U.S. Retail Credit Card Defaults Hit Near-Record Levels with No Relief in Sight

by: Research Recap

U.S. consumers defaulted on store-branded credit cards at near-record levels during the holiday shopping season, with 2010 likely to bring more of the same trend, according to Fitch Ratings.

Fitch’s December Retail Credit Card Index results show that more than one in every eight dollars of receivables was written off as uncollectable during the November collection period on an annualized basis. Taken with the recent delinquency trends and Fitch’s expectation for unemployment, Fitch expects retail card chargeoffs to remain elevated throughout first half-2010.

This does not bode well for prospects of a robust rebound in retail sales or credit usage in 2010 as the employment situation and economic environment overall continues to weigh on consumers’ spending decisions.

‘We do not foresee any meaningful improvement in the retail card credit quality in the coming months,’ said Managing Director Michael Dean. ‘U.S. consumers remain under stress on a number of fronts, most notably on the employment front, and retail card chargeoffs will continue to reflect those pressures.’

Despite the elevated chargeoff and delinquency measures, Fitch expects retail card ABS ratings to remain stable throughout 2010. Excess spread remains robust, which coupled with loss coverage multiples and other structural protections will shield investors from potential downgrades or early amortization scenarios.