Several major credit card issuers' portfolio yields dropped sharply in April, the second full month after key provisions of a landmark consumer protection law that is reshaping industry practices took effect.
However, monthly performance statistics, released Monday, also showed improvement in credit quality, supporting the view that lenders are beginning to exit a period of record loan losses.
Revenues as a percentage of securitized receivables dropped 266 basis points from the previous month, to 17.3% at Capital One Financial Corp. But the chargeoff rate for the company's entire domestic card portfolio — including receivables not funded through securitization — fell 119 basis points, to 9.68%, and the portion of accounts more than one month past due fell 23 basis points, to 5.07%.
American Express Co., Discover Financial Services and JPMorgan Chase & Co. joined Capital One by posting lower delinquency and chargeoff rates.
At Bank of America Corp., where credit losses have been the worst among the top-six issuers, the chargeoff rate increased 17 basis points month over month, to 12.7%, but the delinquency rate fell 34 basis points, to 6.73%.
In a note to clients published Monday, Paul Miller, an analyst at FBR Capital Markets, emphasized a 20-basis-point decline in the portion of receivables overdue by 30 days to 59 days at B of A, to 1.51%. "Early stage delinquencies" offer a valuable window on newly emerging credit problems, and Miller wrote that the sharp improvement "could signal that losses will return to precrisis levels," though the trend will have to continue "before we get too optimistic."
Chargeoffs have typically risen in April over the past two decades, while delinquencies have fallen, according to indexes maintained by Moody's Investors Service Inc.
Monthly delinquency rates have been dropping since November, a sign that chargeoff rates will continue to decline, since it generally takes several months before a late account is deemed uncollectible.
In addition to Capital One, portfolio yields at Discover and JPMorgan Chase fell by more than 100 basis points from March.
The industrywide yield had jumped 529 basis points from a year earlier, to 23.5% in March, according to a Moody's index. The surge was mostly driven by measures to treat some principal payments as income and protect securitizations from devastating credit losses. But issuers also raised consumer prices in anticipation of restrictions under the Credit Card Accountability, Responsibility and Disclosure Act.
Because of the law, which was enacted in May 2009, lenders were prohibited from raising interest rates on existing balances except under limited circumstances beginning in February.
Last month, B of A estimated that the new regulations would reduce its card revenues by about $900 million in 2010, after taking into account price increases for cardholders and other steps to blunt the law's impact on the company.
