Research, regulation, industry reports

Credit card charge-off rates rise slightly at end of ’07

Connie Prater

In yet another sign of how much consumers may be struggling to pay their credit card bills and going deeper into debt, charge-off rates for credit cards rose slightly at the end of 2007.

According to the U.S. Federal Reserve, the credit card charge-off rate for commercial banks nationwide rose to 4.13 percent in the fourth quarter of 2007 — up from 4 percent the previous quarter. 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.

Graph: Credit card loan charge-off rates for all commercial banks, 2002-2007
Source: Federal Reserve Board

Credit card debt must be written off by banks after 180 days, but some credit card issuers may charge off the debt sooner. Charge-off rates have fluctuated over the last several years — rising and falling based on economic conditions and outstanding credit. Although the charge-off rates are creeping upward, they are nowhere near 2002 levels. That year, the rates hit 7.67 percent in the first quarter and 6.07 percent during the second quarter.

As 2007 closed, losses for some individual credit card issuers were greater than the national average. According to First Annapolis Consulting, major issuers reported the following Q4 rates:

Capital One: 5.40 percent

WAMU: 6.90 percent

Amex: 4.3 percent

Citi: 5.11 percent

Bank of America: 5.08 percent

Chase: 3.89 percent

Discover: 4.08 percent

Why you should care
Credit card losses drive up the cost of credit — the interest rates charged on your Visa or MasterCard. We’ve already heard complaints from consumers about their credit card rates spiking, some for no apparent reason. Although a number of factors are at play when credit card rates go up (including profit maintenance to satisfy stockholders), charge-offs are a key element.

Credit card charge offs are typically sold to debt buyers for pennies on the dollar of the original debt. The debt collectors then contact consumers who owe the money to collect the full amount. Take a look at our debt collection series for an insight on increased collection activity in recent months.

See related: “Card issuers’ bad earnings reshape credit card offers

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  • William Patterson

    Why do the credit card companies charge off? I have been trying to get the credit card company to remove the late charges and return my interest rate to the original rate. I got behind because of a serious operation and have not worked for over a year and my only income is SSI and I was never late on any of my payments before the operation but the credit card companies refuse to work out a fair solution. They would rather charge off the debt for pennys on the dollar then work out a solution so that I could pay and keep my credit from getting worse than it is. We need changes in the credit card rules that allow these credit card companies from applying these late charges of $39.99 and raising the interest rate th $29.99 just because you are late on one payment.
    Thank you Wm Patterson
    Is it true That if you send a credit card company registered letter in Pennsylvania asking them not to call you on the phone can they still call and harass you.Thanks

  • Connie Prater

    William, I know that talking to the credit company can be difficult. Did you try asking to speak to a supervisor? Keep going up the ladder, calmly explaining your situation. They may still turn you down, but you will have given it your best effort.
    Take a look at this article about negotiating with credit card issuers and etiquette: