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Monday, August 27, 2007

Credit-card defaults on rise

by Calculated Risk on 8/27/2007 06:12:00 PM

From the Financial Times: Credit-card defaults on rise in US

US consumers are defaulting on credit-card payments at a significantly higher rate than last year ...

Credit-card companies were forced to write off 4.58 per cent of payments as uncollectable in the first half of 2007, almost 30 per cent higher year-on-year. Late payments also rose, and the quarterly payment rate ... fell for the first time in more than four years.
But Moody’s said the rate of losses remained well below the 6.29 per cent average seen in 2004 ...

Recent increases in credit card losses can in part be ascribed to a steady rise in personal bankruptcy filings since 2005. According to the Administrative Office of the US Courts, quarterly non-business bankruptcy filings have been rising since the first quarter of 2006.
As an aside, business bankruptcy filings are rising too, from Barron's Business-Bankruptcy Blues (hat tip Viv)
For the second quarter, such bankruptcies rose 38% from the same quarter in 2006, and first-half bankruptcies were up a full 45% from the 2006 half, to 12,985. That's according to ... data from the U.S. Bankruptcy Courts.
The new bankruptcy law in October 2005 caused some distortions in the data, but it appears the trend is negative.

Update: Just a few months ago we saw this Bloomberg story: Subprime Borrowers More Apt to Pay Card Debt, Ignore Mortgages (hat tip BR)
"The number of people with subprime credit ratings whose home payments were overdue by 30 days or more rose 13.2 percent in the past four years, while bank-card delinquencies among the group dropped 25.4 percent."
And from the Chicago Tribune: As home loan market tightens, mounting credit card debt could spur new crisis (hat tip Gort)