You've heard all about the stock bubble and housing bubble. Kansas City-area banking experts say another financial boom that may burst is the consumer credit bubble. Americans have always loved their credit cards, but KC financial experts are watching ever more consumers turning to plastic and low-interest loans to buy what they want. The care-free ways may be a lingering result of Sept. 11's tragedies--or simply the abundance of easy lending sources.

"Consumer spending continues to rise, and a lot of it is debt-financed," says Rob Givens, president of KC-based Mazuma Credit Union. He calls it a "spend for today, don't worry about tomorrow" attitude.

Area bankers say bigger consumer debt isn't necessarily a problem if it's backed by more assets and income, as it was in the ‘90s. But signs are plentiful that easy credit is taking its toll. The Mortgage Bankers Association of America reports the level of foreclosures is .4%, the highest it's been in at least 30 years. Bankruptcies keep hitting record highs, with 1.5 million in the 12 months ended March ‘02. What's more, credit card delinquency rates have risen 30% in the past year, with nearly 3.9% of credit card accounts past due.

Americans have always loved their credit cards, but KC financial experts are watching ever more consumers turning to plastic and low-interest loans to buy what they want.

And most notably, the Federal Reserve says household debt burdens have risen to near-record highs. Ten years ago, 12.47% of the average household's disposable income went to pay consumer and mortgage debt. It's now up to 14.07%, paralleling the rise in bankruptcies.

Such ominous warnings have prompted federal regulators to crack down on banks that loan money to less creditworthy borrowers, known as the sub-prime market. That means those customers may be facing higher interest rates, lower credit limits and more trouble getting loans.

Area bankers believe Midwest consumers are more conservative in their approach to loans, but they're also susceptible to a credit bubble. In Missouri, the American Bankruptcy Institute reports, one out of every 67.3 households filed for bankruptcy for the 12 months ended June 30-- slightly worse than the national average of one bankruptcy out of 68.9 households. In Kansas it was one out of 72.4.

Still, not everyone is pulling back from the consumer credit bubble. Rob Markey, senior vice president at Blue Ridge Bank & Trust, says his bank actually wants to increase its level of direct lending to consumers. He estimates about 25% of Blue Ridge Bank's consumer loans are direct; the rest is through underwriting consumer loans for auto dealers and other commercial customers.

Markey would like to see his bank's direct consumer loan levels at least double. Bank leaders early this month ranked their top concerns. The consumer credit bubble "wasn't in our top five," Markey says. "I'd say it probably isn't even in our top 10." caption Americans have always loved their credit cards, but KC financial experts are watching ever more consumers turning to plastic and low-interest loans to buy what they want.

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