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TransUnion predicts sharp decline in card delinquencies
CHICAGO (12/15/10)--Credit card delinquencies are continuing to drop in a decline that began in first quarter 2009 when 1.21% of all cards were at least 90 days delinquent, according to TransUnion, which predicted the decline will continue well into 2011. The Chicago-based credit bureau predicted a sharp drop in delinquencies to 0.75% by the end of 2010, with the rate falling even more and ending next year at about 0.67% of all balances (Payments Source Dec. 9). More than eight million consumers stopped using general purpose, bank-issued credit cards during the past year, joining more than 70 million consumers who had no active cards in 2009, said TransUnion's quarterly analysis of trends. It attributed the deleveraging in part to charge-offs in the higher-risk segments of the population, more conservative spending in the low-risk segments, and significant efforts by consumers across the board to maintain the health of their credit card relationships as a financial cushion. The analysis revealed that the national credit card delinquency rate (ratioof bankcard borrowers 90 days or more delinquent on one or more of their credit cards) decreased to 0.83% during third quarter 2010, down nearly 9.8% from second quarter. Year over year, credit card delinquencies fell by 24.6%. Consumers with higher incomes were just as likely as those with lower incomes to suspend their use of this payment option. "The vast majority of the consumers who do not possess or have stopped using credit cards continue to have and use other forms of revolving and installment credit, and of course still need to pay for necessities," said Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit. "Consumers who do not have or use bank-issued, general purpose credit cards still have a need for other payment vehicles, a fact which is beginning to attract significant attention from credit and debit providers alike," Becker added. Among the statistics for third quarter:
* Incidence of credit card delinquency was highest in Nevada (1.28%), Florida (1.09%) and Mississippi (1.06%). The lowest credit card delinquency rates were found in North Dakota (0.48%), South Dakota (0.53%) and Nebraska (0.56%). * Two areas showed an increase in credit card delinquency--the District of Columbia (19.67% increase) and Mississippi (1.92% increase). The two areas of the country with the largest quarter-over-quarter drop in delinquency were Alaska (-19.2%) and Nebraska (-17.6%). * National average credit card borrower debt (the aggregate balance on all bank-issued credit cards for an individual card borrower) edged up for the first time in six quarters by 0.28% to $4,964 from the previous quarter's $4,951, but down 11.54% compared to the third quarter of 2009 ($5,612). * The highest state average credit card debt remained in Alaska at $7,159, followed by Hawaii at $5,716 and North Carolina at $5,640. The lowest average credit card debt was found in Iowa ($3,807), North Dakota ($4,103) and South Dakota ($4,196). * All but 15 states showed an increase in average credit card debt from the prior quarter. The largest increases in average credit card debt over the previous quarter occurred in West Virginia (2.81%), Wyoming (2.2%) and Hawaii (2.19%). * On a year-over-year basis, national credit card originations increased for the first time since the recession began in late 2007. Nine states showed decreases in originations since third quarter of 2009. The states with the greatest year-over-year increases were Delaware (21.3%), Oklahoma (16%), and Pennsylvania (15.8%). * The areas with the steepest declines in year-over-year credit card originations were the District of Columbia (-10.3%), Minnesota (-9.6%) and Michigan (-4.2%). * About 77 % of metropolitan statistical areas (MSAs) showed a decrease in their 90-day credit card delinquency rates since last quarter, which is generally consistent with national trends. The area with the largest drop in delinquency was the Dubuque, Iowa MSA (-48.4%). The area with the largest increase in delinquency was the Lewiston, Idaho-Washington Metropolitan Statistical Area (92.7%).
"The third quarter marks the first time since the recession officially ended in the summer of 2009 that average consumer credit card balances have not declined, although aggregate balances have dropped. The reason for this apparent contradiction is that the net number of active credit card accounts is continuing to drop, and it is falling faster than the dollar deleveraging rate," said Becker. "On the delinquency side, the news remains good as consumers continue to show fiscal responsibility in paying down their credit card obligations and delinquency rates remain within expected annual variance and seasonal norms," he said. "Moreover, the drop in the savings rate quarter over quarter, coupled with the drop in the number of active cardholders, might lead one to infer that consumers are shifting their focus away from a pure savings mindset to one that may include increased non-credit spending, such as through debit or checking transactions."


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