Charge-Offs Start to Shred Credit Card Issuers

Get used to these kinds of headlines. They’ll become more prevalent during the coming months. Charge-off rates were at 6% at the end of the third quarter. They’re poised to rise even further during the fourth quarter, says the Wall Street Journal. What’s more, card companies are worried about more accounts going from late to seriously delinquent. From the Journal:Card-industry executives are worried about escalating “roll rates,” a term that refers to the percentage of cardholders who go from merely late on their payments to not making them at all. Among cardholders who are between 60 days and 89 days overdue, about 20% of such card balances eventually are being charged off by card issuers as uncollectible, according to Auriemma Consulting Group Inc., a Westbury, N.Y., financial-services consulting firm. The percentage is up by about a third from last year, before the U.S. economy tipped into recession.The problem can be even worse for bundles of outstanding credit-card balances that are securitized by some of the largest issuers. For example, American Express Co.’s roll rate worsened to 47% in the third quarter from 35% a year earlier, says investment bank Keefe, Bruyette & Woods Inc., which calculated the figures from securities filings. At Capital One Financial Corp., known for its cheeky ads and mass-market strategy, the roll rate has reached 34%, up from 28% in last year’s third quarter. Those figures don’t reflect credit-card loans that the issuers keep on their books.Definitely something to worry about. This crazy economy is only accelerating the roll rate for these card companies. And it’s just another reason why credit-card companies are so busy reining in credit limits.