Are credit card issuers partly to blame for soaring delinquencies?
Credit card delinquencies in the Fitch's Prime Credit Delinquency Index set a new record for the index in March, up to a rate of 4.04 more than 60 days late through January, an increase from the previous month's record of 3.75%. Since record keeping started in 1991 the index is 30% above historical averages. But since that history doesn't include recessions in the early 1970s and 1980s, the records probably aren't as dramatic as that sounds.
Some credit card companies are now reporting delinquencies as high as 7%, according to LowCards.com. "Since credit card delinquencies are indirectly tied to unemployment, and unemployment numbers continue to rise, analysts are predicting that the charge-off rate could increase to as much as 9%-10%. Charge-offs are bad for both the issuer and the cardholder," said Bill Hardekopf, CEO of LowCards.com. Based on data he compiled, here's some of the hardest hit credit card companies:
* In January, American Express reported that the annual net charge-off rate (a measure of credit default) rose to 8.29% in January, up from 7.23% in December. The rate for loans at least 30 days delinquent increased to 5.28% from 4.87%.
* Also in January, Capital One's annual net charge-off rate was 7.87%, up from 7.71% in December. The rate for loans at least 30 days delinquent increased to 5.02% from 4.78%.
* Chase warned that net charge-offs could reach 7% for the first quarter.
But, are these restrictions helping to drive up the number of delinquencies? I think the answer is a resounding yes, and Bill Hardekopf agrees, "The issuers themselves are partly responsible for increasing the number of credit card delinquencies. Issuers have made it a practice of raising rates on their highest risk customers, sometimes to the default rate which can be anywhere from 28% to 32%. In this economic climate, it is not uncommon for consumers to see a significant increase in the APR if they miss a payment or are even late on a payment. There are some issuers that will take your APR to the default rate for exceeding your credit limit twice within a 12-month period. Sometimes, the interest rate is raised not because of something the cardholder did, but because of market conditions. Some of these practices penalize the people who are already struggling with debt and these changes may be the straw that breaks their back."
Even people with top credit scores are seeing their interest rates jacked up to a point they can't afford to pay just because a payment got delayed by the post office. People who never had a late payment, see their rates increased as high as 24%. If you have a history of payment problems rates could go above 30%. If one late payment is reported on one card, all your other credit cards may jack up their rates as well.
Given these drastic moves by the credit card companies, does it surprise anyone that by raising rates to what appear to be usury charges, people just give up trying to make payments on debts that they will likely never be able to pay off? I'm not. Are you?
Lita Epstein has written more than 25 books including the "Complete Idiot's Guide to Improving Your Credit Score."
Reader Comments (Page 1 of 2)
3-12-2009 @ 6:13PM
bill said...
When you have paid more than your minimum on your credit card and been on time for the last 8 years and the rate goes from a fixed 7.9% to 24.9% - expect more problems from the credit card holders. The Big banks are not acting right.
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3-12-2009 @ 9:40PM
wdmurphy said...
I don't believe the credit card companies are partly responsible for the rise in defaults. I firmly believe they should take full responsibility for it. Also our government has to assume the same amount of responsibily as the c.c. companies as they have allowed the c.c. companies to abuse the system. Does anyone other than me see what is going on in this country. My advice to everyone is to quit paying their c.c. bills and save the money so when China takes over we will have something .
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3-12-2009 @ 9:39PM
wdmurphy said...
wheres my comment
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3-17-2009 @ 1:38AM
kAREN said...
I have never seen such greed. How much longer can the middle class hold on. Credit card companies are wrong to do this. I wonder if the attorney general can spell c l a s s a c t i o n l a w s u i t ?
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3-13-2009 @ 12:58PM
Betty said...
I had 2 credit cards with wamu never was late or missed a payment i was doing the right thing i owed them but when they raised my interest rate to 24.00% because they could i can't make the payments because i can't and it is the fault of the greedy crooked ceo,s and i tried and they can't get blood from a turnip.
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3-13-2009 @ 2:51PM
Juan said...
I blame the consumer first for having this debt in the fist place...trust me I am one of them...but the greater fault rests on the CC companies for taking advantage of those that are at a current financial disadvantage.
Why should the poor continue to get poorer as these financial institutions have no problem sucking us dry (and if you don't see the middle class merging into the lower class you are blind). Its bad enough we are not able to keep a job, a mortgage, and now unsecured debt which is causing our nations greatest financial crisis since the depression.
Is it wrong of me to think the government should bail out those with steep credit card debt? What is the difference for those that thought charging a flat screen TV, that vacation, or clothes to those that bought a house they had no right buying?
It will get worse because at the end of the day, the stock market might get better, the national debt might shrink...but millions of everyday Americans will still carry the added personal debt that was a result of not having enough money to live.
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3-13-2009 @ 4:52PM
neil said...
Right on the Momey
Be A day late and your apr goes from 7.9 to 32.9
so if you have a hard time making a 125.00 payment
one month THEN the bank wacks you for 480.00 the next
month. WHY EVEN BOTHER TRYING
The banks in their consumate greed Get our tax dollars
for nothing then rape their cc customers in the second great
depression SCREW ALL CC COMPANIES
SCREW ALL BANKS
Thet work like drug pushers
Free at first then it's jugular time
MAY THEY ALL DROP DEAD
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3-19-2009 @ 4:56PM
ben said...
dont feel bad i paid $600 a mo.after they raised my int.rate to 31.9% and the principle never moved so i just quit! on a $9500 debt..now they say its $22000,good luck to them because i am one foot in the grave and one foot out at 66yrs.and survived a massive heart attack.i guess ill meet them in heaven?
GOD BLESS YOU!!
3-13-2009 @ 5:02PM
Bill G. said...
If a credit card tries to screw you, just let it go. It's unsecured credit. It will hurt your credit rating but it's better than killing yourself to pay the blood suckers. Am. Ex. had a special of 3.9% on all balances for the life of the loan. Rolled all my debt into that card and life is good.
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3-13-2009 @ 9:28PM
Joni said...
Right now, I am living paycheck to paycheck-so when my credit card is due on the 4th and I get paid on the 6th I pay my bills online-it's already late--can't pay a bill on time-if I don't have money in the bank-so then I get the next months bill-with a hefty 39.00 late fee Yeah-this is on me-but adding an extra 30-40 dollars on my bill affects everything else I have to pay
My own bank who I have my mortgage with has done this-paid them online,on a Friday didn't post until the following Tuesday-how does that happen-I got slapped with a 19.00 late fee
Geez people I am being nickeled and dimed to death
They are making money on people who are living from paycheck to paycheck
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3-13-2009 @ 8:30PM
Roy said...
I found it a bit amusing reading these posts. Most of the folks here can't manage their money and blame their own mismanagement and fiscal irresponsibility on the credit card companies. Everyone of you know that the credit card companies are going to charge you for late payments and over limit occurrences. Knowing that, why do you even get close to either. And why are you using a credit card to live beyond your means? As far as the card companies raising their rates, for no fault of yours, you have the right to "opt out", or you can pay it. I got a notice today, interest going up from 7.9% to 11+%. I'm either going to "opt out" or shut the card down, no further use. They don't have me over a barrel because I'm not highly indebted to them. All of you would be wise to stop spending for things you don't need. And, while that doesn't please you to hear, it's the truth. Stop buying things you don't need with money you don't have. Most of it isn't even worth what you pay for it. You'll be a lot happier if you just take control of your lives. Manage your money properly and you have all the power because you don't need the credit card companies. Good luck!
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3-21-2009 @ 6:16AM
thovey said...
I disagree. Some of us do not charge because we want a flat screen tv, designer clothes, etc. Some of us have to charge because the pay check does not stretch to cover food and clothes and shoes for the children after all the bills are paid. So it seems you must have plenty of money and do not need a card to survive. This is a dog eat dog world and no one cares about the people in the land of the plenty,
3-15-2009 @ 4:32PM
Betty said...
It must be nice to put all of us who have been making our payments on time and never missing any because we know we owe them and it is the right thing to do but when the credit cards companys are raising your interest rate to 26.00% on 2 cards for no reason how do they think we can make a $170 minimum payment and just to screw me out of $39.00 fee because they jerk the due date around and even online you have to look for the due date because they don't want you to see it i don't care what the jerk says that we knew what we were doing yes i did but i also didn't know that crooks and greedy thugs that we bailed out would and paid for their bonuses and expensive getaways because they worked so hard screwing us their customers. I can't make the payments and that is their fault i don't care if i pay another dime to them and all i have left to say is screw them all because that is what they are doing to us.
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3-16-2009 @ 4:13AM
Freak said...
So... we're not blaming the millions of people living far beyond their means, buying things that they can't afford and then saying it's the credit card companies fault they're poor because of the high interest payments on the garbage they don't need? Ok...
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3-16-2009 @ 10:58AM
Sarah said...
It seems that credit scores seem to represent the reliability of the economy more than they represent the reliability of the people that they are attached to, like leperocy, eating away at so many of us. Even after a divorce I struggled to maintain paying my bills on time, but I did. I only had a total credit card debt of about 3K total, however 2 years (at age 39), I was diagnosed with breast cancer, and although I had insurance, it was a significant impact to my finances. Just as I completed my radiation, my husband died in an accident. I numbed myself to focus on survival, I got my state license and got promoted from the midnight shift as a front desk clerk to a licensed property manager for a condo association, however, my "snowball" continued to grow as I got evicted from my apartment. I lost my husbands income, yet medical bills were compiling. Alass, as the housing bubble burst (including condo conversions), I have now lost my job, lost my insurance benefits, the finance company took my car (nothing fancy), and when my landlord found out, she canceled my lease. For the first time I am on financial aid, and receiving food stamps. Look my credit "score" and you see "unreliable", but look at "me" and you will see "determinitation and resiliance".
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3-16-2009 @ 1:34PM
Betty said...
I wish the people that put us down for not being able to pay the the credit cards companies that raised our rates for no reason was in my shoes and then they would shut their mouths up we all are not able to pay them off. I don't use the cards for things i don't need but i have had to for medicine since i don't have any health insurance and i have closed them all right now a credit score does not mean a thing to me and they put me in the position that i can't pay them i told why and they are nothing but a bunch of greedy crooked sharks they got their asses bailed out and bonuses and went on expensive resorts and we paid for it and they are so greedy they would not give me a lower interest rate so i could pay them well they won't get anymore from me i tried to work with them and screw them now.
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3-22-2009 @ 9:00PM
Roy said...
thovey said...
I disagree. Some of us do not charge because we want a flat screen tv, designer clothes, etc. Some of us have to charge because the pay check does not stretch to cover food and clothes and shoes for the children after all the bills are paid. So it seems you must have plenty of money and do not need a card to survive. This is a dog eat dog world and no one cares about the people in the land of the plenty,
Roy responds:
This is exactly what I'm talking about. "thovey" lives too close to the edge. By doing so, he makes it necessary to use credit to smooth out his money flow. Were he to deny consumption enough to pull back from the financial edge that he's living on, he'd be able to "control" the use of credit cards. It is a myth that some of us have so much money that we can manage our affairs well. If you can't manage to live in a severely constraining budget, you can't manage to live inside of a whole lot more money. That is precisely why some folks become millionaires via the lottery and are broke within a year or two or so. "thovey" makes enough money to afford credit card interest but he doesn't make enough money to live inside his financial constraints without having to pay credit card interest? I know a couple who used to rent a house for $400 a month. If in default, they had to pay $10 per day, additionally. They could never pay on time but could always pay when the payment was $600. This, friends, is complete foolishness! Everyone can save a small buffer between themselves and unexpected problems. If they think they can't, then they've made a mess of their financial affairs and need to learn how to handle a budget and deny themselves until they get on top of things. If I can do it, anyone can, if they want to.
Start caring about yourself. Sell everything you have that you can truly live without, if you have to , to get on top of your life financially, and you will be happy and never go back to living otherwise.
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3-22-2009 @ 7:18PM
Roy said...
There are a couple cases here where misfortune has befallen an individual and no way to envision or plan for it. You have my sympathy and understanding. The credit card companies are and can be vicious. You know this right upfront after dealing with them for a period of time. Does that not incense you enough to cut your credit card use to the bone? Can you not plan to pay your payment far enough ahead to avoid late fees or to manage to avoid "over limit" fees? I pay mine when the bill is received every month. A few days later I check my account to ensure the payment has been received. If it hadn't, I have time to send another payment and still not be late. 13 years ago, I hadn't used credit for 20 years and couldn't even qualify for a secured card. You'd think they thought I had been a prisoner or something. Today, I have a wallet full of cards, perhaps a total of $60,000 in credit limits. I owe $3000 in all to credit cards. My FICO score is 805. I made all my payments ahead or on time and live inside my means. If the $3000 I owed was not at 2.99% interest for the life of the balance, I'd pay it off quickly. Get on top of your life financially and quit making excuses. You'll be a lot happier.
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3-22-2009 @ 7:18PM
Roy said...
Some of the same arguments being used here are being used by folks who can't afford their house payments. The old rule of thumb was that you could not afford any more house than 2-2/12 times your annual income. My wife and I bought one ten years ago on my income, not hers. It is very modest, less than 1200 sq. ft. If we lost her income, we'd still survive because we'd put first things first. The house payment will get paid before anything else, period. We would contract our lives to a point that we can survive, even cutting out all frivolity until things improved. Until you can properly assess the difference between necessary and unnecessary, you'll have difficulty. You can "opt-out" to freeze your interest rate and close the card out from further spending. You can look for a better rate card and transfer your balance, etc. Go look in the mirror. The person in the mirror is the person who gets the blame for your financial situation. If the credit card companies make rules to take advantage of your financial mismanagement and you bite the hook and run with the line, you're a fish and they are playing you. Quit being a mullet.
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3-22-2009 @ 7:19PM
Roy said...
"It will get worse because at the end of the day, the stock market might get better, the national debt might shrink...but millions of everyday Americans will still carry the added personal debt that was a result of not having enough money to live."
You don't have enough money to live? Quit sitting in front of the TV then. Teach yourself to do something that will pay you more. The world doesn't owe you anything. Most of what lies at the heart of these comments is just excuses, the "victim" mentality. You don't like hearing it but it is the truth. Look in the mirror. You have no one to blame for your life but you and you can change it whenever you finally get tired of being a "victim".
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