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Bank of America Corporation and JP Morgan Chase lead the six major credit card players in the United States in terms of reduction in the number of defaulters. They are joined by Capital One which is another major credit card lender in the nation. Amidst the reviving economic situation, consumers refrained from taking on more loans and instead opted to pay off their debts on time.
Loans which are due for over a month signal potential write-offs, thus causing banks to lose a lot of money each year. However, in the month of May, this rate of defaulters fell by 4.22% which has been the lowest ever since July 2009. The rate of 4.4%, noticed in the month of April 2010, was considered to be the least until this May. This information was divulged by JP Morgan Chase during the regulatory filing. Uncollectible write-off as well saw a decline for all the major players except two, Discover Financial Services and Bank of America.
The reduction in the number of defaulters clearly heralds an improving economic situation. The increase in the number of customers willing to pay off their debts on time is helping the credit card lenders recovers from the loss of $89 billion last year due to a high number of write offs which was coupled by the high unemployment rate which stood at 10%. According to Richard Fairbank, the Chief Executive Officer of Capital One, the consumer spending that constitutes over 70% of revenue to the banks may still be slow to pick as consumers are now focusing on repaying their debts rather than amassing more of it.
During an investor conference held in the beginning of June, Fairbanks went on to say, “What they’re really doing is choosing not necessarily to go load up on some credit cards, but more to pay down debt. This deleveraging phenomenon hasn’t provided strength to the economy.”
American Express, one of the biggest players in the credit card segment, highlighted the fact that the number of defaulters that stood at 3.1% in the month of April 2010 fell to 2.9% in the month of May. The late payments at McLean, which is Capital One based in Virginia, fell to 4.08% in the month of May from 5.07% in the month of April this year. The defaulter rate that stood at 6.73% in April for the Bank of America fell to 6.39% in the month on May 2010.
