Late Payments on Credit Cards Reach Record Levels

Includes: AXP, COF, DFS, MA, NCC, V
by: Research Recap

Growing signs of trouble in the credit card debt sector are documented in Fitch ratings’ latest monthly Credit Card Movers & Shakers report. However, Fitch does not expect many negative ratings actions in the short term.

Late payments on U.S. credit cards topped record levels and defaults rose sharply to just below all time highs last month as consumers struggled further amid the deteriorating economic environment.

Fitch said the negative chargeoff results were offset by lower funding costs helping to maintain excess spread cushions for credit card ABS. In addition, monthly payment rates snapped back from the prior month’s four-year lows although they continue to exhibit slowing trends on year-earlier comparisons.

Consistent with previous indications, Fitch expects credit card ABS performance to worsen further given recent delinquency and bankruptcy trends and the rise in unemployment levels. Nevertheless, negative rating actions are expected to be limited in the near term.

Fitch anticipates chargeoffs will breach 8% in the coming months and approach 9% during second half-2009. Deterministic stress testing on Fitch rated trusts indicate existing ratings can withstand such scenarios with potential negative rating actions limited to subordinate classes. Additional information is available in Fitch’s Dec. 15, 2008 report ‘U.S. Credit Card ‘What If?’ Stress Scenario’, available at ‘’.

Prime general purpose card results for the December collection period show Fitch’s Chargeoff Index rising 66 basis points (bps) to 7.50%, the highest level since the bankruptcy reform spike in late 2005 when chargeoff rates reached 7.53%. Current levels are now 40% higher than year earlier results.

Late stage delinquencies continued to rise as well with the Fitch’s 60+ day Index rising 47 bps to a record 3.75%. The previous high was 3.73% in February 1997. Although late stage delinquencies were elevated throughout 2008, they escalated rapidly in fourth quarter-2008 by 18% to current levels.