December 03, 2009
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News: Fitch On October's CC Defaults
Analysts continue to debate whether or not the recession is over, but one thing is for sure lenders have been somewhat optimistic. A few lenders have reported that although credit card defaults continue at record breaking highs, they are seeing a slow comeback in profits. Banks continue to struggle with credit card delinquencies as reported by the Fitch Ratings. According to Fitch, overall, cardholders were delinquent in October at the highest rate in five months. On Wednesday, Fitch reported that under the weight of high unemployment and high levels of debt, credit card delinquencies of 60 days or more rose to 4.41 percent in October up from 4.22 percent in September. The number nearly reached the 4.45 percent rate in June.
Credit card delinquencies of 60 days or more are typically used to forecast future loan defaults. Fitch uses this figure because banks will typically shut the account off to future use when an account becomes 60 days past due. Although the account gets shut off, it does not yet go into the default stage for at least another 30 days. Meanwhile, consumers have an opportunity to post payments which could bring the credit card account back into good standing. Accounts that are 60 days or more delinquent typically generate large late fees and interest rate increases making it even more difficult for the cardholder to bring the account out of the arrears. At this point, it is not unusual for consumers to abandon their responsibility to their lenders. Fitch also indicated that early stage delinquencies of 30 days past due also increased.
Fitch Managing Director, Michael Dean, said credit card defaults for October decreased to 10.09 percent down from September's 10.75 percent rate. However, with the increase of 60 day delinquencies, this number will most likely soar upward once again. The problem according to Dean is the continued rise in unemployment. Currently the unemployment rate sits at 10.2 percent. Defaults typically mirror unemployment rates. Despite the predicted increase in defaults, the agency has no intention of changing the ratings on senior securities backed by card debt.