NCPA - National Center for Policy Analysis

The Democracy Of Credit Cardholders

February 1, 1998

In December the Consumer Federation of America charged creditors with "the irresponsible issuing of credit card debt" and called for lenders to limit credit lines to 20 percent of a household's income. Are consumers sinking in a sea of debt, as the CFA charges?

  • From 1989 to 1995, the proportion of families using credit cards for borrowing rose from 40 percent to 48 percent, according to the Federal Reserve Board.
  • Those in the bottom half of the income scale increased their ownership of credit cards from 45 percent in 1983 to 54 percent in 1992.
  • The median balance on bank cards rose from $1,100 in 1992 to $1,500 in 1995.
  • The median total credit limit moved up from $5,400 per card holding family in 1992 to $9,000 in 1995.

Some claim the increasing credit card debt is due to direct mail solicitations. However, other analysts say consumers aren't sinking in debt, and that increasing credit card use is simply a sign of the "democratization of credit." They point out:

  • The cost of information has fallen dramatically with computerized credit bureaus, making it cost-effective for lenders to run credit checks on, and extend credit to, even average wage earners.
  • Forty percent of cardholders pay off their balance each month -- a figure that has risen over the past decade, according to Visa USA.
  • The ratio of consumer credit to disposable income stood at 20.6 percent as of the third quarter 1997 -- down from its 1996 high of 21.4 percent and not much above the 20 percent ratio of 10 years ago (see figure).

Also, the ratio of consumers' debt to their assets was 15.9 percent in 1989, rising only slightly to 16 percent in 1995. Analysts say more consumers are able to handle debt with lower interest rates, higher employment and higher incomes.

Source: Frances B. Smith (executive director, Consumer Alert), "Are Consumers Sinking in a Sea of Debt?" Consumers' Research, February 1998.


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