Credit Card Debt Down; Credit Card Defaults Up

How does that work? Well, when the Federal Reserve published its March data for consumer credit earlier this month, the figures showed that, nationally, credit card debt had dropped from $935.1 billion in the first quarter of 2009 to $852.6 billion in the same period this year. So that means that Americans have paid down their credit cards by $82.5 billion in a year, right?

Wrong. A whole chunk of the reduction is a result of credit card companies writing off balances as uncollectible and passing the debts to collection agencies. That’s why, exactly two weeks after the Fed’s figures were published, the New York Times was reporting the latest edition of the Standard & Poor’s/Experian Consumer Credit Default Indices. The Timessaid that these showed:

…that in the three months through April the default rate on credit card loans had climbed to 9.14 percent, the highest since the index began to be calculated in 2004.

Credit Card Debt Uniquely Bad

This bad news was contained in a report that suggested that other sorts of debts were performing better. For example, fewer defaults are being seen in both mortgages and auto loans.

It’s credit card debt, alone among the main categories of consumer credit, that is showing higher levels of default. And that fact is made only more worrying when you find out how the figures are calculated. Mortgages and car loans are classed as being in default when they are more than three months past due. Except in special circumstances, credit card companies don’t regard accounts as defaulting until they’re six-months overdue.

Credit Card Regulation–One Year On

It’s almost exactly a year ago that President Obama signed into law the Credit CARD Act of 2009. Most of its provisions only came into force in February, but the Minneapolis-St. Paul Star Tribune thought that this last weekend would be a good opportunity to make an initial assessment of the effectiveness of this new wave of credit card regulation.

Speaking of complaints from readers of higher credit card rates and fees, lower credit limits, and canceled cards, the Star-Tribune‘s Chris Farrell commented:

Credit card issuers blame the new regulations for their actions, and it’s true that they can’t continue some profitable business practices that relied on taking advantage of consumer naivete. The primary culprit, however, is that credit card issuers are under financial pressure. Defaults and late payments are hurting the bottom line.

Published 05/24/10 (Modified 03/24/13)