Late card payments fall to pre-recession level

/ Source: The Associated Press

Late payments on credit cards have dropped to rates seen before the Great Recession, and defaults are also heading close to normal levels, reports from the nation's top six issuers show.

A series of regulatory filings on Wednesday showed that May payment rates for most of the biggest card issuers were down to rates seen before the economic downturn.

In the case of industry-leading American Express, the rate of payments late by 30 days or more is far better than before the crisis, at 1.6 percent of balances on an annualized basis for May.

JPMorgan Chase's card division reported a rate of 2.66 percent, last seen in mid-2006. Discover Financial Services also posted its best rate in more than four years, 2.88 percent.

Late payments, known as delinquencies in the industry, are widely considered an indicator of future default. As such, the low levels being reported bode well for default rates in coming months.

Banks typically write off credit card balances as uncollectible after payments reach 180 days late.

Amex also had the lowest default rate in the business for May, at 3.2 percent of balances annualized. Discover and Capital One were next in line, at 4.82 and 4.84 percent, respectively.

Even the highest default rate reported Wednesday, the 8.03 percent at the nation's top card issuer, Bank of America, is back at the point the Charlotte, N.C. bank posted in late 2007, at the start of the recession. The next highest rate, Citibank's 7.81 percent, remains above what the bank reported prior to the recession, but is well below its peak rate of 11.46 percent seen a year ago.

Industry wide, default rates, also known as charge-offs, dropped to 6.96 percent in the first quarter of this year, compared with a peak of 10.97 in the second quarter of 2010, according to Federal Reserve data.

"It continues to paint a good picture," said Michael R. Dean, a managing director at Fitch Ratings who tracks the securities backed by credit card balances. Through the second half of the year, Fitch is expecting both delinquencies and defaults to continue to drop. Dean said he expects a plateau or slight uptick toward the end of the year or the beginning of 2012.

To be sure, the credit card market has changed since before the crisis. Banks wrote off more than $75 billion in uncollected credit card debt in 2009 and 2010 alone, and the individuals who defaulted are most likely no longer able to get cards.

Dean estimated that balances on the cards that back securities have dropped to $271 billion, from about $400 billion pre-crisis.

That drop reflects both defaults and the fact that jittery consumers are making an effort to pay off their card balances.

In April, outstanding balances on revolving loans, which are mostly credit cards, dropped to $790.11 billion, down 5 percent from $831.11 billion a year earlier, Fed data show. In August 2008, there were more than $973.64 billion in outstanding revolving loan balances.

And while most card issuers have increased offers for new cards to potential customers, none of the major banks are targeting the group with the lowest credit scores, a subset whose numbers have swollen because of the housing crisis and high unemployment.

That means that the latest default and delinquency rates reflect stronger card holders who are more likely able to pay their bills, Dean said. One reason American Express' rates are so far below the rest of the industry is because its customers tend to be more affluent than its competitors.