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Credit card delinquency rates level off
American Express and MasterCard credit cards are shown in Washington June 25, 2008.
Credit: Reuters/Jim Bourg
NEW YORK |
NEW YORK (Reuters) - The percentage of Americans falling behind on credit card bills stabilized in January, according to data from the six major lenders, signaling that U.S. consumer credit woes may be leveling off.
Shares of the credit card companies all jumped to at least one-week highs, as analysts said the loan delinquency rates were surprisingly benign, suggesting the worst for U.S. consumers may have already passed.
Bank of America Corp and American Express Co reported drops in both credit card delinquency rates and in charge-offs. Bank of America stock, which ended 4.9 percent higher at $15.16, was the biggest percentage gainer in the Dow Jones Industrial average, while American Express gained 3.1 percent to $39.62, its highest level in more than three weeks.
Capital One Financial Corp, Discover Financial Services, JPMorgan Chase & Co and Citigroup Inc also posted delinquency rates for January little changed from December. The rates signal how likely credit card issuers are to have to write off bad loans in the future.
"What is very positive is that the delinquency trends ... were at the low end or better than the range that we were expecting," said Richard Shane, an analyst at Jefferies & Co.
"The data is suggesting that not only will we see a seasonal recovery (in March or April), but there is a cyclical recovery that's beginning that will start to impact data in the second half of 2010."
Charge-offs -- or loans the company does not expect to be repaid -- were mixed in January.
The January data, while not uniform, follows a December that also showed signs fewer Americans were falling behind in payments. It continues a reversal from November, when most companies reported a rise in charge-offs, which reflect stress on consumers.
The delinquency rate at Bank of America, the biggest U.S. bank, was 7.35 percent in January, down 0.09 percent from 7.44 percent in December. Its charge-offs dipped 0.28 percent in the same period.
While Bank of America had the highest numbers in the group, American Express, the largest U.S. credit card company by purchase volume, posted the lowest. American Express said its delinquency and charge-off rates each fell by about 0.1 percent in January, compared with December.
Capital One, JPMorgan Chase, and Citigroup wrote off a higher percentage of loans, while American Express, Bank of America and Discover wrote off a lower percentage.
Companies lifted credit card rates last summer, which set off an expected rise in charge-offs last month, Shane noted.
"You're going to see loss rates rise for another month or two, it's a function of seasonality, but also a function of that spike in delinquencies that we saw late summer and early fall," the analyst said.
Capital One shares climbed 4.5 percent to close at $36.74; JPMorgan shares added 2.9 percent to $40.07; Citigroup was up 4.1 percent at $3.31; and Discover was up 4 percent at $13.55.
For Capital One, borrowers with about 5.8 percent of U.S. credit card loans were more than 30 days behind on their bills in January, on an annualized basis. That is essentially unchanged from December's 5.78 percent. Capital One's charge-off rate rose 0.3 percent month-over-month.
JPMorgan Chase wrote off 10.91 percent of its loans, on an annualized basis, a big increase from December's 7.11 percent. The company said in January that write-offs could approach 11 percent, due to a payment holiday it allowed customers in May, which lowered defaults in late 2009 and are boosting them now.
Discover reported a 0.06 percent rise in its delinquency rate in January, and a very slim drop in the charge-off rate. Citigroup, the last company to report on Tuesday, said its delinquency rate rose 0.13 percent -- the steepest rise of the six companies -- and its charge-off rate rose 0.24 percent.
Credit card charge-offs and delinquencies usually track U.S. unemployment, which fell to a five-month low of 9.7 percent in January. That surprised economists and hinted at a labor market recovery despite the loss of 20,000 jobs in the month.
(Reporting by Dan Wilchins and Jonathan Spicer in New York; additional reporting by Elinor Comlay in New York and Brenton Cordeiro in Bangalore; editing by Andre Grenon and Matthew Lewis)
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Naturally, creditors encourage reaffirmation.
As a general rule for consumers, the presumption should be that it’s never a good idea to reaffirm debt, particularly in bankruptcy. Before and during a bankruptcy, creditors will encourage you to reaffirm your debts. What that means is that the particular obligation they wish for you to reaffirm won’t be included in the bankruptcy’s debt-cleansing process. You’ll go into the bankruptcy with the debt and, when you finish, you’ll still have the debt.
But sometimes, due to guilt or the coaxing of a debt collector, consumers are tempted to revive an uncollectable debt and agree to pay it.
It never makes sense to reaffirm a debt for anything except, conceivably, a car.
In bankruptcy, court’s permission needed to reaffirm.
If you want to reaffirm a debt in bankruptcy, you have to get the move blessed by the court. With an auto loan, the court is more likely to approve the request because you need transportation. There is one benefit to reaffirming a debt: If you reaffirm one debt and maintain a good payment history on it, you’ll at least have one current loan showing in your credit report. That can build back your good credit that much faster after bankruptcy.
Is reaffirmation not a recognizable term? Maybe you’ve heard of these:
Reaffirming a debt goes by many different names: reviving, re-establishing and, sometimes, re-aging. What it means: Even though the debt is so old that it’s passed the statutes of limitations so the creditor can’t sue to force payment, you have decided to acknowledge the debt, restart the statute of limitations on collection, and give the creditor every opportunity to use the legal system to obtain the money through judgments, liens and garnishments.
The statute of limitations for forced collection varies from state to state. For credit cards, the period is usually between three to six years. While the rules may differ slightly in each state, the clock will usually start when the consumer goes into default, usually about 30 days after the last payment, says Rubin.
A bad debt can also stay on your credit report for seven years. Because most creditors wait six months to charge off a debt, that winds up being seven years and six months after the first delinquency. The clock starts when the original account goes to collections (internal or a third-party) or is charged off (whichever is earlier), according to the Fair Credit Reporting Act. Even if the debt is sold and resold to third-party collectors, it still has to come off your credit report when the original debt reaches its expiration date.
Watch out for tricky tactics to get you to reaffirm your debt.
In some states, acknowledging the debt in writing (or even by phone), will reset the statute of limitations on forced collection. This has led to a practice among third-party collectors called “duping,” where the debt collector tricks the consumer into reviving a debt after the statute of limitations has expired.
The most common method of duping is: The consumer receives a letter informing him of a debt and neglecting to mention that the statute of limitations has already run out. At the end of the letter are multiple choice boxes: a) I owe the money, and here’s the check; b) I owe the money, and here’s a partial payment, or c) I owe the money, but I can’t afford to pay right now. Check any box and you’ve just given the collector the means to sue you.
So if you’re considering settling an old debt, don’t admit to anything and get everything in writing before you pay the first dollar.
Whether you have unsecured credit cards, medical bills, personal loans or collection accounts, there’s help for you. The National Debt Relief Group offers a free consultation. You can fill out our Short Application and one of our debt specialists will contact you within minutes, or you can call now – (888) 703-4948.
www.nationalrelief.com
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