CHESSNOID

I have worked in collections for 20 years and though I don’t have internal reports to look at to determine why this is happening while unemployment has risen consistently for the last few quarters the answer is quite simple. Credit card companies allow collection accounts on the verge of being charged off to become re-aged to current status with just one payment. It doesn’t even have to be a full payment. Basically, this allows the credit card company to make their reports look better.

Wall Street Journal:

U.S. credit-card performance diverged a bit again in September, with charge-off rates falling for the second time in three months while delinquencies continued to rise, according to Fitch Ratings.

“U.S. consumer-credit quality measures remain pressured and charge-offs will stay high until we see some improvement in employment conditions and in delinquency trends,” said managing director Michael Dean.

All types of consumer lending have worsened the past several years, with borrowers falling increasingly behind and lenders writing off many billions of dollars of owed loans.

For credit cards, Fitch said its Credit Card Chargeoff Index fell 0.77 percentage point to 10.75% from August’s record high. Still, September’s rate is 71% higher than prior-year levels.

Meanwhile, Fitch’s index on delinquencies of at least 60 days rose 0.16 point to 4.22%, nearly erasing August’s drop and putting the rate up one-third from last year. Delinquencies of at least 30 days rose as well.

I would think it is pretty obvious that one set of numbers go down while the other set of numbers go up(especially when you work in the collections field).   I know this to be just a way to reset the delinquency or make the delinquency reports look better than they really are.

It has nothing to do with solving the problem. If a consumer doesn’t have a job or a steady source of income, they still can not make regular monthly payments. The collections department will basically advise the consumer to make a minimum of 1 payment or a partial payment just to show activity on the account. The payment will not cover the payment in arrears, but will allow for accounting magic for corporate reporting purposes.

Another mystery solved.