Federal Reserve Bank Survey reveals drop in borrower-initiated and rise in lender-initiated credit account closures

November 18, 2024 – NEW YORK—The Federal Reserve Bank of New York’s Center for Microeconomic Data released results from its latest Survey of Consumer Expectations (SCE) Credit Access Survey, which provides information on consumers’ experiences with, and expectations about, credit demand and credit access. The survey is fielded every four months, most recently in October 2024, and a press release summarizing trends from the past year is issued annually.

BIIA’s friends at ARMADA CORPORATE INTELLIGENCE provided a condensed version of the report and their comments:

“Consumer credit and access to credit is critical in the outlook for the broader economy. Remember, it was the negative signals in the credit markets that ultimately pushed the global economy into the Great Recession – and credit signals typically give us a lot of warning when it comes to changes in economic cycles. 

The latest data from the New York Fed gave us (ARMADA) the following highlights out of the report (truncated below, link to the full report above). 

Application Rates:

  • The application rate for credit cards remained robust during 2024, reaching 28.6% in October 2024, slightly below its October 2023 level of 29.0%, and remaining above its pre-pandemic reading of 27.2% in October 2019. The average application rate for credit cards for 2024 overall was 27.8%, 1.8 percentage points above the 2023 overall rate.
  • The application rate for credit card limit increases ticked down 0.1 percentage point to 14.3% for 2024 overall, remaining well above the 2019 rate of 12.7%.
  • The application rate for auto loans in October 2024 was 11.8%, below the rates in October 2023 of 13.5% and October 2022 of 12.9%. The average application rate for the year overall declined to 11.2% in 2024, from 12.7% in 2023 and 13.0% in 2022.
  • Mortgage loan application rates increased to 6.0% in October 2024 from 4.3% in October 2023. The average rate for 2024 overall was 6.1%, 0.4 percentage point above the 2023 average, but 1.8 percentage points below the 2019 average.
  • Application rates for mortgage refinancing declined further during 2024, falling to 2.4% in 2024 from 4.5% in 2023, a new series low.

Rejection Rates:

  • Reported average rejection rates for credit cards, mortgages, auto loans, credit card limit extension requests, and mortgage loan refinance applications all rose in 2024 and are all well above 2019 levels.
  • The average rejection rate for credit card applications during 2024 increased by 0.5 percentage point to 20.2%.
  • The average rejection rate for mortgage applications increased by 8.6 percentage points to 20.7% in 2024, remaining well above the 2019 rate of 10.2%.
  • The average rejection rate for auto loans increased by 0.4 percentage point to 11.4% in 2024, the measure’s highest rate since the start of our series in 2013.
  • The reported rejection rate for credit card limit increases rose to 38.9% in 2024 from 30.9% in 2023.
  • The average rejection rate for mortgage refinance applications increased to a new series high of6% in 2024 from 15.5% in 2023.
  • Voluntary account closures for any type of credit decreased from 15.8% in 2023 to 13.9% in 2024, a new series low. The proportion of respondents experiencing lender-initiated account closures for any type of credit increased to 7.4% in 2024 from 7.2% in 2023, a new series high.

Expectations:

  • Responses regarding the ability to pay for an unexpected expense suggest a slight decrease in the subjective financial fragility of U.S. households. The average probability of being able to come up with $2,000 if an unexpected need arose within the next month increased to 66.5% in 2024 from 65.8% in 2023. On the other hand, the average probability of needing $2,000 for an unexpected expense in the next month increased to 36.7% in 2024 from an average of 33.4% in 2023.
  • The proportion of respondents who reported that they are likely to apply for at least one type of credit over the next 12 months decreased to 24.1% in October 2024 (23.1% for 2024 overall) from 25.1% in October 2023 (25.9% for 2023 overall). The decrease was driven mostly by respondents with credit scores between 680 and 760. The average likelihood of applying for a mortgage decreased further to 6.4% in 2024 from 6.7% in 2023. The average likelihood of applying for a mortgage refinance over the next 12 months rebounded from a series low of 3.5% in October 2023 to 6.1% in October 2024. For the year overall, the average likelihood of applying for a mortgage refinance increased to 5.9% in 2024 from 4.7% in 2023.
  • The average likelihood of applying for an auto loan increased marginally to 10.7% in October 2024 from 10.2% in October 2023. The average likelihood of applying for an auto loan for 2024 overall was 9.9%, somewhat below the 11.3% rate for 2023.
  • The average likelihood of applying for a credit card over the next 12 months declined slightly to 12.5% in October 2024 (12.1% for 2024 overall) from 12.7% in October 2023 (12.3% for 2023 overall). The average likelihood of applying for a credit card limit increase over the next 12 months ticked up slightly in 2024, compared to 2023.
  • The average perceived likelihood of a future credit application being rejected, conditional on applying over the next 12 months, was higher in 2024 relative to 2023 for credit card, auto loan, and mortgage refinance applications, and lower for mortgage and credit limit increase applications. The rate increased by 0.6 percentage point for credit cards, 2.3 percentage points for auto loans, and 2.2 percentage points for mortgage refinance applications, while it decreased by 0.7 percentage point for mortgage loans and 2.6 percentage points for credit card limit increase requests.

https://www.biia.com/review-of-q3-2024-growth-rates-of-business-information-companies-what-grows-what-does-not/

  • Relevance: Generally, the report showed what most of us expected. I highlighted what got my attention in the report, especially the note on lender-initiated account closures hitting a new all-time high at 7.4%. That doesn’t sound like much and that is likely because so many new accounts were opened during the pandemic. But it signals a tightening banking market. And even though the data series does not go back to the Great Recession, the fact that it is sitting at decade lows suggests that there is some risk and worry building on the consumer-banking-relationship front.
    Again, let’s re-emphasize that there really aren’t a lot of shocking headlines coming out of the report – the current credit market that we have had for six months is largely the credit market we have now. This report did not suggest a significant shock in the credit markets. But still, it’s worth noting as we look forward into 2025. –

Source: ARMADA CORPORATE INTELLIGENCE  

Commentary by: Keith Prather, MBA: Managing Parter and Co-Founder; ARMADA CORPORATE INTELLIGENCE

Background regarding the source:  BIIA’s relationship with ARMADA CORPORATE INTELLIGENCE goes back to the late to BIIA’s foundation days in 2005 when Chris Kuehl, PhD: Managing Partner and Co-Founder (a colleague of Keith Prather) assisted in the creation of BIIA. He was a director (see Ex Officio Board Members) and guest speaker in BIIA first major conference.

Edited by Joachim C Bartels, Co-Founder and Director of BIIA
Joachim can be reached at: Bartelsjc@biia.com