Credit Card Issuers Coping with Record Delinquencies
Fitch Ratings says US credit card delinquencies and charge-offs breached record levels last month as consumer credit quality deteriorated further in the worsening economic environment. Despite these results, portfolio yields increased and excess spread levels remained robust, Fitch says in its Credit Card Movers and Shakers (U.S.) report.
Credit card issuers are actively managing their portfolios, which is mitigating losses and the risk of early amortization.
In addition to tough market conditions, credit card issuers face increased regulation. The credit card sector has exhibited a high degree of resiliency in the past when faced with regulatory actions or changes in legislation, Fitch says. However, though significant regulatory changes scheduled to take effect in 2010, there are several pending and potential bills in Congress that could force changes to the current business model sooner.
These proposals seek to restrict a lender’s ability to reprice for changing risk or may result in an acceleration of bankruptcy filings, both of which could cause incremental charge-offs at a time when charge-offs are already elevated due to economic pressures. Fitch’s report lists some outstanding bills that could adversely affect the credit card industry if they became law.
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