CreditCards.com

Research, regulation, industry reports

Credit card charge-off rates crept upward in early 2008

Connie Prater

Percentage of charge-off rates on credit card loans for all commercial banks:
2000 to Q1 2008.

credit-card-charge-offs-q1-2008.jpg
Source: Federal Reserve Board

Banks continued to charge off uncollectable credit card debts during the first three months of 2008 at rates slightly higher than those seen in 2007 and 2006, according to the latest figures released Wednesday by the Federal Reserve Board.

It’s no surprise given the credit crunch and economic slowdown. The official first-quarter 2008 charge-off rate of 4.70 percent is up from 4.15 percent the previous quarter and from 3.93 percent during the same quarter a year ago.

Charge-offs are the value of uncollected credit card balances removed from the books and charged against a bank’s loss reserves. The rate is the amount of charge-offs divided by the average outstanding credit card balances owed to the issuer.

Rising charge-offs are a reflection of the difficulties some consumers may face these days in paying their credit card bills. As gasoline and food prices soar, some families are struggling to pay basic living expenses.

Despite the recent increases in charge-offs, industry observers note current levels are not as high as Q4 2005 (when the rate hit 6.05 percent), Q4 2003 (when the rate was 6.07) or Q1 2002 (when the rate reach a high of 7.85 percent).

See related: “Credit card charge offs rise slightly at end of ’07

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, we ask that you do not disclose confidential or personal information such as your bank account numbers, social security numbers, etc. Keep in mind that anything you post may be disclosed, published, transmitted or reused.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.

  • Larry Wilder

    Once a credit card debt is charged off by a bank, does interest on the debt continue to accrue? Can debt collectors charge this interest? If it is collectable, for how long?

  • When the bank charges off a debt, that’s an accounting procedure that gets it off its books. They sell it for whatever they can to a debt collector. The debt collector will then try to get whatever they can from you. They’ll continue to pile on interest and fees in an effort to get as much out of you as they can. They can continue to TRY and collect it forever. But they can get a judgment against you (and do things like garnish your wages) only for a set number of years — usually 3 to 10. It depends on which state you’re in. The debt may be sold several times, diminishing in price each time.

  • LRodriguez

    i am being sued by a credit card co. which was sold to collection agency,yet it was charged off.Unfortunately i’m unable to pay this as I lost my job after the store closed.At this time I work part-time & only make enough to get me by.my question is,is it legal for them to still try to collect after the credit card charged it off?

  • Many people think that because a bank has charged off a debt that they no longer have to pay it. Wrong.
    Uncollected debts that are charged off are often sold to debt buyers for pennies on the dollar. The consumer is still liable for the original debt and a collection agency can contact you about the debt and request payment.
    If you are being sued, that means the collector has tried but failed to resolve the issue with you. Best thing to do now that you are being sued is contact a consumer lawyer. Another option is getting help from a nonprofit consumer credit counseling agency (Find one at http://www.nfcc.org.)

  • Susan

    If the original debtor charged off the debt and closed the account in 2003….and now a junk debt collection agency is going after the debt…do I have a statue of limitations defense? I have not paid or made any indications of promise of payment to “re-start” the debt.