US Credit-Card Data Show Slowdown In Delinquent Payment Rate
August 17 2009 - 6:12PM
Dow Jones News
Data released Monday by major U.S. credit-card issuers provided
the latest evidence of a slowdown in the rate of delinquent
payments.
American Express Co. (AXP) and Bank of America Corp. (BAC) each
announced a small decline in the level of borrowers who were at
least a month behind in their payments in July compared with the
month before, while Discover Financial Services Inc. (DFS) said its
delinquency rate was unchanged. Capital One Financial Corp. (COF)
announced a slight increase, though the level came in better than
industry experts had anticipated.
Though the rates remain elevated by historical standards, the
latest data should add to optimism that late payments and
write-offs by credit-card issuers could peak by the end of the
year. A continued decline in delinquencies, a key gauge of future
losses, is important for issuers because higher delinquencies force
them to squirrel away capital to reserve for potential losses;
ultimately, companies must write off loans if customers can't pay
up.
The decline in delinquencies in recent months also is noteworthy
because some of the seasonal factors that encouraged consumers to
stay current on their bills, such as tax refund checks, already
have had their positive impact. The latest numbers could indicate
that consumers are finding their financial footing, though
still-high jobless numbers remain a threat.
American Express said its delinquency rate fell to 4.2% in July
from 4.4% in June. AmEx wrote off 9.2% of its card loans, including
those packaged into bonds. For the quarter ended June 30, the
company wrote off 10% of its U.S. card loans, up from 8.5% in the
first quarter and 5.3% a year ago.
The company said earlier this month that better-than-expected
bankruptcy trends contributed to the decline in write-offs.
Like other card issuers, AmEx is being hurt by cutbacks in
spending and customers who are falling behind on their bills in the
current economic slump. Unlike other card companies, AmEx both
issues cards and processes transactions. It issues charge cards
requiring a monthly payoff as well as credit cards on which
customers can carry a balance.
An AmEx spokesman declined to comment on the company's July
performance of its credit-card loans.
Discover Financial wrote off 8.43% of credit-card loans that
have been packaged into bonds in July, down from 8.75% in June. The
30-day delinquency rate was nearly flat at 1.38%.
Bank of America, at 13.81%, had the highest write-off rate in
July among the card issuers that released data Monday. This
compares with a write-off rate of 13.86% in June.
Capital One wrote off 9.83% of its card loans last month,
compared with 9.73% in June, performing better than analysts'
estimates of higher losses. Its 30-day delinquencies increased to
4.83% in July from 4.77% in June, according to a regulatory filing
Monday.
Officials at these companies declined to comment on the monthly
reports.
The monthly report card on the performance of credit-card loans
comes amid heightened scrutiny of issuers by consumer groups and
legislators. Starting this week, as part of a raft of consumer
protections to be implemented, issuers will face new restrictions
on rate and fee increases. Issuers of plastic have responded by
scaling back on credit and getting tougher on whom they lend
to.
-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729;
aparajita.saha-bubna@dowjones.com