Default Rates Continue to Fall at Credit Card Issuers

Reports just out from five of the six top credit card issuers showed that default rates on accounts fell in June. Of the banks reporting, Bank of America showed the biggest reduction in default rates with Chase Bank, Discover reporting very noticeable declines. Just recently Discover said their default rate was at the lowest ever in their history.

According to public date, the charge-off rate on credit cards among the largest banks has fallen 35 percent since the peak in early 2010 at 10.88 percent.

Banks are working hard to further reduce exposure and reduce default rates. That’s not good news for the debt relief space which will see less demand for services as consumers default less.

Eventually as banks see less risk and exposure and more confidence about the economy they will begin to lend again.

Recent debt relief trends have shown a slight uptick in consumer spending. I covered what I believe that really means, in Consumers Loading Up on Credit in May.

Citigroup, JPMorgan Chase, Capital One and Discover said they have pulled money out of set asides to cover projected future defaults since they see that threat continuing to reduce.


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10 thoughts on “Default Rates Continue to Fall at Credit Card Issuers”

  1. I think in either case.  There will always be room for good operators that provide a true service for consumers.  The fact that consumers are in love with plastic will ensure the industry will not go away, also consider the economic benefit received by the creditors when consumers use plastic and you have an industry that will last for decades.
    Right now my prediction is that everyone is trying to get a handle on their debts and curve expenditures due to the economy being where it is, but like history has taught us, humans tend to forget bad times. 
    As soon as things start to improve even a little bit, you will see the credit card expenditures start to increase very rapidly.  Consumers are still itching to spend money and students are still not being educated on finances, therefore you will always have a pool of consumers to get hooked on the credit cards.
    The next few years will be very interesting, but then again that last decade was very interesting too!

  2. Well it is going to be a rough couple of years but although the default rates decrease for now making it even tighter for the industry, I feel the creditors cannot avoid the desire to lend money therefore as they lend again, we will continue to see the need for consumers getting help.
    Financial difficulties are happening to people everywhere and will always occur.  I think this will be a sign of more responsible lending for consumers and the needed flush this industry has been waiting for.
    As the number of service providers are cut the consumers will find themselves with more reliable companies to service their needs.
    Alex Viecco

    • As Steve reported about a week or so ago; This excerpt from Collections & Credit Risk

      Consumer credit rose by $5.08 billion in May, marking the eighth straight monthly increase, as credit card debt had its largest gain in three years, according to the Federal Reserve’s monthly G.19 report.

      Revolving credit, 98% of which is credit card debt, soared by $3.36 billion after declining by $876.7 million in April. It marks the biggest increase in credit card debt for any month since mid-2008.The figures suggest a willingness to keep borrowing despite a tight job market and unstable economy. It’s possible the rise is occurring as consumers facing limited job prospects turn to credit cards more often to pay bills….

      I say…. Some blame the price of gas for this jump but, I don’t buy it. I will say it again, there are plenty of folks in need of debt relief and the demand wont be going away anytime soon, infact, in my opinion, it will just continue to improve because the servicers are dropping like flies.

      • Just as a clarification, the C&CR article is not what I reported on.

        See Consumers Loading Up on Credit in May But Watch Out and Revolving Debt Increases in May. Is This a Good Sign?

        I agree there is a glut of debt relief providers and that’s just the classic supply and demand issue, not a policy issue.

        Howard Dvorkin of Consolidated Credit Counseling said at last weeks Debt Relief Master Class that he expects credit counseling groups to shrink by more than 50% in the next couple of years due to shrinking consumer debt levels and demand for debt relief services.

        The underlying securitization issue is the elephant in the room. Without a market to dump the originated debt the banks will be required to hold it and depending on how long an economic recovery takes the amount of originated debt, based on the missing securitization market, will remain almost non-existent. Just look at the shrinking debt buyer portfolios as an example.

        Consumer capacity to repay within creditor accepted plans seems to be the bigger issue regardless of level of consumer debt.

        • I did read your report and realize it was not from the C&CR artical but clearly related to the G19 report.

          I wouldn’t bet for or against what Howard believes/expects will happen, I sure he has his ear to the ground but who knows, look at the numbers Apple just put up for the quarter, they blew away every analyst on the street and that was just one quarter, tough to predict the next 2 years…

          Based on the relationships I have with debt buyers, along with the reports I’ve read indicate to me the declining portfolios are mostly caused by pricing on new purchases. What I’m hearing is they are not willing to chase pools above certain levels, so they’re stepping back in an attempt to tame the market a bit.


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