Consumer Loan Demand Jumps As Banks Loosen Standards

Off the Charts: The Visual Says It All

Woman Shopping Online With Credit Card

Natnan Srisuwan/Getty Images

Demand for consumer credit, particularly for auto and credit-card loans, continued to rebound in the second quarter from a low last fall, according to a report by the Federal Reserve.

The steep rise in demand came as banks relaxed their lending standards, according to a Fed survey of senior loan officers. The survey, released Monday, was taken between June 21 and July 1.

“Clearly this is a sign of confidence in the U.S., economy,” wrote Bank of America analysts in a research note on Tuesday.

A net 32.0% and 27.1% of banks reported stronger demand for credit card and auto loans, respectively, up sharply from a net 2.1% and 10.3% in the prior period, as the chart below shows. 

Loan demand sank last year after the pandemic struck, as banks tightened their lending standards and tried to conserve cash while consumers had extra money from government relief programs. Restrictions have eased this year, relief for consumers has dried up, and the economy has begun recovering, allowing banks to ease standards and boosting demand for loans. A record net 37.3% of banks moderated lending standards for credit cards while 18.6% lowered standards for auto loans, both up from the prior quarter’s 27.1% in credit cards and 17.5% for auto loans, the report showed. 

“Overall, responses to the July 2020 and 2021 surveys indicate that banks’ lending standards have eased notably since 2020,” the Fed said in the report. “For all loan categories, the net shares of banks reporting standards on the tighter end of their range fell enough to offset most of last year’s increase.”

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