The last few years have been challenging for consumers and providers of consumer credit alike. An historically sharp increase in interest rates, a slow slide in economic growth following a post-pandemic boom, growing household financial strain, and an increasingly adversarial regulatory climate are among the factors that have weighed on borrowers and lenders.
Results from AFSA’s latest Consumer Credit Conditions Index (C3) survey of its members, however, suggest that the tide may be turning (Note: the survey was conducted prior to the November elections.). Each quarter, survey respondents share their views on current business indicators, as well as their expectations for changes in the consumer-lending environment for the next six months.
Consumer finance companies’ assessments of the business environment improved in the third quarter. More respondents reported strengthened overall business conditions compared to the previous three-month period than reported weakened conditions. Moreover, respondents said they expect overall conditions to further improve during the next six months. These latest results represent a reversal from the previous quarter’s. At that time, a larger share of those surveyed claimed overall business conditions deteriorated rather than improved quarter-on-quarter. A larger share also expected conditions to worsen rather than improve over a six-month horizon.
The growing likelihood that the U.S. economy would avoid a recession in the near-term, and the start earlier this year of what is expected to be a cycle of interest rate reductions by the Federal Reserve, likely contributed to an increased degree of optimism. Indeed, interest rate cuts had a notably positive effect on lenders’ evaluation of their current and prospective funding costs.
The AFSA survey results mirror other recent industry data suggesting stabilization, and even modest improvement, in such measures of the consumer credit marketplace as lending standards, loan demand, and performance of outstanding loans. Despite these positive developments, economic and regulatory headwinds continue to be stiff. This is reflected in results on customer demand for loans, which struggled to gain ground in the third quarter. Moreover, the performance of outstanding loans, both currently and in prospect, remains a drag on business sentiment.
Detailed results from the third quarter AFSA C3 Index survey are available here.