Over $33 Billion in U.S. Consumer Credit at Risk of Default
Poor economic conditions are dramatically increasing the amount of outstanding consumer credit that is at risk of default. The immediate measures that credit issuers are taking now to mitigate this risk will have long-term ramifications for their ARM service providers - especially in the bank card/credit card sector.
Kaulkin Ginsberg’s Consumer Default Risk Index (CDRI) measures the amount of consumer credit at risk of default, and this measure continued to increase in the month of March as deteriorating economic factors pushed consumer bankruptcy filings up sharply. The March ’09 total of $33.02 billion in consumer credit at risk is a dramatic increase of nearly 140 percent from March of last year. This consumer credit at risk includes $20.71 billion in non-revolving credit, and $12.31 billion in credit card-related debt.
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This upward trend has been happening steadily for more than two years, but it began to accelerate in March of 2008. The rapid rise since then has been driven primarily by increases in consumer bankruptcy filings and rising job losses.
What does this mean for ARM companies? It is not surprising that increased risk of default will likely translate into a continued increase in placements – especially for bank card/credit card accounts in the short term.
In the long term however, our tracking of credit card delinquency rates indicates that there has been a slowdown in 30-plus and 60-plus delinquencies during the same timeframe. This confirms that many credit issuers are focusing recovery efforts on early stage delinquencies. In addition, we are seeing slight declines in outstanding credit card receivables among the ten largest credit card master trusts in the U.S., indicating that many issuers are contracting the amount of credit extended. These factors together would suggest a reduction in the amount of charged-off debt by the end of this year.
Kaulkin Ginsberg publishes two proprietary indices to track consumer liquidity. The Consumer Default Risk Index (CDRI) provides a monthly barometer of how bankruptcy and unemployment levels are likely to impact debt collection and is used to calculate the dollar amount of consumer credit at risk. The Credit Card Performance Index (CCPI) is a monthly index tracking the performance of securitized credit card receivables for the ten largest credit card master trusts in the United States.
Findings are published each month in the Kaulkin Ginsberg Consumer Finance Report. For more information, visit: www.insidearm.com/go/research/consumer-finance-report.
Dimitri Michaud analyses trends in strategic receivables management within the consumer finance sector, which includes the banking, credit card and mortgage markets. Contact Dimitri at 240-499-3840 or by email.
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Comments
Comment from Dean Baxter on May 20, 2009 at 10:06AM EST
Early stage delinquencies are the easiest to fix or identify problems. Borrowers become very reluctant to answer the phone once they reach 60 days past due. If you can start working with them early, you have a better chance at saving the account.
Comment from John Rousseau on May 21, 2009 at 1:05PM EST
Important to know how the delinquency and c/o rates are calculated as I assure all that the industry practice of measurement makes no sense once reviewed closely; don't disagree that the graph will remain the same slope but the % will change.
Nice job