Personal Debt in a Consumer Economy

Report Outline
Consumer Credit and Economic Stability
Uses and Abuses of Personal Credit
Regulation of Consumer Loan Practices

Consumer Credit and Economic Stability

Concern Over Rapid Growth of Personal Debt

Buy Now, Pay later has become a way of life for many American families. Readiness of consumers to assume a heavy burden of debt and of lenders to advance easy credit is helping to fuel the long, uninterrupted period of business expansion that is now well into its fifth year. Yet some observers fear that the acceleration of personal debt has become so rapid that it may threaten both the individual borrower and the soundness of the over-all economy.

Quality as well as quantity of credit is in question as retailers and lending institutions induce more and more consumers to go into debt on a wide range of goods and services. Will more purchases made on the “never-never” (as the British have dubbed installment buying) actually turn out that way—never paid for? While delinquency on installment loans has risen only slightly in recent years, other danger signals are visible in the high-flying consumer credit field. Not the least of these is general consumer ignorance of the true costs of installment buying.

Volume and Distribution of Consumer Credit

Federal Reserve Board statistics show that American families are quite willing to go into debt to buy the things they want. At the end of September 1965, a total of $81.9 billion was outstanding in short- and intermediate-term consumer credit—up $8.4 billion from a year earlier. Of that total, $17.1 billion was in the form of non-installment credit consisting of single payment loans, charge accounts, credit cards and service credit. The remaining $64.8 billion was in the form of installment credit, consisting of $27.5 billion in automobile paper, $15.9 billion in other consumer goods paper, $3.6 billion in home repair and modernization loans, and $17.7 billion in personal loans. The $683 million rise in consumer installment credit for the month of September 1965 was the largest one-month increase since the record rise of $744 million in April.