September 22, 2009
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News: Credit Card Charge-offs Finally Turning Around
For the first time in over a year, level 3 credit card defaults (given up for lost) are finally dropping off. According to a recent Moody report, credit card charge-offs began falling in July (10.52%) from the record high reached in June (10.73%). Level 1 delinquencies (over 30 days late) also dropped from 5.81% in June down to 5.73% in July. The good news here is the steady drop of this level. It's the fourth straight month this credit card default category has dropped. This is certainly good news all around. It not only represents the waning demise of the credit card lenders but, also, the stabilizing economy where good-intentioned credit card borrowers are able to start keeping up with their debt. As everyone should know, the link here is unemployment and credit card consumers' discipline of no longer borrowing beyond their means (however much these means are reduced). The former mainstay of using home equity and lavish retirement funds may not return for a while, so it's a good thing when these credit card consumers can find other ways to survive the collapsed economy brought on by the dismal government regulatory responsibility of the Bush years.
That said, vice president and senior counsel of the ABA (American Bankers Association), Nessa Feddis warns us that the road ahead is still long and winding, Reserves for defaults were used up quickly and, through smarter government regulation since the Obama ascension is now requiring a greater reserve hedge so this can't happen again. The problem here is the steep ramp of the credit card lenders coming up with this extra funding in an arena of continuing revenue losses do to continuing charge-offs, though they may be lessoning. Must assuredly, the stimulus bailouts have averted the disaster that would have been inevitable otherwise. Even so, none of the major credit card lenders is expecting any positive revenue coming from credit cards this year.