Credit Card Writedowns Decline Again in Oct.
The ability of credit card holders to pay off debt has shown sustained improvement this year and on Monday the top U.S. credit card issuers said that trend continued in October.
Statistics posted by five of the six biggest card companies mainly showed fewer balances being written off as uncollectible, and fewer card customers falling behind on their payments. Four of the six biggest issuers, included the largest, JPMorgan Chase & Co., reported their lowest levels of bad debt and late payments this year.
Bank of America and Citibank reported upticks in loans they gave up trying to collect.
At Bank of America, charge-offs rose to 10.15 percent of balances from 9.98 percent in September. That’s still well below the peak charge-off rate of 13.53 percent the Charlotte, N.C., bank reported in December. Bank of America also said late payments dipped to 5.6 percent, from 5.71 percent the month before.
Bank of America is the second-largest issuer by outstanding balances, according to The Nilson Report, an industry newsletter.
Citibank, the third-largest issuer, also saw charge-offs rise, to 10.27 percent from 8.99 percent in September. The New York bank attributed 0.9 percent of that increase, or about two-thirds of it, to an account change. Citi’s charge-off rate topped out at 12.14 percent in August 2009.
Importantly, Citi’s delinquency rate fell to its lowest point since October 2008. The bank said 4.74 percent of balances were past due 35 days or more, down from 4.93 percent in September. Late payments are a precursor to writedowns.
The largest drop in charge-offs was reported by Capital One Financial Corp., which said it wrote off 7.26 percent of balances, down from 8.38 percent the prior month. Chase and Discover Financial Services Inc. posted more modest improvements. The charge-off rate at American Express Co. was flat at 4.7 percent, the lowest among the six largest card companies
For the credit card industry overall, both charge-offs and delinquencies have been steadily falling throughout the year, with occasional upticks at certain banks.
Mike Dean, a managing director at Fitch Ratings, said the numbers show the bad debt situation for card companies is stabilizing. That’s partly because card companies have already written off billions of dollars of unpaid debt in the past few years. That leaves the banks with a better portfolio of open accounts, he said. “A lot of poor performing consumers have been written off.”
Industrywide charge-offs peaked at 10.66 percent in the second quarter, according to the Federal Reserve, and while the numbers have gotten better, Dean points out that they have yet to return to a normal range.
The historical average for charge-offs is just over 6 percent.
“We still have a ways to go,” Dean said.
And it may be some time before that point is reached.
Unemployment is one of the biggest factors in payment rates. The rate for initial filings for unemployment claims has ticked down a bit, and that correlated with the reduction in late payments and charge-offs, Dean said.
But the unemployment rate has remained stubbornly around 10 percent. The norm is between 5.5 percent and 6 percent.
And a recent AP survey of economists found that some do not believe the U.S. will return to that range of unemployment until at least 2018.
Credit card companies can expect higher delinquency rates and write-downs until that rate normalizes, Dean said.
EILEEN AJ CONNELLY, AP Personal Finance Writer NEW YORK