Credit Card Debt Decreases for 11th Consecutive Month

Yesterday, the Federal Reserve released the monthly Consumer Credit report for August that shows credit card debt is down for the 11th consecutive month. It declined at an annual rate of 13.1% to $899.44 billion, a drop of $9.9 billion. This was the largest decline since February.

One factor in this decline is the decrease in credit card limits. Credit card companies slashed the limits for almost 58 million cardholders during the 12-month period that ended in April. But consumers also appear to be cutting back in charging items on their credit cards.

These are concerning trends for credit card issuers. Several other recent reports reinforce these concerns.

• Delinquency Rates

  In August, credit card delinquencies were up again for several major issuers. Bank of America delinquencies increased to 14.54% from 13.21%. Citigroup delinquencies increased to 12.14% from 10.03%. Discover delinquencies increased to 9.16% from 8.43%.

• Third Quarter Earnings

  Banks will release their third quarter earnings next week. Some analysts are expecting an 11th consecutive quarter of lower profits.

• Consumer Response

  In a recent Consumer Reports survey, more than a third of consumers polled said they’ve paid off and closed a credit card account since January 2008. Of those that did, more than half said this was in response to the actions of the banks such as raising rates, imposing fees and cutting limits.

• Further Rate Increases

  Another issuer is significantly raising rates before the CARD Act provisions go into effect. Wells Fargo & CO. is currently notifying some of its cardholders that it will raise interest rates by three percentage points starting November 30.

“These numbers are not good news for credit card issuers as they struggle to regain profitability,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. “They are trying to restore revenue by raising rates and fees. This angers cardholders and some are cutting back on their credit card spending while others react by closing their accounts. Increased payments have forced some into delinquency, and the issuer is left with unpaid balances that they cannot collect. And this cycle continues.”