June 16, 2010
-
News: A Recovering Nation
The latest reports from the U.S. top lenders indicate that credit card delinquencies and defaults continue to trend down. Although loan defaults continue to remain high, they have begun to rise at a slower pace and experts say they will soon begin trending down. A number of elements come into play in producing lower card defaults. First, lenders have become more selective with handing out credit cards. Only the prime borrower will receive new offers for zero percent balance transfers and new card accounts. High unemployment rates are also affecting delinquencies and defaults alike. The U.S. can expect them to remain high as long as unemployment remains high. New credit card reform has also played a role in trimming back delinquencies and defaults. Lenders must now apply payments over the minimum payment due to the highest bearing interest debt giving more incentive to cardholders for increasing payment amounts.
Borrowers have also become more aware of their spending habits. Many have felt the pain of increased interest rates and reduced credit limits. Reducing debt has become the focus of many Americans as they turn to cash and debit card use in an attempt to reduce credit card balances. Speculation also exists that those higher risk cardholders with the potential to default have already done so. If true, the majority of current cardholders would be more likely to continue paying credit card balances as agreed.
Capital One was the first major lender to report on its U.S. Securities and Exchange Commission filing for May. The bank reported its credit card portfolios' defaults fell to 9.48 percent for May, down from 9.68 percent in April. The bank's card delinquencies also fell in May to 4.8 percent, down from 5.07 percent in April. Banks will soon be dealing with new regulations associated with debit card use and limitations on fees and penalties assessed to cardholders for late payment. The new rules will most likely change the way banks design card contracts.