Credit card defaults drop, boosting Discover's earnings
November 5, 2012
By: Joe Taylor Jr.
Personal credit card default rates dropped again in September, falling more than 1.5 percentage points since the same month a year ago, according to the latest report from the S&P/Experian Consumer Credit Default Indices. The national index for bank card defaults fell to 3.7 percent, the lowest figure since the statistical end of the 2007-2009 recession, researchers reported. The figure marks a seven basis point drop from August's report.
In addition, the report shows that consumers in the country's five largest cities continue to manage their credit cards more effectively. Chicago, New York, and Los Angeles reached post-recession lows, while Dallas and Miami continued to recover from real estate price drops that more drastically affected residents in those two cities.
In a statement to reporters, S&P Dow Jones Indices spokesman David M. Blitzer called 2012 "a period of continued repair for consumers." Blitzer cited falling credit card default rates as a sign that consumers' overall financial conditions continue to improve. The overall default rate for bank-issued credit cards had soared above 9 percent during 2010, as consumers felt the ripple effects of increased unemployment and falling home prices.
The overall decline in credit card defaults has offered relief to the banking industry in the form of increased profits and decreased write-offs. According to Bloomberg News, shares in credit card issuer Discover Financial Services have more than doubled over the past year. The company's fiscal third quarter ended with earnings and profits that far exceeded analysts' expectations.
Discover wrote off only $308 in delinquent accounts during the company's third quarter, down a third from the same period in 2011. The good news arrived in the midst of two major initiatives for the credit card issuer. Discover continues to roll out advertising for the "Discover it" cash back credit card, emphasizing the company's award-winning customer service and flexible approach to handling job loss and late payments. Meanwhile, Discover's partnership with PayPal has brought online payment convenience to more than 7 million merchant locations in the United States.