topic Re: What do you think of falling defaults and lowering of CC Debt? in Credit Cards

What do you think of falling defaults and lowering of CC Debt?

Open123 — Sun, 20 Jan 2013 18:28:06 GMT

http://www.forbes.com/sites/moneybuilder/2012/06/21/further-declines-in-credit-card-defaults-and-delinquencies/

Apparently, credit card defaults and outstanding balances are decreasing.

In your view, is this a good thing? Good or bad for the economy, given that the US GDP is comprised of roughly 70% of consumer consumption?

PS - Notice Amex and Discover have far and away the lowest default rates and highest CC customer service satisfaction. Coincidence?

Re: What do you think of falling defaults and lowering of CC Debt?

Anonymous — Sun, 20 Jan 2013 18:31:27 GMT

That was June 2012. Later on...

http://articles.latimes.com/2012/nov/20/business/la-fi-mo-consumer-default-credit-card-mortgage-experian-20121120

Tldr version:

Consumer default rates rose in October for first time this year

Re: What do you think of falling defaults and lowering of CC Debt?

FutureBillionaire — Sun, 20 Jan 2013 18:36:28 GMT

@Open123 wrote:
http://www.forbes.com/sites/moneybuilder/2012/06/21/further-declines-in-credit-card-defaults-and-delinquencies/

Apparently, credit card defaults and outstanding balances are decreasing.

In your view, is this a good thing? Good or bad for the economy, given that the US GDP is comprised of roughly 70% of consumer consumption?

PS - Notice Amex and Discover have far and away the lowest default rates and highest CC customer service satisfaction. Coincidence?

It's bad for our economy in the short run, but good in the long run. Hopefully, folks won't get in over their heads and be unable to pay their other bills. If we spend smarter, we will have the growth that we need. I think the growth will be sustainable , even if it is slower.

Re: What do you think of falling defaults and lowering of CC Debt?

Anonymous — Sun, 20 Jan 2013 18:46:06 GMT

And rose again in Nov

http://blogs.wsj.com/deals/2011/12/29/credit-card-defaults-rose-last-month/

but that is apparently seasonally expected. Only Discover and BoA showed continued decrease in charge offs.

Re: What do you think of falling defaults and lowering of CC Debt?

Open123 — Sun, 20 Jan 2013 18:51:22 GMT

@Anonymous wrote:
And rose again in Nov

http://blogs.wsj.com/deals/2011/12/29/credit-card-defaults-rose-last-month/

but that is apparently seasonally expected. Only Discover and BoA showed continued decrease in charge offs.

Interesting and surprising (for me) that BofA showed continued decrease in charge offs. Perhaps, they're actually implementing something effective?

Re: What do you think of falling defaults and lowering of CC Debt?

Revelate — Sun, 20 Jan 2013 19:38:16 GMT

@Open123 wrote:
@Anonymous wrote:
And rose again in Nov

http://blogs.wsj.com/deals/2011/12/29/credit-card-defaults-rose-last-month/

but that is apparently seasonally expected. Only Discover and BoA showed continued decrease in charge offs.
Interesting and surprising (for me) that BofA showed continued decrease in charge offs. Perhaps, they're actually implementing something effective?

Charge off reduction I think is from policies that were implemented much earlier; there's some period of "OK do we close this tradeline or not" followed by collections activity by some period of time, and then if it's deemed unrecoverable they may charge it off; however, it's usually not an immediate thing but admittedly I don't know the timeline but I suspect it's measured in years.

I think the major change was in FIA CLI policies; they don't appear to be anywhere as rosy as previously. Also I think from reading some posts here sometime during the mortgage crisis they became uberzealous for closing cards at any hint of trouble - I went 30/60 late when unemployed (and being stupid admittedly) paid it all off the following month and they closed the tradeline immediately.

Admittedly it could just be an accounting trick too; personal finances are in a better spot than they were previously, so now BOFA might simply be more lenient than previously assuming they think they have a higher chance to actually see a return on the investment, they may simply be charging off fewer accounts.

Not certain we can really pull much besides SWAG's with regards to any given lender unfortunately which is about all I have.

Re: What do you think of falling defaults and lowering of CC Debt?

Anonymous — Sun, 20 Jan 2013 19:42:47 GMT

It's a good thing.

We can't really build a solid economy with tons of people living beyond their means and a paycheck or two away from BK.

Re: What do you think of falling defaults and lowering of CC Debt?

SnackTrader — Sun, 20 Jan 2013 19:49:08 GMT

@Revelate wrote:
@Open123 wrote:
@Anonymous wrote:
And rose again in Nov

http://blogs.wsj.com/deals/2011/12/29/credit-card-defaults-rose-last-month/

but that is apparently seasonally expected. Only Discover and BoA showed continued decrease in charge offs.
Interesting and surprising (for me) that BofA showed continued decrease in charge offs. Perhaps, they're actually implementing something effective?
Charge off reduction I think is from policies that were implemented much earlier; there's some period of "OK do we close this tradeline or not" followed by collections activity by some period of time, and then if it's deemed unrecoverable they may charge it off; however, it's usually not an immediate thing but admittedly I don't know the timeline but I suspect it's measured in years.

I think the major change was in FIA CLI policies; they don't appear to be anywhere as rosy as previously. Also I think from reading some posts here sometime during the mortgage crisis they became uberzealous for closing cards at any hint of trouble - I went 30/60 late when unemployed (and being stupid admittedly) paid it all off the following month and they closed the tradeline immediately.

Admittedly it could just be an accounting trick too; personal finances are in a better spot than they were previously, so now BOFA might simply be more lenient than previously assuming they think they have a higher chance to actually see a return on the investment, they may simply be charging off fewer accounts.

Not certain we can really pull much besides SWAG's with regards to any given lender unfortunately which is about all I have.

Can you clarify what you mean here a little more, Revelate?

Re: What do you think of falling defaults and lowering of CC Debt?

Anonymous — Sun, 20 Jan 2013 20:23:02 GMT

I think what Revelate means is that charge off (when the issuer writes off the debt) is at the end of long process (late, default, collection, writeoff) and so any improvement in the figures, if not random, is due to policies implemented much earlier.

So if a bank today discovers the magic formula for users who will default, and don't issue those people any cards, the bank will still see charge offs for many months or years, as existing accounts go into default.

Re: What do you think of falling defaults and lowering of CC Debt?

chnceit — Sun, 20 Jan 2013 20:34:31 GMT

This is awesome news!

Re: What do you think of falling defaults and lowering of CC Debt?

Anonymous — Sun, 20 Jan 2013 20:37:14 GMT

@chnceit wrote:
This is awesome news!

Which, that it went down in June or it went up in Oct&Nov!

Re: What do you think of falling defaults and lowering of CC Debt?

Revelate — Sun, 20 Jan 2013 20:37:55 GMT

@Anonymous wrote:
I think what Revelate means is that charge off (when the issuer writes off the debt) is at the end of long process (late, default, collection, writeoff) and so any improvement in the figures, if not random, is due to policies implemented much earlier.

So if a bank today discovers the magic formula for users who will default, and don't issue those people any cards, the bank will still see charge offs for many months or years, as existing accounts go into default.

Yup this is what I meant exactly, thank you for clarifying it BS6.

Re: What do you think of falling defaults and lowering of CC Debt?

SnackTrader — Sun, 20 Jan 2013 20:47:52 GMT

@Revelate wrote:
@Anonymous wrote:
I think what Revelate means is that charge off (when the issuer writes off the debt) is at the end of long process (late, default, collection, writeoff) and so any improvement in the figures, if not random, is due to policies implemented much earlier.

So if a bank today discovers the magic formula for users who will default, and don't issue those people any cards, the bank will still see charge offs for many months or years, as existing accounts go into default.
Yup this is what I meant exactly, thank you for clarifying it BS6.

Thank you both for clarifying.

But I think what you are saying applies for specific institutions, whereas the industry as a whole is displaying trends that are eye-opening for consumer debt overall. When delinquency and charge-off trends increase nationwide, it shows that consumers who were previously issued credit are strained. However, for an individual issuer it may be for many different reasons, including they relaxed their lending standards or they have severe concentrations in certain types of consumers that are experiencing trouble.

IIRC, credit card delinquencies and charge offs declined almost nationwide during 2012, which shows that consumers are generally faring better and cutting back on spending trends. This, to me, is great for putting together a continued economic recovery.

Re: What do you think of falling defaults and lowering of CC Debt?

Revelate — Sun, 20 Jan 2013 21:34:49 GMT

I think Snack that the majority of lenders go through "belt-tightening" at approximately the same time; at least I would suggest that the window for that time period is substantially smaller (measured in months, likely <6 for certain) whereas policies which effect chargeoff rate is a much larger window.

I agree it's good news for the economy, I simply think it's a lagging indicator by a non-trivial amount of time.

Re: What do you think of falling defaults and lowering of CC Debt?

webhopper — Sun, 20 Jan 2013 21:50:29 GMT

@Open123 wrote:
http://www.forbes.com/sites/moneybuilder/2012/06/21/further-declines-in-credit-card-defaults-and-delinquencies/

Apparently, credit card defaults and outstanding balances are decreasing.

In your view, is this a good thing? Good or bad for the economy, given that the US GDP is comprised of roughly 70% of consumer consumption?

PS - Notice Amex and Discover have far and away the lowest default rates and highest CC customer service satisfaction. Coincidence?

This ^^ is not a coincidence... Amex and Discover are known to be very conservative.

That being said, lower default rates and balances are a good thing, it means that card issuers will be able to free up cash to offer better sign up bonuses, lower APRs, and rewards to existing card members. The fact that balances are decreasing does not mean that consumers are spending less... it just means that they aren't relying on debt accumulation via credit cards to fund their spending.

Pay increases in the US are roughly 3%. I think people are using that 3% increase to bump up their levels of savings and pay off debt rather than take on new credit card debt. Car sales and home prices are rebounding... these are all signs of increasing stability.

When you consider that Fico uses credit card debt levels to signal a score drop (increase in default risk) then it would make sense that lower credit card debt = less defaults and more economic stability

Re: What do you think of falling defaults and lowering of CC Debt?

Anonymous — Sun, 20 Jan 2013 22:20:05 GMT

And finally (for now!) Dec:

http://www.credit-land.com/news/after-falling-to-record-low-default-rates-rise-again-1844.html

This is all credit, including mortgages. Still low historically, but rates have gone from 1.46 in Sep to 1.72 in Dec. CC default did drop slightly, 3.58 in Nov to 3.53 in Dec, so that is good. (But I assume that the economic impact of mortgage default outweighs that of CC defaut)

TLDR:

The survey, which looks at data from five cities – Miami, Chicago, Los Angeles, New York City, and Dallas – showed increases in default rates ranging from one point (Dallas) to 41 points (Miami). However, rates in all five cities were still below their December 2011 levels.

September 2012 had the lowest default rates since the recession, with a national composite rate of 1.46%. Since then, that number has risen steadily – to 1.55% in October, 1.64% in November, and most recently, 1.72% last month.