Uncollectable: Big Banks' Credit Card Writeoffs Grew in August
Sep 16th 2010 2:45AM
Updated Sep 16th 2010 4:23PM
The improvements in the unpaid credit card balances that banks gave up trying to collect stalled in August.
Four of the top six card issuers reported increases in the amounts they wrote off as uncollectable in regulatory filings Wednesday, reversing several months of decline.
- Capital One (COF) said it charged off 8.19% of balances, the first increase since March.
- Bank of America (BAC) wrote down 11.72% of balances, its first increase since April.
- Chase (JPM) gave up trying to collect 8.18% of balances, its first rise since March.
- Discover (DFS) posted net losses of 7.98%, its first increase since May.
Even American Express (AXP), which caters to a more affluent customer base than other issuers and has maintained a far lower charge-off rate this year, reported its writedown rate remained steady at 5.5% of balances. It had reported steady declines since March.
The Year of Record Writeoffs
In the past year, banks have written off a record amount of credit card balances as customers struggled through stubbornly high unemployment. The overall charge-off rate in the second quarter rose to 10.66%, according to the Federal Reserve. Charge-offs typically hovered between 3% and 4% in the years leading up to the Great Recession.
The August data alone doesn't provide enough information to show whether the broader improvements since the beginning of the year have evaporated, but it does reflect other signs seen in the broader economy of a midsummer sputter.
"It shows again that people continue to have trouble," said Martha Doran, a professor at San Diego State University. "To me, what it shows it that the climb out is going to be a longer climb." Even people who have changed old habits and are no longer spending heavily on credit cards will need time to improve their situations, she said.
There were some positive signs in the bank reports. The rates at which customers were making payments late by 30 days or more fell for each of the issuers that reported. That's usually a sign that charge-offs will improve in coming months.