A Boom in Credit(ˈkredit) Cards: Great News for Banks, Less So Consumers(kənˈso͞omər)

A Boom in Credit(ˈkredit) Cards: Great News for Banks, Less So Consumers(kənˈso͞omər)

By Jessica Silver-Greenberg(ˈsilvər)(grēn) and Stacy(sˈtāsē) Cowley(koulē)

Udean Murray, a 62-year-old retired(riˈtīrd) telephone(ˈteləˌfōn) operator(ˈäpəˌrātər) in Brooklyn(ˈbro͝oklən), relies(riˈlī) on more than a dozen(ˈdəzən) credit cards to make ends meet. Her prescription(priˈskripSHən) medication(ˌmedəˈkāSHən) often goes on a Capital(ˈkapitl) One card. She pays for groceries(ˈgrōs(ə)rē) with one from Discover(disˈkəvər) Financial(fī-,fəˈnanCHəl) Services(ˈsərvis).

That’s a risky(ˈriskē) financial strategy(ˈstratəjē) for Ms. Murray, whose only income is Social Security(siˈkyo͝oritē) and who struggles(ˈstrəgəl) each month to make the minimum(ˈminəməm) payments on all her cards.

But it has been a boon(bo͞on) for the nation’s biggest banks, which are earning millions of dollars a month on their credit card customers(ˈkəstəmər). The four top American banks — Bank of America, JPMorgan(ˈmôrgən) Chase(CHās), Citigroup and Wells Fargo(ˈfärgō) — together made more than $4 billion(ˈbilyən) in pretax(ˈprēˈtaks) income from their credit card businesses(ˈbiznis) from July through September.

The amount of debt(det) owed by American consumers, which receded(riˈsēd) in the wake of the financial crisis(ˈkrīsis), is again on the rise(rīz).

Outstanding credit card debt — the total balances(ˈbaləns) that customers roll from month to month — hit a record $1 trillion this year, according to the Federal(ˈfed(ə)rəl) Reserve(riˈzərv). The number of Americans with at least one credit card has reached 171 million, the highest level in more than a decade(ˈdekād), according to TransUnion, a credit-reporting company.

That is occurring(əˈkər) at an opportune(ˌäpərˈt(y)o͞on) moment for the banking industry(ˈindəstrē), which is suddenly(ˈsədn-lē) struggling(ˈstrəgəl) to earn as much money from traditional(trəˈdiSHənl) profit engines(ˈenjən).

In the years since the financial crisis(ˈkrīsis), the largest United(yo͞oˈnītid) States financial institutions(ˌinstiˈt(y)o͞oSHən) churned(CHərn) out profits largely thanks to a booming business in trading(ˈtrādiNG) and structuring(ˈstrəkCHər) bonds(bänd) and other securities(siˈkyo͝oritē). Advising(ədˈvīz) corporations(ˌkôrpəˈrāSHən) and other institutions on their finances(fəˈnans,ˈfīnans) and strategies(ˈstratəjē) was another lucrative(ˈlo͞okrətiv) revenue(ˈrevəˌn(y)o͞o) stream.

Now, though, those businesses are flagging(flag), in part because financial markets have been eerily(ˈɪərɪli) calm(kä(l)m).

So banks are turning more to lending(lend) to consumers — especially(iˈspeSHəlē) through credit cards — to pick up some of the slack(slak).

Banks earn money from credit cards in two ways: They take a small cut of each card transaction(-ˈzak-,tranˈsakSHən) as a fee, and they typically(ˈtipikəl) charge annual(ˈanyo͞oəl) interest rates(rāt) of 15 percent or more on balances that customers don’t pay off at the end of each month.

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