SAN FRANCISCO (AP) - Americans are falling behind on their credit card
payments at an alarming rate, sending delinquencies and defaults surging by
double-digit percentages in the last year and prompting warnings of worse to
come.
An Associated Press analysis of financial data from the country's largest
card issuers also found that the greatest rise was among accounts more than
90 days in arrears.
Experts say these signs of the deterioration of finances of many
households are partly a byproduct of the subprime mortgage crisis and could
spell more trouble ahead for an already sputtering economy.
"Debt eventually leaks into other areas, whether it starts with the
mortgage and goes to the credit card or vice versa," said Cliff Tan, a
visiting scholar at Stanford University and an expert on credit risk. "We're
starting to see leaks now."
The value of credit card accounts at least 30 days late jumped 26 percent to
$17.3 billion in October from a year earlier at 17 large credit card trusts
examined by the AP. That represented more than 4 percent of the total
outstanding principal balances owed to the trusts on credit cards that were
issued by banks such as Bank of America and Capital One and for retailers
like Home Depot and Wal-Mart.
At the same time, defaults - when lenders essentially give up hope of
ever being repaid and write off the debt - rose 18 percent to almost $961
million in October, according to filings made by the trusts with the
Securities and Exchange Commission.
Serious delinquencies also are up sharply: Some of the nation's biggest
lenders - including Advanta, GE Money Bank and HSBC - reported increases of
50 percent or more in the value of accounts that were at least 90 days
delinquent when compared with the same period a year ago.
The AP analyzed data representing about 325 million individual accounts
held in trusts that were created by credit card issuers in order to sell the
debt to investors - similar to how many banks packaged and sold subprime
mortgage loans. Together, they represent about 45 percent of the $920
billion the Federal Reserve counts as credit card debt owed by Americans.
Until recently, credit card default rates had been running close to
record lows, providing one of the few profit growth areas for the nation's
banks, which continue to flood Americans' mailboxes with billions of letters
monthly offering easy sign-ups for new plastic.
Even after the recent spike in bad loans, the credit card business is still
quite lucrative, thanks to interest rates that can run as high as 36
percent, plus late fees and other penalties.
But what is coming into sharper focus from the detailed monthly SEC
filings from the trusts is a snapshot of the worrisome state of Americans'
ability to juggle growing and expensive credit card debt.
The trend carried into November. As of Friday, all of the trusts that
filed reports for the month show increases in both delinquencies and
defaults over November 2006, and many show sequential increases from
October.
Discover accounts 30 days or more delinquent jumped 25,716 from November
2006 and had increased 6,000 between October and November this year.
Many economists expect delinquencies and defaults to rise further after
the holiday shopping season.
Mark Zandi, chief economist and co-founder of Moody's Economy.com Inc.,
cited mounting mortgage problems that began after this summer's subprime
financial shock as one of the culprits, as well as a weakening job market in
the Midwest, South and parts of the West, where real-estate markets have
been particularly hard hit.
"Credit card quality will continue to erode throughout next year," Zandi
said.
Economists also cite America's long-standing attitude that debt - even
high-interest credit card debt - is not a big deal.
"The desires of consumers to want, want, want, spend, spend, spend - it's
the fabric of our nation," said Howard Dvorkin, founder of Consolidated
Credit Counseling Services in Fort Lauderdale, Fla., which has advised more
than 5 million people in debt. "But you always have to pay the piper, and
that can be a very painful process."
Filing for bankruptcy is no longer a solution for many Americans because
of a 2005 change to federal law that made it harder to walk away from debt.
Those with above-average incomes are barred from declaring Chapter 7 - where
debts can be wiped out entirely - except under special circumstances and
must instead file a repayment plan under the more restrictive Chapter 13.
Personal finance coaches say the problem is most grave for individuals
who are months delinquent or already in default - like Kenneth McGuinness, a
postal clerk from Flushing, N.Y.
His credit card struggles began nine years ago, when he charged his son's
college tuition and books. He thought he was being clever: His credit card's
6 percent "teaser" interest rate was lower than the 8.6 percent interest on
a college loan.
McGuinness, 61, soon began using Citibank and Chase cards for food,
dental work and copays on doctor visits and minor surgeries. Interest rates
surged to 30 percent. Now he's $37,000 in debt and plans to file for
bankruptcy in February.
"I tried to pay what I could and go after the high-interest accounts
first," McGuinness said. "But it just kept getting higher and higher, and
with late charges and surcharges I was going backward."
In the wake of the jump in defaults on subprime mortgage loans made to
borrowers with poor credit histories, banks have been less willing to allow
consumers to consolidate credit card debt into home equity loans or
refinanced mortgages. That is leaving some with no option but to miss
payments, economists said.
Investors also are backing away from buying securitized credit-card debt,
said Moshe Orenbuch, managing director at Credit Suisse. But that probably
has more to do with concerns about the overall health of the U.S. economy,
he said.
"It's been getting tougher to finance any kind of structured finance -
mortgages, automobile loans, credit cards, student loans," said Orenbuch,
who specializes in the credit industry.
Capital One Financial Corp. (COF)
(COF)
reported that delinquencies and defaults are highest in regions where
troubled mortgages are concentrated, including California and Florida.
Among the trusts examined, Bank of America Corp. (BAC)
(BAC)
had the highest delinquency volume, with overdue accounts valued at $5
billion. Bank of America defaults in October were almost 200 percent higher
than in October 2006.
A spokesman for Charlotte, N.C.-based Bank of America declined to
comment.
Other trusts - including those linked to Capital One, American Express
Co. (AXP),
Discover Financial Services Co. and those containing "branded" cards from
Wal-Mart Stores Inc. (WMT),
Home Depot Inc. (HD),
Lowe's Companies Inc., Target Corp. (TGT)
and Circuit City Stores Inc. (CC)
- also reported striking increases in year-over-year delinquency and default
rates for October. Most banks and other financial institutions holding
credit card debt on their own books also reported double-digit increases in
delinquencies.
The one exception in October was JPMorgan Chase & Co. (JPM)'s
credit card trust, which reported declines in both delinquencies and
defaults. A Chase spokesperson attributed this to its focus on prime
borrowers and aggressive account management.
By contrast, Capital One executives told analysts last month that the
company projected 2008 write-offs of credit card debt to be at least $4.9
billion. This projection, analysts were told, took into account growing
delinquencies and potential effects if the housing market continued its
downward slide.
Capital One spokeswoman Julie Rakes said the increase in delinquencies
could be due to an accounting change last summer, which shortened the grace
period between when statements were issued and the due date.
Capital One also reported that the number of accounts 90 days or more in
arrears had increased between October and November. More than 1.2 million of
Capital One's 30 million accounts were either delinquent or in default.
Many personal financial coaches expect this trend to accelerate in 2008 -
particularly among people who took out untraditional loans whose interest
rate has risen, requiring owners to pay mortgages several hundred dollars
more than just a year ago.
"You're looking at more and more distress - consumers desperately trying
to preserve their credit lines, but there's nowhere else to go," said Robert
Manning, director of the Center for Consumer Financial Services at Rochester
Institute of Technology. "It's like a game of dominoes."
SOURCE:
My Way
News - Unpaid Credit Cards Bedevil Americans
END
Few people realize who owns the credit card industry... the banking cartel. These are the same evil men who own, operate and control the criminal Federal Reserve System (i.e., bank). These men are evil, who have made a science out of cheating people out of their money and keeping Americans in financial bondage. This is why millions of U.S. citizens today have lost their homes, can't find a decent job and are increasingly ending up in debt. Most Americans are in debt. This shouldn't be. No hard-working American should ever have to lose their home. It is evil. The banking cartel and the politicians are all making lots of money, while the average Joe citizen is struggling to survive.
