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Op-Ed: Record Credit Card Debt Delinquencies Worry Lenders and Experts

By Sharon Secor     Apr 29, 2009 in Business
Economists and financial experts eye increasing credit card debt delinquencies and defaults with worry, fearing that continued losses could further stress a struggling economy and significantly delay recovery.
According to an April 27, 2009, Reuters report, “credit card losses hit record levels,” citing information from Fitch's Charge-Off Index. This index, the article explained, “tracks the write-down of uncollectable debt by credit card firms.” Rising delinquencies come at a time when consumers and lenders alike are struggling in a difficult economy, and experts fear that the end result of this trend could mean further trouble for the economy, perhaps even interfering with overall recovery.
In an April 21, 2009, story, Dayton Business Journal reported that “Capital One Financial Corp., which has lost more than half its market value this year, reported its second straight quarterly loss.” And, that is far from the only credit card lender that is suffering. According to an Associated Press report dated April 23, 2009, and published in Business Week, American Express saw their earnings drop for the sixth quarter in a row, with earnings declining by 63 percent in the first quarter of 2009. The Wall Street Journal reported on April 17, 2009, that Citigroup Inc. suffered a decline as well, with “net income at its card segment fell 66% from a year earlier.” Discover Financial Services, according to an April 7, 2009, report saw a 50 percent drop in its first quarter earnings.
As the Fitch Charge-Off Index indicated, uncollectable credit card debt passed 8 percent, climbing to almost 9 percent in February of 2009. Moody's Investors Service, according to an April 28, 2009, Reuters report, “expects charge-offs, the write down of uncollectable debt by credit card firms, to peak at 12 percent in 2010's first half, up from its initial 10.5 percent forecast.” Moody's noted the influence of increasing unemployment and other consumer woes on the troubling credit card debt statistics. There are many in the financial industry, as well as a number of economic experts, casting an uneasy eye towards the upward creep of credit card debt delinquencies and defaults, as noted in an article published by the Boston Herald on April 27, 2009.
The concern is that continuing losses to already stressed lenders, many of which also sustained heavy losses during the bursting of the housing bubble and the mortgage and lending meltdown, could further damage the credit market, pushing it into a crisis situation. In order to mitigate losses, some lenders are already taking steps to tighten credit, such as by reducing credit limits. Tightening credit is likely to have a negative affect on consumer spending, which in turn, as revenues decrease for businesses, may serve to push unemployment higher and contribute to further consumer debt defaults. It is an ugly cycle, and the American economy is much more vulnerable to it because of its reliance upon consumer spending. Most numbers say that more than 70 percent of the economy rests upon consumption.
Government efforts towards stimulating recovery, often devised with the advice of lenders and major figures in the financial industries, seem primarily focused on recreating the era prior to this current economic downturn – an era of easy credit fueling high consumer spending. The same era that resulted in American consumer debt reaching record heights and personal saving hitting record lows. It would seem a better course of action for the long-term to encourage consumers to reduce debt, to become wise spenders, and work to restructure the economy, creating a more sustainable model, one based on creating more than consumption and debt.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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