current and future survey results, in addition to other factors, to maintain a well-rounded view of lending trends. For savvy credit unions, adding such information to the dataset allows for better informed lending policy decisions, and perhaps could lead to a unique market advantage.

The survey data is published quarterly and is available on the Federal Reserve’s website at But a better resource is FRED, a resource supported by the St. Louis Fed. The charts we included above are from the FRED website. You’ll find these charts Senior Loan Officer Survey charts and more on FRED at

By the way, the survey also covers commercial loans. We’ll leave you with the latest chart on lending standards for commercial and industrial loans specifically for small firms – an area in which credit unions compete. Small business are the lifeblood of the American economy. Do the trends foretell an economic slowdown? Curious about your take. Use the comments option below if you have an insight to share.


Photo by Daniel Thomas on Unsplash

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