June 4, 2009
-
News: Fitch CCI; Credit Card Delinquencies Down
Americans have faced a long and difficult time in a depression that has destroyed the lives of many as they deal with the loss of their jobs, homes, autos, and more. It has also lead consumers to tighten their purse strings and become less dependent on their credit cards. The results have begun to pay off. Fitch Ratings is a global company that provides unbiased credit opinions, research, and data. Fitch released its May Credit Card Index (CCI) that delivers both good news and bad. The good news is that for the first time this year, the nation experienced a decline in delinquencies in May. Delinquencies still remain high at nearly 40% higher than same time last year; however, May credit card accounts more than 60 days past due declined to 4.37%. After four straight months of increasing delinquencies, many hope this is the beginning of a downward trend. Fitch Managing Director, Michael Dean, said this early sign of a stabilizing economy "is welcomed news" and that time will tell if delinquencies continue to trend downward.
The bad news is that the Prime Credit Card Index indicates that defaults rose once again in May to 9.66%, another record breaking high for the third straight month. Despite the modest improvement in delinquencies, Dean stated that they expect defaults to continue rising for a few months. Although defaults are expected to worsen, lower rates of delinquencies will eventually lead to lower defaults. The Fitch index also indicated that the prime rate has dropped to 3.25%, however, gross yield declined at a much slower rate. They attribute this to the high amount of income credit card companies earned from late penalties and increased interest rates.
Of course, the way banks do business and their consumer relationships will most likely change when the new credit card act goes into effect in February 2010. Lenders will no longer be able to impose unfair penalties and unjustified high interest rates without facing stiff penalties themselves. As a result, consumers can expect to see reduced credit limits, less rewards, and annual fees. In a positive light, under the new legislation, consumers expect to be in a better position to pay down their debt.