January 6, 2010
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News: Fitch; Americans Continue to Struggle
According to Fitch Ratings, credit cardholders struggled more than ever during the holiday shopping season as delinquencies and defaults reached record breaking highs. With unemployment continuing to plague the nation, most likely it will be some time before the situation finds relief. According to the Fitch Ratings, credit card delinquencies of 60 days or more reached record highs of 4.54 percent during the month of November. The card delinquency index breaks the previous high in June of 4.45 percent. Although credit card and other personal loan defaults didn't break a record high, they increased as well rising to 10.68 percent from the previous month of 10.09 percent. Record high for defaults is 11.52 percent for the month of September, 2009.
As credit card and loan delinquencies continue to climb, it indicates that defaults will also continue to rise. Fitch Managing Director Michael Dean stated that as unemployment continues to challenge the nation, we can expect defaults to rise even higher during the next few months. Fitch predicts the unemployment rate to reach nearly 10.4 percent during the second quarter 2010 before tapering off. However, while credit card defaults reached record highs of 11.52 percent during September, Fitch Ratings expect they will not be as bad as originally thought.
For the first time since April, 2001, the Ratings also indicated that credit card gross yield of interest income and other fee income earned off of loan balances rose above 20 percent. Fitch reported gross yield rose significantly to 20.2 percent. Speculation is that the increase is a result of an industry practice of raising interest rates in advance of new legislation that is due to become effective on February 22, 2010 that will prohibit such interest rate increases. Monthly payment rates continue to trend behind the 2006 and 2007 MPR index averaging 20 percent. The Ratings showed the payment rate fell from 18.57 percent for the previous month to 17.64 percent.