Nov. 2 (Bloomberg) -- For all of Federal Reserve Chairman Ben S. Bernanke’s success in lowering interest rates, U.S. consumers are still being charged more than double on some loans relative to what banks pay to borrow.

The rate on a five-year auto loan is 4.49 percentage points higher than on a similar-maturity certificate of deposit that a bank can sell to raise cash, according to Bankrate.com data. That’s up from an average of 2.05 percentage points in the five years through 2007. Spreads between so-called jumbo 30-year mortgages and 10-year Treasuries average 2.71 percentage points, up from 1.58 percentage points in the same period.

Even after the Fed and U.S. spent, lent or committed $11.6 trillion to keep financial markets from collapsing, consumer credit fell in August for a seventh straight month, the longest stretch since 1991, according to an Oct. 7 Fed report. One reason is the market for bonds created by packaging loans into securities hasn’t fully recovered as banks face rising defaults.

“We have allowed these companies to return to good health, thanks to our generosity as taxpayers and this is our thanks, to see our rates double in some cases?” said Ruth Susswein, deputy director at Consumer Action, a nonprofit financial education group based in San Francisco. “We’re talking in many cases about the same companies that we as taxpayers have footed the bill on.”

Americans head to the polls tomorrow to elect governors for New Jersey and Virginia, as well as to vote on various spending plans across the U.S. New York Mayor Michael Bloomberg, the founder and majority owner of Bloomberg News parent Bloomberg LP, is running for a third term.

Asset-Backed Bonds

Banks are reluctant to lend in part because there’s been a limited recovery in the market for bonds backed by consumer bills, said Joshua Rosner, an analyst in New York at investment research firm Graham Fisher & Co.

Financial institutions can bundle loans as securities and sell them to investors. The yields that bondholders demand often dictate what banks can charge customers. If they offer rates considered too low, investors won’t buy the bonds, preventing banks from obtaining cash to make more loans, or the banks won’t be able to profit on the pieces of the debt pools they retain.

About $126.8 billion of asset-backed securities, excluding mortgage-linked debt, was sold this year through mid-October, according to data from New York-based Citigroup Inc. While that is up from $108.9 billion in 2008, sales of bonds of auto loans, credit cards and student debt totaled $231 billion in 2007, before Lehman Brothers Holdings Inc.’s September 2008 collapse roiled markets and caused investors to shun all but the safest government securities, data compiled by Bloomberg show.

Credit-Card Yields

Yields on AAA rated credit-card bonds have tumbled to within 0.65 percentage point of benchmarks rates, from 5.50 percentage points in January, matching January 2008 levels, Citigroup data show. Lower-rated slices are in less demand, with spreads on A rated bonds at 2.25 percentage points, compared with 0.90 percentage point in January 2008.

“While issuance has returned and spreads have tightened substantially, they’re still higher than they were during the bull market,” when AAA spreads were often less than 0.10 percentage point, said Vishwanath Tirupattur, a debt analyst at Morgan Stanley in New York. Financing costs for lenders are also higher as they’re forced to retain more classes that aren’t top rated, and issuance of some securities backed by subprime auto loans and other debt remains below historic averages, he said.

Even though the economy expanded 3.5 percent in the third quarter, banks are wary of extending credit at cheaper rates as they assess the pace of delinquent payments with unemployment at 9.8 percent, the highest in more than a quarter century, said Jim Vogel, a bond analyst at FTN Financial in Memphis, Tennessee.

Fed’s Loan Survey

The Fed’s second-quarter survey of senior loan officers, released Aug. 17, showed U.S. banks tightened standards on all types of loans and said they expect to maintain strict criteria on lending until at least the second half of 2010.

Consumer credit fell by $12 billion, or 5.8 percent at an annual rate, to $2.46 trillion, according to the Oct. 7 Fed report. It has dropped $101.7 billion the past seven months. Consumer bankruptcies rose past 1 million through the first nine months of the year, the highest since 2005, amid changes to bankruptcy laws, according to the American Bankruptcy Institute and National Bankruptcy Research Center.

The gap between what lenders pay for money and charge for credit is allowing banks to recapitalize after $1.66 trillion in losses and writedowns since the start of 2007.

Rising Profits

New York-based JPMorgan Chase & Co., the second-largest U.S. bank by assets, said Oct. 14 that third-quarter profit rose almost sevenfold to $3.59 billion from a year earlier, as the New York company’s fixed-income revenue surged.

Citigroup, the lender 34 percent owned by the U.S. government, posted a $101 million third-quarter profit, compared with a loss of $2.82 billion a year earlier, as it added the smallest amount to loan-loss reserves in two years. Its revenue after interest expense surged 25 percent to $20.4 billion. Net consumer credit costs may be “slightly higher” in the current quarter as the housing and job markets remain weak, Chief Financial Officer John C. Gerspach said last month.

JPMorgan spokeswoman Jennifer Zuccarelli and Citigroup spokesman Michael Hanretta declined to comment.

Consumer Spending

Bernanke’s goal this year has been to lower consumer borrowing rates to help lift the economy from its worst slump since the Great Depression. Consumer spending has traditionally accounted for about two-thirds of the economy. The Fed cut its target rate for overnight loans between banks in December to a range of 0 to 0.25 percent from 1 percent.

At the same time, annual percentage rates, or APRs, on offers for new credit cards climbed to 12.64 percent last week, from 11.84 percent in January, according to Austin, Texas-based CreditCards.com, which does weekly surveys that cover 95 of the most popular cards from issuers and exclude “teaser” rates.

APRs are higher even after the three-month London interbank offered rate, a bank borrowing benchmark, declined to 0.28 percent, from 4.82 percent in October 2008, and the Fed started extending loans to buyers of asset-backed bonds through its Term Asset Backed Securities Loan Facility.

Companies are better off because they don’t need to rely on the asset-backed debt markets or banks.

Government Aid

Corporate bond yields dropped to a four-year low of 5.90 percent last week from 10.46 percent in March, according to Merrill Lynch & Co.’s broadest U.S. company bond index. Companies have sold $1.11 trillion in debt in the U.S. in 2009, the fastest pace on record, data compiled by Bloomberg show.

Consumer Action’s Susswein says credit-card costs are unjustifiable with lenders receiving direct government aid through the $700 billion U.S. Troubled Asset Relief Program and after President Barack Obama signed legislation in May that would place restrictions on rate increases.

“We have heard from many consumers who have been excellent consumers and profitable customers,” she said. “These are people who pay interest every month and have longstanding relationships with these companies.”

Consumer credit shouldn’t cost as little as it did in the period before financial markets began to collapse in 2007, Graham Fisher’s Rosner said.

“Institutions had underpriced risk so aggressively that they’re now trying to offset that by overpricing it, especially since they now have to hold onto it because the securitization markets are functioning so poorly,” he said.

Regulations are also changing. Credit-card issuers including JPMorgan and Riverwoods, Illinois-based Discover Financial Services raised rates and fees after Obama signed the Credit Card Accountability Responsibility and Disclosure Act on May 22. Most of the rules under the act are set to begin on Feb. 22.

“I view it as rolling back the clock,” Discover Chief Executive Officer David Nelms said on a May 27 conference call. “Some of the innovations that have taken place in our business over the last 15 years will be rolled back and there’ll be much less risk-based pricing and it will go back to a time with very few promotional rates.”

To contact the reporters on this story: Jody Shenn in New York at jshenn@bloomberg.net; To contact the reporter on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net.

Last Updated: November 2, 2009 00:00 EST