Credit card defaults, late payments drop in March

[April 16, 2011]  NEW YORK (AP) -- More Americans paid their credit card bills on time in March, a positive sign for the banking industry in a month that has proved volatile over the past few years.

The top six credit card companies, Chase, Bank of America, Citibank, Capital One, Discover and American Express, all said defaults and late payments fell in March. Overall, delinquency and charge-offs, as they're called in the industry, are at their lowest points since mid-2008.

Capital One Financial Corp. and Discover Financial Services reported the biggest improvements in delinquency -- the rate of payments late 30 days or more. Bank of America Corp., the nation's largest credit card issuer, had the highest late payment rate at 4.82 percent of balances on an annualized basis. American Express Co., which caters to a more affluent customer, reported the lowest rate at 1.8 percent of balances.

The drop in delinquency is a particularly good sign, said Jeff Hibbs, a credit analyst at Moody's Investors Service. In the last two years, there has been an uptick in March as card users fumbled with post-holiday payments. "We're not seeing that this year," he said.

Bank of America Corp. and Discover posted the biggest improvements in their charge-off rates, the rate at which they wrote-off balances as uncollectible. Bank of America's charge-offs still remain the highest among the top card issuers though, at 8.18 percent. American Express has the lowest rate, 3.7 percent.

Industry-wide, the charge-off rate peaked in the 2010 second quarter at 10.9 percent of balances, according to the Federal Reserve. By the fourth quarter of 2010, the latest period for which data is available, the rate had dropped to 7.7 percent.

In the two years prior to the recession, it averaged 3.82 percent.

While overall numbers haven't fallen to those rates yet, Hibbs said it's clear from recent trends that the crisis that saw those bloated charge-off rates is over.

"We're well past the peak of the crisis," he said. "There's clear improvement in the future."

Hibbs noted that part of the reason for the positive outlook is that the riskiest card customers have defaulted and no longer have access to sizable amounts of credit.

In February, total revolving debt held by U.S. consumers -- which is mostly credit cards -- fell to $794.03 billion, its lowest point since September 2004, Fed data show. In August 2008, total credit card debt topped out at $973.64 billion.

[Associated Press; By EILEEN AJ CONNELLY]

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