September Sees Decline In Credit Card Charge-offs
Fewer credit card issuers wrote off balances they deemed uncollectible during the month of September, indicating consumers are managing their credit more responsibly. The most recent data compiled by Moody's Investors Service Credit Card Indices Report shows the charge-off rate declined nearly one percentage point, falling from 10.03 percent in August to 8.90 percent in September.
"We are in part of the credit cycle where the historically strong correlation between the charge-off rate and the unemployment rate has weakened," Moody's analyst Jeffrey Hibbs said. "The borrowers that remain tend to be stronger and more resilient to the ongoing weakness in the labor market."
Moody's analysts say they expect the decline to continue through the first half of 2011. Credit card delinquencies, measured by the percentage of accounts 30 days or more overdue, also fell during September to 4.65 percent, a drop of 5 basis points.
A large number of analysts attribute the the decline in delinquencies and charge-offs to the new protections afforded by the Credit Card Accountability, Responsibility and Disclosure Act, which put an end to many predatory lending practices and lowered the amount of fees issuers were allowed to apply. The CARD Act in conjunction with a number of debt relief programs may be large contributors to declining consumer debt.