AUDIE CORNISH, HOST:
For the first time since the Great Recession, Americans will owe a trillion dollars in credit card debts this year. That's according to a Wall Street Journal article published earlier this week. According to the report, it looks like banks are feeling better about lending and we are feeling better about borrowing. We wanted to know whether this is a good thing for the U.S. economy and for us as consumers.
And to shed some light on the issue, we're joined here in studio by Mike Calhoun. He's president of the Center for Responsible Lending. Welcome to the program.
MIKE CALHOUN: Thank you so much for having me.
CORNISH: So after the financial crisis, how much had we dialed back on our credit card usage?
CALHOUN: Families paid off a lot of their credit card debt after the crisis and have only slowly been adding back to that. And the milestone here is that credit card debt is now back up where it was in 2008, 2009. And given that the economy has grown and the number of households have grown, it's even on a per-household level still a little less than it was at the peak. So the good news is it reflects a recovering economy and that consumers feel better about their future and so are willing to take on some more debt.
CORNISH: What about the banks? Because we had heard for so long that they had pulled back in terms of lending to consumers. Has the pendulum swung back the other way already?
CALHOUN: The banks are being much more aggressive in offering credit cards and expanding the amount that borrowers can take out on their credit cards. So banks are very aggressive because it's perhaps their most profitable line of business.
CORNISH: After the crisis, we also heard a lot about so-called Wall Street reform. What's different about the financial industry now that we should think about as we take on more debt and as they offer it?
CALHOUN: In 2009, Congress passed major reform of credit cards. And people remember it used to be so easy to get hit with all these late fees or sudden surprise increases in the interest rate on your card. Those have largely been prohibited. Estimates are that over the last four years, those changes save people over $20 billion in fees. So credit cards are much safer and more transparent.
It's much more you see what you get with a quoted rate rather than they're going to raise the rate later or add a bunch of fees. Credit cards still come with dangers, though. For most borrowers, if you make the minimum payment it'll take you 20 years or more to pay off the balance. And that's assuming you don't charge anything new.
The interest rates are still relatively high. Today's average interest rate on a card with a balance is more than 13 percent. And for families who carry a balance, that works out to about $1,500 a year that they're paying just in interest, not on paying down the balance.
CORNISH: Do you see any trends in other areas? Say, auto loans or mortgages?
CALHOUN: So we have seen similar trends in mortgages in terms of there were major reforms passed in 2010. And the kind of dangerous exploding mortgages that were at the heart of the financial crisis are no longer offered out there because there are now tighter restrictions on them. And so again, mortgages are much more transparent and much safer for households.
We have not yet had those reforms in the auto lending area. And so there have been red flags raised there of loans with higher default, people getting into loans that they can't sustain. And so people need to watch out for that particularly in the auto loan area.
CORNISH: Mike Calhoun is president of the Center for Responsible Lending. Thank you for coming in.
CALHOUN: Thank you so much for having me. Transcript provided by NPR, Copyright NPR.