Credit Commentary

Credit Card Issuers Continue To See Higher Delinquencies In October

By Administrator on Monday, November 30 2009

Several major U.S. credit card companies are still facing double-digit defaults, suggesting that the high rates of unemployment continue to weigh down consumers. Institutions, such as Capital One (NYSE: COF), Bank of America (NYSE: BAC) and JP Morgan (NYSE: JPM) reported that credit card defaults fell in October.  However, a rise in delinquencies was reported by several banks suggesting further struggles for the industry still lay ahead.

While credit card defaults came off their highs of the last few months, they remain elevated compared to the past average. Worse, delinquencies rose from September to October, a harbinger of further losses ahead. Delinquency rates are a measure of credit card payments that are more than 30 day late, and hence an indication of future credit card charge-offs.

Bank of America continued to have the highest level of charge-offs at an annualized 13.22%, down from 14.25% in September. Citigroup saw the highest drop in credit card write-offs, from 10.15% in September to 8.79%. Other card issuers reported modest declines in defaults from September to October: Chase cards from 8.12% to 8.02%; Capital One from 9.77% to 9.04%, and Discover from 8.69% to 8.54%.

The slight decrease in credit card defaults resulted from a slowdown in delinquencies over the past few months. Unfortunately, delinquency rates rose in October for most credit card companies, an early warning of more trouble ahead. With the holiday shopping season just around the corner, cash-strapped consumers may turn to their credit cards to make the season bright, possibly setting the stage for more delinquencies down the road.

Capital One saw 30-day delinquencies rise from 5.38% in September to 5.72% in October, and for Discover card delinquencies rose from 5.57% to 5.72%. The one exception was American Express, which continued to buck the trend, reporting the lowest delinquencies of all major card issuers at 4.1% in October, unchanged from September.

Credit card default rates are tied to unemployment rates, and unfortunately, so far there are no signs of an improving job market. On the contrary, unemployment levels reached a record 10.2% in October, its highest level since the economic recession in 1982, and almost double the target unemployment rate of 5 or 6%.

For cardholders across the board, this means that the era of tougher credit card terms, reduced credit limits, tougher lending standards, and higher interest rates is not likely to be over anytime soon. Card issuers have taking proactive measures, closing millions or accounts deemed risky and lowering available credit limits on customers throughout America.