Credit card charge-offs hit record high in January
Report says rate likely to continue to climb as economy suffers
By Jeremy M. Simon | Published: March 2, 2009
Banks increasingly abandoned their attempts to collect money from delinquent credit cardholders in January, according to research and risk analysis firm Moody's.
Credit card charge-offs rose to a record high of 7.74 percent in January from 7.73 percent in December, with Moody's key credit card index predicting that the charge-off rate index could reach double digits by the end of 2009 if the employment picture worsens. Charge-offs occur when lenders conclude they are unable to collect a debt and remove it from their financial accounts. Last week, card issuer J.P. Morgan Chase warned that its net charge-offs could reach 7 percent for the first quarter as areas of the United States with the sharpest declines in housing prices and highest unemployment are hardest hit.
Meanwhile, Moody's said the rate of delinquency (credit card accounts that are more than 30 days past due) advanced to 5.94 percent in January, the highest level since the rate's historical peak of 6.31 percent in January 1992. Moody's said that record is likely to be broken in the coming months. Since delinquent accounts can eventually be charged off, the delinquency rate's movement is a solid indicator of future charge-off trends.
At the same time, the payment rate slid to 16.39 percent, down around 2.7 percentage points from the year earlier. The payment rate should continue to fall as cardholders who generally pay off their entire monthly balance spend less amid the recession and cardholders who only make minimum payments face increasing pressure to continue to do so, Moody's said.
- Cash advance survey 2017: Read fine print before seeking quick cash – A review of 100 credit card cash advance policies found cash advance transactions can quickly consume an available credit line with fees, high interest charges, among other undesirable terms ...
- Household debt passes pre-recession peak, NY Fed finds – U.S. household debt has surpassed its pre-recession peak for the first time, says new data from the New York Fed. Economists say milestone doesn't mean consumers are over-leveraged ...
- Poll: Credit card fraud alerts surge, false alarms still common – Consumers report a 15 percent increase in contacts from banks about credit, debit card fraud ...