US Credit Card Default Rate Up 30% Year-on-Year
US consumers are defaulting on credit-card payments at a significantly higher rate than last year, the Financial Times reports today (subscription required), raising the prospect of problems in the stricken US subprime mortgage market spreading to other types of consumer debt.
Credit-card companies were forced to write off 4.58 % of payments as uncollectible in the first half of 2007, almost 30% higher year-on-year. Late payments also rose, and the quarterly payment rate – a measure of cardholders’ willingness and ability to repay their debt – fell for the first time in more than four years.
Still, the FT quotes Moody’s as saying the rate of losses remained well below the 6.29% average seen in 2004, before the change in US law that made it more onerous to file for personal bankruptcy.
Earlier this month, CreditSights assessed the systemic risks of the Asset-Backed Commercial Paper (ABCP market) that includes credit-card receivables, among other assets.
Recent turmoil in the ABCP market has exposed a serious Achilles heel in the global credit markets.
In a report available for purchase here CreditSights says the banking sector appears to be on the hook, at least to some degree, in the event of a shutdown in the ABCP market, which in turn presents another layer of risk in a market where access to leverage finance has been so critical.
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