Credit card defaults, late payments at recent lows
NEW YORK (AP) — The nation's top six credit card companies provided further evidence Monday that card users are more in control of their spending and payments.
All but one of the banks reported that late payments and defaults on card balances, which also back card-based securities, hit new multi-year lows for April.
Only Bank of America said defaults rose, and its rate remained at a two-year low.
The Charlotte, N.C.-based bank said balances considered uncollectible, or charge offs, as they're known in the industry, rose to 8.25 percent of balances on an annualized basis last month, up from 8.18 percent in March. Still, the rate is well below its August 2009 peak of 14.53 percent.
Capital One Financial Corp. reported the biggest drop in defaults, down to 4.97 percent annualized, a level last seen in late 2007. American Express Co. kept its position as the issuer with the lowest default rate, at 3.5 percent.
"I'm actually a little surprised at how fast they're coming down," said Mike Dean, a managing director with Fitch Ratings. Fitch's charge-off index, which tracks securitized card balances, is also close to two-year lows, and is dropping faster than Dean forecast at the outset of the year.
Charge-offs remain high on a historical basis, he noted, but the data is headed toward normal faster than previously projected.
The industrywide charge-off rate peaked at 10.9 percent in the second quarter of last year, according to Federal Reserve data. There has been a steady improvement for card issuers since that time, but rates for most of the biggest companies remain above the pre-recession average of 3.82 percent.
"There's nothing to indicate that we're going to return to those levels" seen in early 2010, said Jeff Hibbs, a credit analyst at Moody's Investor Services.
Moody's estimates that from late 2008 through the end of last year, more than $70 billion in uncollectible debt was written off by the top six card issuers alone.
"The peak loss for charge-offs is well in the rear view mirror," Hibbs said.
And more positive news is likely on the way, because late payments, or delinquencies, are also down substantially.
Bank of America saw its lowest late payment rate since mid-2006, coming in at 4.52 percent of balances annualized, down from 4.82 percent in March. Citigroup Inc.'s credit unit posted a 3.87 percent delinquency rate, down from 4.21 percent in March. The last time Citi had a late payment rate that low was May 2008.
Discover Financial Services and JPMorgan Chase & Co.'s card division also reported drops in delinquency, to 2.86 percent and 3.15 percent, respectively. Amex had the industry low late-payment rate, at 1.7 percent.
Late payments take about 180 days to work through the system and become defaults, so those figures are a good sign for the card industry in coming months.
It may also be a good sign for consumers who are having trouble getting cards because of problems with their credit histories. Direct mail advertising for cards has increased, and there are signs that the banks are loosening their requirements a bit for new cards.
Hibbs said the people who still have credit cards are those considered to have the highest credit quality, meaning their credit scores and histories indicate they're low risk borrowers. "We believe the pendulum has swung perhaps as far as it will to the positive in terms of credit quality," he said.
While it's unlikely that consumer credit will flow anytime soon as freely as it did five or six years ago, banks are in the business of lending and will look for opportunities to expand their card businesses again, he said.