At the Front of the Line
It seems like a simple market shift. Reversing a longstanding dynamic, US consumers ranked their credit cards as having a “higher repayment priority” than mortgages.
This was the conclusion of a study released yesterday by Auriemma Consulting Group that was based on a survey of 430 credit card users last October.
But when you scratch a bit deeper, there are all sorts of possible ramifications in this change – or are there?
Auriemma believes the “repayment priority” has reversed because credit has become less available.
The consultancy offered a second, possible explanation. It said that the prevalence of home-mortgage modification programs means consumers view their mortgage payments as less important than their credit card payments. In other words, the government will bail them out of their troubled mortgages, but not replace the credit card they lose by missing payments.
The second explanation seems better than the first, in my view. If that is the case, can credit card issuers expect better payment performance? I traded some emails with Auriemma editor Nancy Stahl on the subject and we came to different conclusions. Stahl downplayed the “repayment priority” factor.
Good points all, but perhaps that assessment gives consumers too much, er, credit? For at least some population of consumers, repayment of debts is done in a less-than-analytical fashion. It boils down to need. “Do I need to repay this debt or not?” is most likely the extent of consumers’ analysis as they face their bills on Sunday evenings. It seems unlikely to me that a reprioritization will not have at least some beneficial effect on credit card performance. Will the effects be great, say better than a few basis points? Probably not. But at the least, credit card issuers should get a basis point or two bump in performance.
That said, Stahl is right that HAMP is a great variable in all this and should it be curtailed or eliminated, that repayment prioritization will shuffle again. Forget trying to put your finger on the pulse of the market – use a tourniquet.
