DES MOINES, Iowa — Most major credit-card companies say fewer customers defaulted on their accounts in July, but that doesn’t necessarily mean they’re financially better off.
A few credit-card issuers say more families fell behind on payments, which could be another sign that household finances have yet to recover from the recession.
With more than 6 million people living on unemployment benefits and the recession continuing to pressure family budgets, many are forced to prioritize their bills. The reality is that credit cards often fall to the bottom.
Credit-card companies have been trying to limit their risk over the past year. Major credit-card issuers reporting monthly results say the rate of losses from unpaid accounts improved from June to July.
American Express, Bank of America, Capital One, Citigroup, Discover and JPMorgan Chase all say the number of account balances written off because of nonpayment fell.
American Express, for example, said its net loss rate fell to 8.9 percent in July from 10.2 percent the month before. Bank of America fell to 7.58 from 7.73, and Chase saw a drop to 7.92 percent from 8.04.
What’s more, most of the major card issuers also reported more customers making payments on time.
The positive trends don’t necessarily mean consumers are suddenly in much better financial shape.
Some of the uptick is more likely the result of credit-card companies culling the riskiest customers, which will in time lower default and delinquency rates, said bank-industry analyst Richard Bove of Rochdale Securities.
He sees little to point to a significant improvement in the financial health of consumers.
Unemployment remains high and will remain elevated for months, and average household wealth is lower because of falling real-estate values.
“It doesn’t appear that the recovery in the economy, which seems to be in place at the moment, is going to do anything to change those metrics,” he said. “Unemployment is going to stay high, and it doesn’t appear housing prices will soar any time soon either.”
Revolving credit has fallen for nine consecutive months beginning in October and continuing through June.
The Federal Reserve Board says that’s the longest pullback in more than 40 years.
“We’re not really out of the woods yet from a credit perspective. The consumer is still facing difficult times for the next several months,” said Ezra Becker, a consultant for TransUnion LLC, a leading consumer-credit-rating company. “I think we can temper that with some cautious optimism.”
Gaining ground
Major credit-card companies report improvements from July to June in reports of the percentage of unpaid accounts written off as losses (net loss) and accounts behind on payments for more than 30 days:
Bank Net loss 30-59 days
American Express 8.92% 1.15%
from 10.18% from 1.17%
Capital One 8.78% 1.40%
from 8.82% from 1.28%
Discover 8.43% 1.38%
from 8.75% from 1.39%
Chase 7.92% 0.83%
from 8.04% from 1.16%
Citibank 10.03% 2.54%
from 10.51% from 2.52%
Bank of America 13.81% 1.87%
from 13.86% from 1.88%
Source: Credit Suisse research note dated Aug. 17
