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Consumer lending stays frozen

By Marcie Geffner · Bankrate.com
Monday, February 7, 2011
Posted: 9 am ET

The essential message was "status quo" in the Federal Reserve's latest quarterly survey of senior loan officers' observations of lending practices, at least on the consumer side of the equation. The survey, which also included commercial and business lending, found not much had changed for better or worse.

To wit:

Banks again reported an increased willingness to make consumer installment loans, and a small net fraction of respondents reported easing standards for approving consumer credit-card applications. However, a few banks, on net, reported having tightened terms on, or having reduced the sizes of credit lines on existing consumer credit-card accounts. A modest net fraction of respondents reported having tightened standards on nontraditional residential mortgage loans, while banks on net reported little change in standards on prime residential mortgage loans or home equity lines of credit.

Note the key words: "small net fraction," "a few banks, on net," "a modest net fraction" and "little change." What that adds up to is nothing happening here.

Whether this scenario is positive or negative for consumers depends on one's point of view. Some may argue that tighter credit was long overdue and should be encouraged to protect consumers from their own profligate use of credit cards and home loans to finance spending sprees. Others might say tighter consumer credit unreasonably chokes off spending that's necessary to expand the weak economic recovery.

On the other hand, more of the loan officers surveyed by the Fed reported that their institutions had eased standards and terms on commercial and industrial loans to businesses, particularly large and mid-sized operations. The loan officers cited "a more favorable or less uncertain economic outlook" and "increased competition from other banks or nonbank lenders" as reasons why loan standards were eased.

So there we have it, folks: status quo for consumers and a slight easing of credit for larger businesses. Whether that will be enough to push the recovery forward remains to be seen.

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