| November 16, 2011

Credit card charge offs hold steady

The rate at which consumers fell so far behind on their credit card payments that their accounts had to be stricken from lender records mostly held steady in the month of October, after months of declines.

The latest regulatory filings made by the six largest credit card lenders in the U.S. indicate that the rate at which consumers are paying their outstanding bills is largely stabilized across the industry, according to a report from the Associated Press. Three of the lenders reported slight increases in their respective charge off rates, which the other three reported slight declines. Meanwhile, four of the six lenders also reported small declines in delinquency, defined as balances that are 30 days or more behind on payments.

These results were similar to the ones observed in September, and follow about 18 straight months of more or less continual declines in instances of both charge offs and delinquency for consumer credit card accounts, the report said. Experts, however, seem to be divided on the cause of the slowing in declines.

Some say that the drops in both types of late payments have been so significant, in the last year especially, that they simply couldn’t continue improving like that forever, the report said. Currently, instances of both delinquency and default are either at or near all-time record lows, both for lenders on an individual basis and across the entire industry.

However, others argue that the reason for the slowdown in improvements is simply seasonal, the report said. Late in the year, instances of default and delinquency tend to rise somewhat as consumers put more purchases on their credit cards ahead of the holidays and may not be able to afford paying them down until the beginning of the new year.

Another group also says that the quality of credit card borrower has simply declined in recent months, the report said. As the effects of the economic downturn receded, lenders once again began broadening their requirements, allowing those with lower ratings to once again open new credit card accounts.

Many experts predict that charge offs will continue to slow and even reverse as the new year begins, simply because the current low levels are viewed as unsustainable, especially given consumers’ recent return to more normal borrowing habits.

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