Eva Norlyk Smith, Ph.D.
Although credit card issuers are still under pressure from high defaults on credit card debt, the recently released numbers for January show early signs of improvement.
Overall, only two major credit card issuers, Capital One and Citigroup reported that their write-offs on loans continued to increase in January. Capital One saw credit card defaults rise from an annualized rate of 10.14 percent in December to 10.41 percent in January. The card issuer’s 30-day delinquencies also rose slightly, from 5.78 percent to 5.8 percent. Delinquency rates are a measure of the percentage of cardholders, who are behind on their credit card payments, whereas defaults are a measure of credit card debt that has been written off.
Citigroup likewise continued to struggle with rising defaults, with loan write offs rising from 9.56 percent to 9.8 percent, and overdue payments from 5.62 percent to 5.75 percent.
In contrast, Bank of America, while continuing to struggle with the highest credit card defaults of all major U.S. credit card issuers, appeared to be starting the new year on a more positive note. BoA reported that the default rate, on an annualized basis, dropped over a quarter of a percent to 13.25 percent in January, down from 13.53 percent in December. Furthermore, BofA delinquencies dropped from 7.44 percent in December last year to 7.35 percent this past January. Delinquencies are typically a reliable predictor of future default rates.
American Express continued to post the lowest default and delinquency rates of all major credit card issuers, showing a slowing but steady decline in both. In January, Amex saw charge offs drop from 7.1 percent to 7.0 percent, not as great a drop as the November to December drop from 7.6 percent to 7.1 percent, but nonetheless a steady improvement. Overdue payments, which had come down to 3.7 percent by December, also dropped in January to 3.6 percent.
Discover showed mixed results, with a decrease in defaults but a slight increase in 30-day delinquencies. The card issuer’s write-offs dropped to 8.58 percent from 8.68 percent, but overdue loans rose to 5.55 percent from 5.49 percent.
January historically brings a seasonal increase in charge-offs and late payments, as consumers struggle to recover from holiday spending. The fact that most card issuers reported lower defaults despite this seasonal trend, could be an early indication that the credit card defaults may be slowly moving away from record territory. Still, with unemployment rates continuing high, some analysts are predicting that we won’t see the end of higher-than-normal credit card defaults for some time to come.
