Credit Card Charge Offs On The Rise

Credit Card Charge Offs On The RiseOn February 19, 2013, the U.S. Federal Reserve reported that charge-offs of credit card accounts among its member banks increased more than five percent in the fourth quarter of 2012, which is the first time aggregate charge-off rate for cards has grown in a year and a half. In the same fiscal quarter, credit card delinquencies reached an all-time low.The average charge-off rate for credit card accounts was 4.06 percent in the fourth quarter of 2012, up from 3.86 percent in the third quarter. This rate, 4.06 percent, is down from its high of 2010, when it reached 10.65 percent in the second quarter; 4.06 percent is around average for long-term statistics. After the financial crisis of 2008, banks started charging off credit card accounts at a rapid pace, with four straight quarters of 10 percent and greater average charge-off rates. After this, banks tightened their lending standards for all loans, and rolled back credit card lines; at this point, write off rates declined.Delinquent credit card accounts are at their lowest levels in recent years; in the fourth quarter of 2012 they were at 2.73 percent, a 22-year low. The Fed also reported that late payments on home loans are high; the average of 10.07 percent delinquency rate for real estate loans covers both home equity lines of credit and first mortgages. A telling sign about the actual pace of economic recovery in the U.S., the fourth quarter of 2012 marked the 13th consecutive quarter that the residential real estate loan delinquency rate has stayed above 10 percent.