By Emily Grace
Credit Card Trends
Revolving credit is declining, but the volume of charged-off credit card accounts remains high
Delinquency and charge-off rates are sending mixed messages to the credit card industry. The
impact of the economic recovery and
increased regulations have many
uncertain about the future of the
industry as a whole.
U.S. Credit Card Debt
More Americans are paying down
their credit card debt. According to
statistics released by the Federal Reserve
Board, revolving credit, which is
primarily credit card debt, declined at an
annual rate of 13 percent in February
2010. The $858.1 billion in revolving
credit reported in February is down
$100 billion from the fourth quarter of
“Consumers seem to be taking some
steps to reduce their credit card debt,
some of it out of necessity, some
voluntarily,” said Bill Hardekopf, CEO
of LowCards.com and author of The
Credit Card Guidebook. “They are using
cash and debit cards more often and
charging less on their credit card,
possibly due to the APR increases they
have seen. But significant actions by the
issuers have also contributed to this
Consumers are also paying their
credit card bills on time. In March, most
major issuers of credit cards experienced
a slight decrease in delinquency rates,
with only Citigroup Inc. reporting a
slight increase. Economists believe
consumer delinquency rates—payments
at least 30 days late—are an indicator of
future loan losses. They see the lower
delinquency as a sign of economic
The delinquency rates for March
2010 versus February 2010:
• American Express—Fell to 3. 3
percent from 3. 6 percent.
• Bank of America Corp.—Fell to 7.07
percent from 7. 23 percent.
• Capital One Financial Corp.—Fell to
5. 3 percent from 5. 51 percent.
• Citigroup Inc.—Rose to 6.06 percent
from 5.94 percent.
• Discover Financial Services—Fell to
5. 39 percent from 5. 5 percent.
• JPMorgan Chase & Co.—Fell to 4. 51
percent from 4.67 percent.
Although the decrease in
delinquencies indicates economic
improvement, the volume of charged-off
credit card accounts remains elevated.
The charge-off rate measures those
credit card account balances written off
as uncollectible as an annualized
percentage of the total outstanding
According to the Federal Reserve
Board, the charge-off rate for all banks
(not seasonally adjusted) was 9. 40
percent in the fourth quarter of 2009.
While the rate dropped from the
previous quarter’s all-time record rate of
10. 10 percent, it is significantly higher
than the fourth quarter 2008 rate of 6. 3
The charge-off rates for March 2010
versus February 2010:
• American Express—Rose to 7. 5
percent from 7. 4 percent.
• Bank of America Corp.—Dropped to
12. 54 percent from 13. 51 percent.
• Capital One Financial Corp.—Rose
to 10.87 percent from 10. 19 percent.
• Citigroup Inc.—Rose to 11. 55
percent from 11. 29 percent.
• Discover—Dropped to 8. 51 percent
from 9. 11 percent.
• JPMorgan Chase & Co.—Rose to
9. 51 percent from 9. 21 percent.
“We’re at that inflection point where
credit losses have either peaked or
started peaking, so they should start to
trend down, but the question is how
quickly they come down,” said Michael
Taiano, an analyst at Sandler O’Neil in a
recent Reuters article. “The jury’s still
Financial Performance for the First
Quarter of 2010
So how has the increased charge-off
rate affected credit issuers’ bottom lines?
Many have reported positive gains in
their first quarter earnings for 2010.
Bank of America Corp. reported a $3.2
billion net income, compared to the
$194 million net loss they experienced
in the fourth quarter of 2009.
“With each day that passes, the 2010
story appears to be one of continuing
credit recovery, and our results reflect a
gradually improving economy,” said
Brian T. Moynihan, CEO and president
of Bank of America.
American Express, Capital One
Financial Corp., Citigroup Inc. and
JPMorgan Chase & Co. also reported