CREDIT REFORM WORKED: Five Of Six Card Issuers Report Reductions In Late Payments And Defaults

Credit Card Cut

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Now that all the data is in, it’s confirmed that five out of the six largest credit card issuers have reported reductions in late payments and defaults for the month of April. Only Bank of America said that defaults rose.The 6 largest credit card conglomerates stated that consumers are more aware of their spending and payment patterns. With the exception of Bank of America, late payments and defaults on card balances hit record lows.

Bank of America reported that charge-offs grew to 8.25% of annualized balances last month, up from 8.18% in March. This, however, is significantly lower than the August 2009 peak of 14.53%.

Capital One saw the largest fall in defaults, a decrease from 4.97% annualized and the biggest drop among issuers since 2007.  American Express maintained its position with the lowest default rate of 3.5%. Citigroup had a late payment rate of 3.87%, down from 4.21% in March. Discover ‘s late payment dropped 2.86% in April. JP Morgan’s late payments dropped 3.15%, while Fitch’s uncollectables also reported at a two-year low.

Charge-offs are high from a historical perspective, but numbers are headed towards the former average at a faster rate than initially expected. According to the Federal Reserve ‘s data, the industry charge-off rate grew to 10.9% at one point during the downturn. 

Credit card users are spending more responsibly than they were a year ago. Consumers are improving on a consistent basis. Rates for the largest companies are above the pre-downturn average of 3.82%. The top 6 card issuers reported that in 2008, more than $70 billion in uncollectable debt was written off.

To help avoid late payments, consumers are setting up automatic payments more frequently. Americans are spending wisely and are more likely to buy within their means. As a result, cardholders are carrying less debt. The total revolving debt held by U.S. consumers was $785.04 billion in March compared to a peak of $973.63 billion in August 2008. Credit card companies are smarter as well. Cardholders that defaulted are no longer unable to get credit cards, eliminating the problem before it starts.