CHESSNOID

For some reason the credit card companies want us to believe things are bad and good at the same time.  They claim defaults are down while delinquency is up.  I have worked in the credit card collections business, so it makes sense to me.  The reports are put out in a way to show investors they have things under control and to reflect something positive of the bad news.

The whole truth is delinquency is bad for the credit card companies.  Delinquency is a reflection of revenue  that is not coming in.  When consumers are delinquent that means they are not making their minimum monthly payments.  Many credit companies I have worked for had programs to bring consumers current on their credit card or loan accounts by simply making a token good faith payment or signing a note stating that they will pay the account current from this point forward.  The account becomes current and is no longer in “default”, yet no revenue was generated by that transaction.

I believe this is good for consumers who have hit a temporary hardship that has caused short term loss of income.  However, in this economy where 10% national unemployment exists with some states reporting up to 15% unemployment rates, these loss mitigation programs do not work for the majority who are delinquent and do not have jobs.

WASHINGTON (MarketWatch) — U.S. state unemployment rates were generally higher in September compared with August, with 15 states reporting unemployment rates above 10%, the Labor Department said. All 50 states and the District of Columbia have seen increases in unemployment over the past year. Michigan again had the highest jobless rate, at 15.3%, followed by Nevada at 13.3%, Rhode Island at 13%, and California at 12.2%.

In this point in time I would have to question the ability of any credit card company to produce better results than the rest of the industry.  The two main things that hurt the credit card companies from being profitable are the loss of revenues from increased delinquency and the fact that most of these credit card companies have reduced credit card limits and canceled credit cards which lowers overall charging ability for consumers.  Both directly contribute to reductions in overall revenue.

Any variance from the industry norms of increased delinquency due to unemployment is  a sign that some credit card companies are simply are abusing the loss mitigation process of helping those in temporary situations of loss income vs manipulating the entire credit card portfolio to convince investors that high unemployment doesn’t affect them.  This discrepancy can be confirmed by looking at changes in  monthly gross revenue changes from the preceding month.

NEW YORK (Reuters) – U.S. credit card companies said on Monday that defaults fell more than expected in October, but delinquencies mostly rose in a sign consumers remain under stress and the sector can expect more pain ahead.

The drop in defaults reflected a decline in late payments earlier this year thanks to tax refunds and economic stimulus actions.

Shares of American Express (AXP.N), the largest U.S. credit card company by purchases, rose to their highest level in 16 months, while Discover Financial Services (DFS.N) ended 4.6 percent higher.

But delinquencies, late payments that can indicate future credit losses, generally rose as more Americans lost their jobs. Capital One Financial Corp (COF.N) and JPMorgan Chase & Co (JPM.N) reported the biggest increases in late payments.

…

American Express Co said in a regulatory filing that its charge-off rate — loans the company does not expect to be repaid — fell to 7.8 percent in October from 8.4 percent in September.

Bank of America Corp (BAC.N), the largest U.S. bank, said that its charge-off rate fell to 13.22 percent in October from 14.25 percent in September. However, the bank is still the credit card issuer with higher defaults and delinquencies.

JPMorgan, the largest issuer of Visa-branded credit cards, said its charge-off rate declined to 8.02 percent from 8.12 percent, while Citigroup Inc (C.N), the biggest issuer of MasterCard-branded credit cards, said defaults fell to 8.79 percent from 10.15 percent.

Capital One’s charge-off rate fell to 9.04 percent from 9.77 percent, and Discover’ declined to 8.54 percent from 8.69 percent.