Credit Card Defaults and Late Payments Decline Again

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The following post comes from partner site LowCards.com.

Credit card late payments and defaults continue to drop and return to pre-recession levels, according to the latest regulatory filings. This is good news for banks that are looking for ways to improve credit card revenue.

Late payments dropped in May for all six major issuers, and five of the six issuers showed a decline in charge-off rates. Issuers usually write off balances as uncollectible after they are six months past due.

In 2009 and 2010, the top six banks that issue credit cards lost $74.5 billion to credit card defaults according to Moody’s. During this time, banks also lost billions of dollars in fees and interest payments due to the new credit card regulations.

“Credit cardholders and issuers have both made changes that brought an excessive system of credit card borrowing and lending back under control,” says Bill Hardekopf, CEO of LowCards.com. “So many of the borrowers who could not pay off their debt defaulted during the last two years while others have diligently paid down their balances to avoid the high interest rate penalties. Credit card issuers closed risky accounts, cut credit limits on millions of accounts, and tightened lending standards to cut their risk of defaults and late payments. The steadily dropping defaults and late payments are signs of a healthier lending environment.”

Charge-offs and late payments peaked in the summer of 2010 and have dropped steadily since then.

  • Chase was the only major issuer to post an increase in charge-offs in May. The rate increased from 5.6 percent in April to 5.67 percent in May. Late payments dropped to 2.66 percent of balances in May, down from 2.86 percent in April.
  • Discover wrote off 4.82 percent of balances on an annualized basis, down from 5.02 percent in April. The was the lowest rate in over three years. Late payments fell to 2.88 percent of balances in May, down from 3.15 percent in April.
  • Bank of America wrote off credit card balances at an annualized rate of 8.03 percent in May, down from 8.25 percent in April. The late-payment rate was 4.28 percent annualized in May, down from 4.52 percent in April.
  • American Express charge-offs dropped to 3.2 percent of balances on an annualized basis, down from 3.5 percent in April. Late payments dropped to 1.6 percent of balances in May, down from 1.7 percent in April.
  • Citi’s charge-off rate dropped to 7.81 percent in May, down from 7.85 percent in April. Late payments dropped to 3.66 percent in May, down from 3.87 in April.
  • Capital One defaults fell to 4.84 percent in May from 4.97 percent the previous month. Delinquencies in May were 3.32 percent versus 3.41 percent in April.

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