Moody’s: Uncollectable credit card debt reaches record in 1Q, seems ready to start declining

Moody’s: 1Q credit card charge-offs reach record

NEW YORK — The amount of uncollectable debt credit card companies wrote off in the first quarter reached a record high, but there are signs the problem is easing, Moody’s Investors Service said Friday.

The first quarter charge-off rate, or the rate at which companies wrote off bad debt, reached 11.12 percent, the highest quarterly rate in the 20 years Moody’s has been publishing its Credit Card Index.

The index tracks securitized credit card loans, the balances on cards that are packaged and sold in investment vehicles. The charge-off rate measures balances written off as an annualized percentage of total outstanding principal balance.

The spike during the quarter was predicted by the amount of late payments seen last fall, Moody’s said.

For the month of March, the rate was 11.21 percent. Among the top six issuers, Capital One saw the sharpest rise last month. Meanwhile, Discover and Bank of America posted declines in their charge-off rates.

However, Moody’s said the first quarter will likely be the peak for charge-offs, while the monthly rate will likely top out in April or May.

The agency forecasts the unemployment rate to plateau during the second half of the year at 10.2 percent. Unemployment is a big driver of credit card charge-offs.

Another big predictor is the delinquency rate, which fell in March for the fifth straight month, to 5.79 percent, a level last seen in August. Citigroup was the only issuer among the top six that saw an increase.

JPMorgan Chase and American Express round out the top six issuers.

The delinquency rate measures the proportion of account balances with a monthly payment more than 30 days past due, as a percent of total outstanding principal balance.

“We expect seasonal trends and a nascent consumer recovery to result in lower delinquency rates, which should lead to lower charge-off rates in the months ahead,” Moody’s analysts wrote in a report.