Written by: Eric Bank
Edited by: Lillian Guevara-Castro
Reviewed by: Adam West
Key Takeaways
Credit soared in April with a jump of $17.9 billion in total consumer credit, boosting outstanding consumer debt to $5.01 trillion as recorded by the Federal Reserve.
Increased credit use can temporarily raise interest income and fee revenue, especially in subprime portfolios where APRs are higher. But as credit use climbs, the risk of delinquencies and charge-offs also increases as borrowers are more likely to reach unsustainable debt levels.
The jump in April’s total consumer credit was an annualized 4.3% rise, more than 50% higher than expected, and represented a six-month high.
Behind the jump was a 7% annual growth in revolving balances, which includes credit cards. That amounts to a total of $1.3 trillion in revolving balances — many held by consumers who are making deliberate purchases before prices rise or just stretching paychecks to pay for routine expenses.
Non-revolving credit, including automotive and college loans, expanded 3.3%.
The PYMNTS analysis points toward emergency as well as planned spending propelling the trend. Over one-third of consumers made impulse purchases or dipped into credit cards for emergencies last month.
In these situations, average spending was over $250 — raising fears that growth in balances is an indication of increasing financial stress.
Reading Between the Swipe Lines
April’s borrowing peak coincided with signs of reigniting inflation. While wage growth has continued in real terms, many people still feel pinched.
And with speculation surrounding new tariffs — specifically aimed at imported consumer products — some consumers may have made purchases ahead of anticipated higher prices.
In that context, the 7% revolving credit growth may be as much a hedging strategy as a survival mechanism. Families with healthier credit are perhaps maximizing rewards or making savvy purchases.
Subprime borrowers, however, have fewer options, and many are using credit cards as a gap-filling device.
Industry analysts amplified these concerns, with Mike Maharrey at TalkMarkets cautioning that the rise in mid- to late-stage credit delinquencies coupled with increasing credit balances implies an increasing debt burden some consumers are struggling to contain.
The Conference Board has commented that tariff uncertainty and diminishing consumer confidence probably spurred consumers into borrowing before anticipated price hikes, bolstering the thesis that last month’s jump wasn’t spending — it was stress appearing on the balance sheet.
Banks, credit unions, and fintech lenders need to watch closely if this spike is a trend. The Fed data shows that depositories carry close to $1.9 trillion in revolving balances outstanding, with credit unions handling close to $85 billion.
If delinquency percentages start trending upward with these increasing balances, lenders could confront a surge in tightened access to credit just as more consumers are relying on it.
Lending Community at a Crossroads
Whether it’s a healthy hunger for credit or a warning signal is a function of how issuers perceive it. To some, an uptick in balances would be an indicator of consumer confidence. To others, particularly those with a presence in more troubled quarters, it would be a harbinger of oncoming delinquencies.
Increased recent stress in subprime automotive lending as well as ongoing payment exhaustion following the resumption of student loan payments have already yielded more conservative underwriting. Unless inflation and trade tension abate, revolving balances could continue increasing, as could its attendant risks.
Forward Indicators to Watch
The G.19 release does not distinguish between delinquencies or payment behavior, but other metrics can fill in some details. PYMNTS analysis determined consumers are turning more frequently to credit for groceries, medical expenses, and other necessities — not only for discretionary spending.
Should it continue, it would suggest a trend toward more reliance on credit that is driven not by optimism, but rather out of necessity.
Consumers are increasingly relying on credit cards for necessities, pointing to a concerning economic trend.
Financials and fintechs should also be monitoring how payments trend in Q2. Should there be an increase in missed payments in May and June as a result of the April spike, it could trigger a reevaluation of card marketing strategies and increases in credit lines.
They should also be watchful of the effects of recent Consumer Financial Protection Bureau decisions: overturned credit-card late-fee limits, invalidated overdraft protections, and dozens of discarded guidances.
But even as the CFPB has reined in sweeping oversight, examinations, and fee caps, it’s still focused on specific consumer-harm areas.
Lenders looking to grow need to have strong compliance systems in place and transparent consumer education plans to weather this changing regulatory landscape.
What It Means for Subprime-Focused Lenders
To institutions with subprime borrowers, there is a particularly compelling message: Increased credit utilization can ring up higher revenues in the short term, but it increases portfolio-management stakes.
Issuers would do well to invest in more robust data signals, such as real-time income verification or spending categorizations, to sift between responsible borrowers and those who are struggling.
The April numbers are only a snapshot, but a significant one. Those lenders who can separate resilience from risk will be best situated for what’s ahead.
