Credit Card Charge Offs and Delinquencies Show Positive Trend

Data released by five leading credit card companies in the US has shown a positive trend in delinquency and charge off rates. The rates were found to be either lower than before or stayed at the same level, highlighting the improved financial situation of customers when compared to the last two years.

Charge-off rates or the percentage of loans which companies are forced to write off were released for Discover Financial Services, Bank of America Corp, JPMorgan Chase & Co, Capital One Financial Corp and American Express Co. Citigroup Inc data is expected to be available soon, and it is likely to be in line with the trend showed by other major lenders.

The statistics revealed that Capital One had the maximum drop in delinquency over the last two months while American Express reported no rise in the number of delinquents. As for charge offs, JPMorgan and Capital One showed lower bad debts than before. American Express, which sells the highest number of credit cards every year, expected second quarter write offs to dip.

Capital One reported a fall from 10.41% to 10.19% in its annualized net charge off rate. 30 day delinquent accounts declined by about 0.30% over the last two months, indicating that future losses may also go down. Both card and auto finance segments showed good performance for the company.

JPMorgan reported a 0.08% drop in delinquencies over the same period. They also reported a decline of 1.7% in charge offs. American Express reported an increase in charge offs by 0.4% but its delinquencies rate remained stable. Bank of America’s delinquency rates dropped for the third consecutive month although charge offs rose by 0.25%. Discover Financial did not fare so well. While delinquencies fell 0.05%, charge-off rates increased by 0.53%.

As the delinquency rates stabilized in January this year, the market was already expecting the charge offs to be lower than previous years. Similar improvements were also witnessed in December 2009 showing that the positive trend is continuing and could be here to stay.

Analysts agree that with fewer Americans defaulting on credit card dues or making delayed payments, it is clear that financial pressures on consumers are easing. There is some concern that the CARD Act will reduce profitability for credit card companies because of new restrictions and customer friendly rules, but it is seen as a minor tradeoff to ensure the overall health of the economy.

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