Card Charge Offs Latest Sign of Rising Consumer Debt

Household debt is growing, just as prices are rising for necessities such as food, up 4.5 percent from a year ago, and energy, which has seen a reported 17 percent increase.

It’s unknown what the long term impact of these financial strains on U.S. consumers will have on the accounts receivable management industry.
 
But there is plenty of evidence already of the difficulties consumers are having paying their bills. The major credit card issuers released their first quarter results in the last 10 days and the numbers weren’t pretty. The Big Three all reported rising charge offs, a telling indicator of the troubles facing American households.

For example, Bank of America, the largest U.S. credit card issuer with managed receivables of $161.7 billion, saw its first quarter 2008 card charge-off rate increase to 5.19 percent, up from 4.73 percent in the same period last year, an increase of nearly 10 percent.

JPMorgan Chase reported its first quarter charge-off rate reached 4.37 percent compared to a 3.57 percent charge-off rate during the same period a year ago, an increase of more than 22 percent. Chase is the second largest U.S. credit card issuer and holds $153.6 billion in managed receivables.
 
Citigroup has had plenty of problems in the last year, and its credit cardholders are having difficulties as well. The first quarter card charge-off rate was 6.15 percent, up from the 4.70 percent rate of the first quarter last year, representing a rise of more than 30 percent. Citigroup is the third largest U.S. credit card issuer with managed receivables of $147 billion.

The last time Citi and Chase saw charge offs at those levels was in January 2006, as card issuers were digging out from the mass of problems generated by the enactment of new federal bankruptcy laws in October 2005.

There was evidence of the rising consumer debt last year when the Administrative Office of the U.S. Courts released official bankruptcy numbers for 2007. Total bankruptcy filings increased by nearly 38 percent in 2007 over calendar year 2006, reaching 850,912 for the twelve month period ending December 31, 2007, compared to the prior year’s total of 617,660.

Preliminary numbers from the Administrative Office for the first quarter of 2008 saw bankruptcy filings 27 percent higher nationwide from the same period in 2007. This rise in bankruptcy filings is expected to continue through 2008.

The job market also continued its weak trend with claims for unemployment benefits climbing to 407,000 at the end of March, the highest level since September of 2005, according to the Labor Department. Many economists had predicted that claims would only reach around 365,000.

For consumers such news has inevitably created pessimism about economic conditions and their own personal financial security as evidenced by the recent Federal Reserve report stating softening consumer spending across most of the country. This pull back in spending should continue if consumer prices continue to rise.