As a definite sign of economic recovery, a large number of companies that issues credit cards to consumers reported on Thursday that an increasing number of Americans were making their monthly payments on time. This has helped pull down the delinquency rate significantly which has led to decreased loss to these financial institutions.
The delinquency rates of the consumers are good indicators of the losses that the bank may incur in the near future. All major banks including Bank of American, Capital One Financial Corporation and Discover Financial Services reported a slump in the delinquency rates which gave them all a reason to smile.
While Discover Financial Services reported a delinquency rate of just 5.5%, Capital One reported the rate of 5.3%. American Express, one of the largest issuers of credit cards to the rich and famous in the society reported a delinquency rate of just 3.3%. With these fantastic figures in sight, the banks are positive that we are headed in the right direction. Though there is more than one reason to smile, there was also a little spell of doom since the charge off rates across most institutions remained high.
Loans are written off if the customer fails to pay for over 180 days. During the period of recession, the charge off rates rose dramatically high with a large number of people being laid off from their jobs. The Federal Reserve reported a charge off rate of 10.1% in the third quarter of 2009. A total of $83.27 billion was written off as credit card debts. When this is compared to the meager 6% charge off rate in the final quarter of 2006, one cannot help but notice the impact recession had on the credit card industry.
Bank of America, whose charge off rate stood at 13.51% in February this year, reported that this fell to just 12.54% in the month of March 2010. On the other hand, Discover reported a total of $160.1 million are charge off costs in the month of March this year. The charge off rate for Discover that stood at 9.11% in February fell to 8.51% in March.
While there were most banks reporting a fall in the charge off rates, a few others still showed high rates. The charge off rates for American Express and Capital One that stood at 7.4% and 10.1% in February rose to 7.5% and 10.8% respectively in the month of March 2010.