Credit card defaults on the rise

It’s funny how the news media continue to report the economy is better, and yet all the other information coming out is bad. A good indicator of how people are doing is the rate of delinquency on credit cards. Right now they are at extremely high rates and will continue to go up as more people lose their jobs and houses.

Reuters:

The worse-than-expected August numbers bolstered the contention of some analysts that the July decline in defaults was due more to seasonal effects, like tax refunds, then an improvement in consumers’ financial health.

Many analysts expect bad-loan levels will keep rising until later this year or early 2010.

“The defaults are a wake-up call for those expecting a V-shaped recovery,” said Elliot Spar, options market strategist at Stifel Nicolaus & Co.

Bank of America said its charge off-rate — loans the company does not expect to be repaid — rose to 14.54 percent in August from 13.81 percent in July.

Citigroup, the largest issuer of MasterCard-branded credit cards, said its charge-off rate rose to 12.14 percent in August from 10.03 percent in July.

The charge-off rates for both Citi and Bank of America, two of the biggest recipients of U.S. government bailouts, were the highest yet during the financial crisis.

JPMorgan Chase & Co, the largest issuer of Visa-branded credit cards, said its charge-off rate rose to 8.73 percent from 7.92 percent, while smaller Discover Financial Services said its rate rose to 9.16 percent from 8.43 percent.

American Express Co’s default rate fell to 8.5 percent from 8.9 percent as the company increased its lending portfolio.

JPMorgan, Discover and Capital One Financial Corp reported late payments on credit cards — an indicator of future defaults — rose in August after several monthly declines.

I do think many people who got tax refunds or were able to refinance their mortgages paid off some credit cards to skew the numbers temporarily. Overall, if people continue to lose their jobs and houses at record rates, then it only makes sense the credit card defaults will follow that trend. This is the economy we live in and no matter what the government claims about the economy, the 15-30 million people who are unemployed will still be unemployed. No jobs means no money which means no payments to credit card companies.