A Credit Check on American Families

Banks told the Federal Reserve this week that demand for credit card loans rose over the past three months, according to its quarterly lending survey. Asked why card demand has grown over the past year, banks most often pointed to customers' spending needs in response to changing prices. Today, the Fed's consumer credit report will show how much Americans borrowed on cards in September.

Together, the reports offer a snapshot of how accessible credit is for American households at a time when many are relying on it to manage everyday expenses.

Families are leaning on credit

Americans held $1.26 trillion in credit card balances as of June. And since 2023, card balances grew more than 35 percent among people who say they are finding it difficult to get by, the Fed's household survey found.

That makes access to safe, regulated credit an important part of the affordability debate. A household's need to borrow does not disappear simply because credit becomes harder to get.

Small businesses rely on cards too

The stakes extend beyond household budgets. University of Chicago researchers found that over 55 percent of businesses had used business credit cards for financing in the prior 12 months:

• "Younger firms, smaller firms, and those with lower cash reserves consistently allocate a larger share of their payments to credit card financing."

For entrepreneurs, cards can provide the flexibility to manage cash-flow gaps and unexpected expenses. Policies that restrict access to regulated credit can therefore reach small businesses as well as consumers.

Who feels a rate cap first

That is the risk with proposals to cap credit card interest rates. While caps may sound like a straightforward way to lower borrowing costs, they would likely make credit harder to access for the very consumers policymakers are trying to help.

Marisa Calderon, president and CEO of Prosperity Now, explained:

• "So the likely thing that would happen is credit constriction and the likely people who would be affected by that would be those consumers that are on the margins or that have lower income, and those are exactly the people who are leveraging their access to credit to be able to pay for those everyday essentials."

When consumers lose access to traditional credit, alternatives can include payday loans, which can carry an APR of almost 400 percent and far fewer protections.

As our spokesperson, Mattie Duppler, wrote last month, "the right response to higher borrowing costs is keeping safe, regulated credit within reach, not rationing it."

We'll be watching today's numbers, and as the incoming Congress turns to the affordability debate, whether policymakers focus not only on what credit costs, but whether families and small businesses can still access it.

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