Bank credit card portfolios have greatly improved in recent times. There are a lot of factors that contribute to this including better payment habits from the customers, cleansing to a great extent of the past-due accounts and tighter underwritings. 4 of the larger credit card issuers have written off about 14% or more of the balances since the end of 2008. The past 9 months have also witnessed consistent reports of lower payment rates past their due date by 60 days. This rate has hit the mark of 3.5% which is the lowest in two years and is slightly lower than the overall decade average.
The statistics also shows that the charge-offs have declined in recent times. The rate of credit loss is expected to remain higher though as it depends on the employment scenario. This is because the credit card issuers are finding it difficult to collect the debts on those accounts which are past their due dates. It is a convention for banks to write off debts which are more than 180 days due. However, the better spending habits also mean, that banks have had to allocate less to cover for those losses caused by uncollectible debts. This in turn has improved the profits on the cards. Although cash in the reserve accounts is higher, it might be released to boost the profits of the companies in the coming quarters.
It will also take a quarter or two, before the exact benefits and impact of the credit card reforms that came into effect in February of this year will be evident. One would be interested to watch the effect of some of the law requirements which have been imposed as far as penalties on late payments are concerned. The revenue of banks might also be hit if they reduce the interest rates through look back pricing. There are a few other regulatory actions which are likely to impact the credit card industry. This includes a lawsuit from the Justice Department on credit card payment processing companies, which in the past have been forbidding merchants to influence the customers as far as payment options are concerned. Merchants cannot offer discounts to customers who want to pay by cash or cards whose processing rates are less. However, American Express one of the payment processing companies which charges high rates on the merchants is still fighting the case, which might take some time to be resolved.