Lacker: Innovation Driving Credit Boom

WASHINGTON - A wave of innovation in consumer credit markets has driven a surge in credit availability for the average consumer, but that rapid growth has also seen an increase in "bad outcomes," according to Federal Reserve Bank of Richmond President Jeffrey Lacker.

Still, that increase in credit problems does not mean supervisors should restrict certain lending practices, Lacker said Thursday.

In the text of a speech given in Norfolk, Va., Lacker said "the expansion of retail credit has brought an increase in what one might call 'bad outcomes' — households that face high debt burdens, have trouble meeting payment commitments, and perhaps even default and resort to bankruptcy."

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...new, more advanced pricing models have allowed banks to extend nontraditional mortgage products to new borrowers, including those with lower creditworthiness, he said.

But with those changes comes more risk, Lacker said, while noting that innovation is an "inherently risky activity."