The month of October saw the Bank of America writing off debts as uncollectible. However, there was also a drop in the late payments, which indicated that charge-offs were just a small part, but the overall trend seems to be in improving payment patterns by customers.
In the month of October alone, Bank of America has written off 10.15% of the balances, which is up from 9.98% in the month of September. Bank of America posted a peak rate (13.53%), in charge-offs for December alone. If the loans are 180 days past due, credit card companies write off these loans, as they are considered “uncollectible”.
Charge-off rates have generally peaked in the second quarter, and an increase in one month only reflects the unique factors of the bank and not necessarily a reversal in the overall trends. Charge-off rates have peaked at 10.66% of balances, as per the figures from the Federal Reserve. The average before the recession was 3.82%. However, Capital One has stated that their cardholder payments improved for the month of October, and it marked the best performance this year. They claim that their customers seem to have improved on managing their finances.
When the Federal Reserve releases the results of the third quarter, then the overall rate is most likely to improve. The revolving balances in consumer credit have dropped in the month of September, and it has been the lowest since May 2005. The overall credit balances have also shown a sharp decline in the last two years.
This is mainly due to the fact that consumers are making a conscious effort to reduce their balances and are using their credit cards less. Credit card companies are also cutting down on the credit lines of their clients. The charge-offs have been quite huge in the last three years.
The only positive outcome of all this has been the fact that late payments (by 30 days), for Bank of America has slipped to around 5.6% in the month of October, while it was at 5.71% in September. This has been reported as the best delinquency rate this year. One can get a rough idea as to where the charge-offs are headed, going by the late payment records.
Charlotte, N.C. – based bank, has also posted the drop in late payments, which is a clear indication that charge-offs are just one aspect, and there is an overall trend in improving payments amongst cardholders.