General Discussion

Bank cards are widely held by consumers and they use their cards extensively. According to the Federal Reserve’s Survey of Consumer Finances (SCF) about 70 percent of families had one or more credit cards in 2013. Consumers use credit cards for purposes of borrowing, as standby line of credit for unforeseen expenses and as a convenient payment device. As a source of credit, credit card loans have substituted for borrowing that in years past might have taken place using other loan products, such as closed-end installment loans and personal lines of credit. As a convenient payment device, a portion of the outstanding balances reflects primarily “convenience use”, that is, balances consumers intend to repay within the standard interest-rate grace period offered by card issuers. In fact, consumer surveys, such as the SCF, typically find that about half of card holders report they nearly always repay their outstanding balance in full before incurring interest each month.⁷

The general purpose bank credit card market in the U.S. is dominated by VISA- and MasterCard-labeled cards that combined accounted for an estimated 472 million cards in 2014.⁸ In addition, American Express and Discover accounted for another 107 million general purpose cards in 2014. The combined total number of charges and cash advances using such cards in 2014 reached 28.2 billion, involving almost $2.7 trillion dollars in 2014.

Although a relatively small group of card issuers hold most of the outstanding credit card balances, several thousand banking institutions and credit unions offer bank cards to consumers and are free to set their terms and conditions.⁹ In the aggregate, the Federal Reserve’s G.19 Consumer Credit report indicates that consumers carried nearly $890 billion in outstanding balances on their revolving accounts as of the end of 2014, about 3.7 percent higher than the level in 2013.¹⁰ Although expanding some from 2013, this figure is notably lower now than its high point of $1.01 trillion in 2008.

Based on credit record data the amount of available credit under outstanding credit card lines far exceeds the aggregate of balances owed on such accounts. Credit record data indicate that as of the end of 2014 individuals were using less than one-quarter of the total dollar amount available on their lines under revolving credit card plans.¹¹ The total dollar amount available has risen somewhat since 2010, but is still about 20 percent below its peak in 2008.

In soliciting new accounts and managing existing account relationships, issuers segment their cardholder bases along a number of dimensions including by risk characteristics, offering more attractive rates to customers who have good payment records while imposing relatively high rates on higher-risk or late-paying cardholders. Card issuers also closely monitor payment behavior, charge volume and account profitability and adjust credit limits accordingly both to allow increased borrowing capacity as warranted and to limit credit risk.

Direct mail solicitations continue to be an important channel used for new account acquisition and account retention. After reaching an all-time high in 2006 of 7.0 billion direct mail solicitations, mailings fell sharply as the recent recession emerged. Mail solicitations fell to only 1.5 billion in 2009.¹² Industry data indicate that the retrenchment in mailings began to reverse starting in the third quarter of 2009 as prospects for economic recovery improved. Industry data on mail solicitation activity indicate mailings rebounded to 4.2 billion in 2011. The number of solicitations has been smaller since then, reaching 3.5 billion in 2014.