November 11, 2009
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News: Fitch; CC Lenders Challenged
Although major financial organizations have reported increased earnings for the last quarter, credit card defaults continue to eat up a large portion of profits. Adding to this concern is that reports indicate that overall U.S. credit card spending has sharply decreased and is expected to continue declining into 2010. Good news for the consumer who is fighting the battle of dealing with sharp card interest increases and trying to reduce debt. Despite all the lenders efforts to increase profits at the expense of the consumer, a Fitch report indicates that U.S. credit card issuers will be facing challenging times ahead if they expect to ring in a profit for 2009 and 2010. Fitch also indicated that new legislation that is scheduled to go into effect in February 2010 will put additional pressure on lenders and could have a "significant effect on card profitability."
Fitch also reported that although the credit card write-off rate and delinquencies of 30 days or more declined slightly for third quarter, the company expects lenders will suffer increased losses into 2010. This forecast is based on the continued high delinquencies, increased filings of bankruptcies, and the continued rise in unemployment. Although purchase volumes for the nation's top six credit card lenders were down by 14 percent year to date, the report showed that they remained flat for third quarter. Fitch warned the government's credit-card legislation signed into law in May.
A few provisions of the new credit card reform legislation went into effect in August. One significant provision mandates lenders to send card statements out 21 days prior to the payment due date. Fitch expects this provision could play a role in consumers' ability to avoid delinquent payment. However, another major provision which limits lenders from changing interest rates on existing account balances will not go into effect until the February enactment date. Unfortunately, with the given lengthy period of time given to lenders to prepare for the new legislation, most will have already raised interest rates to loan sharking levels.