Uncollectable: Big Banks' Credit Card Writeoffs Grew in August

After several months of decline, the amount of unpaid credit balances that banks wrote off as uncollectable grew in August.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.

Citibank (C), the remaining issuer among the top six, is expected to post its August results later Wednesday.

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.

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If it were possible to mobilize all credit card holders to boycott making payments for one or more consecutive months, the monster banks that have been ripping the consumer off for years would suddenly take notice and become more consumer friendly if they wanted to be paid. What difference does a credit score make if everybody has the same low score? Also, forget about being bailed out by the government (Congress as well as the administration of President Obama) as they bailed out the big banks, wall street, etc.,i.e., the companies that were too big to allow to go under. No company is too big too fail when the greed of it's executives has put it in that position. Let it fail--there will be plenty of honest businessmen just waiting to come in and make it a successful company by treating the American consumer fairly. What did the government do for the American public? Yes, they passed reform rules, but then left a six-month window before they went into effect--and boy did the big companies make all the changes they wanted to make during that six months--raising interest rates, raising minimum payments, reducing credit limits. That is comparable to the farmer telling the fox that in six months, I am going to lock the hen-house door! The only way the American public is going to get relief from the greed of big business is if we get it on our own. The Democrats as well as the Reppublicans just pay lip service to the concept of change. WHY? Because the vast majority of them have been bought and paid for by the same companies that are ripping off the American public. I KNOW MY IDEA OF A CREDIT CARD PAYMENT BOYCOTT HAS VERY LITTLE CHANCE OF BEING SUCCESSFUL, BUT IF WE, THE AMERICAN PUBLIC, WANT REAL REFORM IN OUR ECOMONIC SYSTEM, WE WILL HAVE TO DEMAND IT IN ONE UNIFIED VOICE.

September 23 2010 at 1:18 AM Report abuse +1 rate up rate down Reply

Here's a suggestion for the banks.....why not keep rates at a level that will allow AVERAGE, HARD-WORKING Americans to stay current on their payments: if a card user can't afford the payments at 8% then LOGIC should tell them that the customer won't be able to make the payments at 36% !!!Would they rather get paid in full at a lower rate or get NOTHING at a higher one.....

September 16 2010 at 4:10 PM Report abuse +1 rate up rate down Reply

Why isn't Obama and his team trying help the American consumer from being "Raped" by these banks? When you can borrow money at almost zero percent from the government , pay only 0.10 % on savings acconts and charge people 30% interest interest on credit cards doesn't that ring a bell somewhere? You probably can get a better deal from the local loan shark. CHANGE WHAT CHANGE????

September 16 2010 at 7:18 AM Report abuse +1 rate up rate down Reply

It won't take Capital One long to recoup their losses. I was just notified that as of November 1, they are going to start assessing a $5 a month service charge.

September 16 2010 at 6:26 AM Report abuse +2 rate up rate down Reply

And they still make money...

September 16 2010 at 4:45 AM Report abuse +3 rate up rate down Reply