Analysts from Fitch Ratings warned investors this month that asset-backed securities tied to major credit card issuers may soon reach performance plateaus. The company's Delinquency Index for the period ending on August 31 has dropped 35 percent from the same period a year ago.
Credit card delinquencies return to normal after historic highs
During the survey period, only 6.32 percent of cardholders allowed their accounts to fall more than 60 days behind on their monthly minimum payments. Fitch has measured 60-day delinquencies since 1991, and the company reports a historic average of about 6 percent for the metric.
In a statement to reporters, the company noted that late payments and credit card defaults have returned to the low levels of 2006. During that year, changes to bankruptcy laws required consumers to take more proactive steps to restore their credit before seeking debt relief from courts. Credit card company losses peaked at 11.52 percent in the fall of 2009, forcing many lenders to temporarily scale back instant approval offers while restoring their cash reserves.
Investors and consumers could see another credit card crunch soon
For consumers, the Fitch Ratings report means both good news and a note of caution. As the recession forced Americans to adopt stronger personal finance habits, most credit card users regained their ability to make monthly payments on time. However, Fitch's analysis suggests that worries about a potential "double dip" recession could signal trouble for credit card issuers.
According to Fitch spokeswoman Cynthia Ullrich, investors in credit card asset backed securities may see a plateau in yields over the coming months. The projection indicates that consumers now pay less in late fees and finance charges than they have in years. Likewise, competition among banks issuing credit cards for excellent credit have driven introductory interest rates to zero for the country's most affluent borrowers. While credit card ABS have become more stable, investors may not see the same rapid growth they enjoyed during the banks' recovery period.