Credit card delinquencies, usage fall

NEW YORK/BANGALORE Wed Dec 15, 2010 5:30pm EST

An employee swipes a customer's credit card through the card reader at a restaurant in Tokyo February 19, 2005.

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NEW YORK/BANGALORE (Reuters) - Credit card delinquency rates fell at major U.S. lenders in November as fewer consumers fell behind on their bill payments, signaling they are recovering from the stress of the financial crisis.

But consumers are also avoiding racking up more debt on their credit cards, even during the holiday shopping season, a sign that lenders will be struggling to rebuild their card businesses for some time to come.

Credit card lenders including Bank of America Corp, JPMorgan Chase & Co and Citigroup Inc said the rate of late payments in November fell to the lowest levels this year.

"We thought on a seasonal basis we'd see some weakness, and instead we saw a relatively benign to a very positive picture," analyst Henry Coffey of Sterne, Agee & Leach said. "We were more pleased than displeased with the numbers."

Delinquencies are the first sign that consumers are having trouble paying their bills and that lenders may eventually have to write off the debt. The steady decline in delinquencies this year at the top U.S. credit-card lenders signals that American consumers have recovered from the worst of the financial crisis.

Charge-offs ticked up slightly at some lenders, including JPMorgan and Capital One Financial Corp, but they were still much lower than at the beginning of the year.

Losses -- and loans -- on credit cards usually rise at the end of the year as consumers splurge during the holiday shopping season.

But consumers are reluctant to take on more debt this year. Only 16.3 percent of consumers used credit cards over the Black Friday weekend -- the start of the holiday shopping season -- down from 30.9 percent last year and an all-time low, according to a survey by America's Research Group and Swiss bank UBS.

GRADUAL RECOVERY

Lenders file monthly credit-card performance reports with the U.S. Securities and Exchange Commission.

Bank of America had the worst credit card loss rate in November -- 9.92 percent, down from 10.15 percent in October. The largest U.S. consumer bank has recovered somewhat from the beginning of 2010, when charge-offs were more than 13 percent. Its delinquency rate fell to 5.47 percent in November from 5.6 percent in October.

Citigroup's charge-offs dropped to 9.4 percent in November from 10.27 percent in October. Its delinquency rate declined to 4.71 percent from 4.74 percent.

At the other end of the spectrum, American Express Co continued to report the lowest level of charge-offs and delinquencies among the major U.S. lenders.

The credit-card lender and transaction-processing network said its charge-off rate fell to 4.4 percent in November from 4.7 percent in October. Delinquencies fell to 2.2 percent from 2.3 percent.

American Express is increasingly looking to its transaction-processing business for growth and has cut back on lending to all but affluent consumers who mostly pay their bills in full every month.

At JPMorgan, which is increasingly competing with American Express for the most affluent credit-card customers, the delinquency rate fell to 3.68 percent in November from 3.81 percent in October. Its charge-off rate edged up to 7.16 percent from 7 percent.

Like American Express, Discover Financial Serviceslends directly to consumers but also competes with Visa Inc and MasterCard Inc to process credit card transactions for banks. Discover said delinquencies fell to 4.15 percent in November from 4.34 percent in October. Its charge-offs dropped to 6.72 percent from 6.83 percent.

Capital One said accounts delinquent for at least 30 days fell to 4.26 percent in November from 4.45 percent in October. Its charge-off rate rose to 7.56 percent from 7.26 percent but was still much improved from more than 10 percent in January.

Shares of the six major lenders were mostly lower in Wednesday afternoon trade, with Citi down more than 2 percent at $4.59.

(Editing by Vinu Pilakkott and John Wallace)

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Comments (1)
Let’s ask ourselves why credit card deliquencies and usage have fallen.

For instance, I was earning in the six figures in 2008 when I lost my position, not to get another matching salary until 2010. In the year and a half of hand-wringing, soul searching, and fearing losing the house, I stopped making payments, got an attorney, and jettisoned several hundred thousand in credit card balances through the proverbial airlock as a clean chapter seven.

Months after the bankruptcy was discharged (and later I received a home modification at 2% for 30 years with payments guaranteed not to exceed 5% over the term of the mortgage), I landed another six figure position as an answer to my prayers.

Now I have a mortgage at $1,500 less than before, 2% interest (which allows the principle to drop over $1,000 a month, wow), no credit card balances (and no credit cards, but who needs them with MasterCard debit cards from my bank covered by full card protection?). So I’m not delinquent and my revolving credit usage has fallen to zero.

Is that what credit card companies and blood sucking retailers had in mind? I thought not.

Dec 15, 2010 3:33pm EST  --  Report as abuse
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