After marching downward for more than a year, the average charge-off rate for U.S. consumer credit cards may show an increase for July because two issuers have reported one-time spikes in card-account defaults, a Moody’s Investors Service analyst tells PaymentsSource.
Preliminary analyses of the largest credit card issuers’ monthly account-performance data suggest that for the first time this year the average charge-off rate in July is not likely to decline and may even increase slightly, says Jeffrey Hibbs, a Moody’s analyst.
Average credit card charge-offs in June hit 6.04%, a level not seen since early 2008 (
Moody’s plans to release its official July charge-off rate later this week, after accounting for variations in the way individual issuers report monthly performance.
Bank of America Corp. and Citigroup Inc. each reported higher charge-offs in July, partly because of internal policy changes and seasonal effects, Hibbs says.
“BofA has disclosed a change in its policy for how it accounts for defaults, which drove its charge-off rate higher. And Citi had a similar upward tick in defaults, which will affect the overall industry average,” Hibbs says.
But the hiccup is not likely to reverse the broader trend of generally improving card charge-off rates, he notes.
“The BofA and Citi numbers in July were just ‘general noise’ and do not indicate a significant change in the two companies’ performance,” Hibbs says. “It’s rare that all issuers have unanimous results; there are always abnormalities and that is what we believe we are seeing here.”
Moody’s expects the average charge-off rate to continue declining over the next several months. The firm is sticking with its earlier forecast that the average charge-off rate will hit 4% in 2012, Hibbs notes (
Notably, this summer the early-stage delinquency rate for accounts at least 30 days past due also began to flatten out, suggesting a possible return to traditional seasonal patterns, which the recession disrupted in 2009, Hibbs says.
In the years before the recession, more consumers typically fell behind in making on-time credit card payments following summer vacations and back-to-school shopping.
“During the last couple of months, we’ve seen early-stage delinquency rates begin to level off after a period of improvement, which suggests we may see a return this fall to seasonal patterns of rising delinquencies, Hibbs says.
That does not necessarily mean higher charge-offs, “but it does introduce some more mixed results,” he says.
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