UPDATE: Credit-Card Spending Makes A Comeback As Confidence Rises

Consumers' aversion to credit cards seems to be waning.

Revolving credit is rising, and many credit-card issuers have revved up marketing in hopes of winning new customers.

Bank of America Corp. (BAC) said Thursday new credit-card accounts grew 53% from a year ago in the fourth quarter. While its outstanding card loans declined, actual purchases on its cards grew, and other lenders have reported receivables growth in recent days.

The holiday shopping season likely helped drive the increase, but experts say consumers have also grown more confident in their ability to use credit cards after reining in spending following the recession.

"What's going on is a combination of increased confidence on both the issuer and the consumer side," said Ben Woolsey, director of marketing and consumer research at CreditCards.com, a website that tracks credit-card offers. "The indicators are starting to look positive. I think the combination of holiday spending and consumer sentiment is causing people to feel a bit freer to spend on credit cards."

Many borrowers shunned plastic following the recession, as they worked to rid themselves of debt hangovers brought on when credit cards were easier to get. Banks also pulled up stakes, targeting consumers with only the most pristine credit.

That cautious behavior has resulted in improved performance for credit-card issuers. Delinquency and net charge-off rates have declined dramatically for most lenders, meaning they have had to sock away less money to cover bad loans.

With more borrowers paying their bills on time, issuers have grown more aggressive in going after new customers.

U.S. consumers received 447 million credit-card offers in the mail in November, up from 346 million a year ago, according to the most recent monthly numbers available from Mintel Comperemedia.

"If you're running a bank, you have to be looking at the [credit] card business and pushing it hard," said Donald Fandetti, citing consistent returns the business has been posting.

Some credit-card issuers, like American Express Co. (AXP), rebounded from the credit crisis more quickly than their competitors.

American Express, which will report quarterly earnings after market close, "used that upside to reinvest in marketing to get in front of" competitors, Fandetti said. Other banks took longer to bounce back, weighed down by capital constraints, and are now feeling more confident in pursuing growth, he said.

The quest for loan growth has become more pressing, with analysts predicting credit quality may actually start to weaken slightly. That is expected to eliminate some of the benefits lenders have received from freeing up loss reserves intended to cover bad loans.

Revolving credit, which is primarily comprised of credit-card balances, grew at a seasonally adjusted annualized rate of 8.5% in November to $798.3 billion, the Federal Reserve reported this month.

The combined average balances at the six largest card issuers are expected to grow about 6% in 2012, to $517 billion, after falling more than 5% to $488 billion last year, according to Moody's Investors Service.

Some of the growth in credit may be due to banks raising checking account fees and trying to charge customers to use debit cards, Woolsey said.

Many banks have added new checking fees and eliminated debit-card rewards programs. A handful, including Bank of America, attempted to charge customers monthly fees to use a debit card in response to new regulations that limit how much merchants pay to accept debit cards. Those banks eventually scrapped those plans amid consumer uproar.

"There's been...some shift from people that maybe were using bank debit cards back into credit cards in terms of the primary spend behavior," Woolsey said.

Bank of America saw an "elevated level of account closings" in the fourth quarter, Chief Executive Brian Moynihan said during a conference call Thursday, citing its $5 debit-card fee plan.

U.S. credit card loans at Bank of America, which has been selling some unwanted card portfolios, fell 10% from a year ago to $102.3 billion, which is also down slightly from the third quarter. However, purchase volume, or the amount of money spent on its U.S. credit cards, was $50.9 billion, up 3.7% from a year ago and up 4.8% from the third quarter.

Citigroup Inc. (C) said Tuesday card loans in its North American consumer banking segment were $75.9 billion in the fourth quarter, down 2% from a year ago, but up about 3% from the third quarter.

J.P. Morgan Chase & Co. (JPM) last week said fourth-quarter card loans totaled $132.3 billion, down 4% from a year ago, but up 4% from the third quarter.

American Express and Capital One Financial Corp. (COF), which also reports quarterly earnings after market close, are expected to post an uptick in loan balances and spending volume.

-By Andrew R. Johnson, Dow Jones Newswires; 212-416-3214; [e-mail]