WASHINGTON — For the first time in 10 years, the national credit card delinquency rate fell from the second to the third quarter, more evidence that Americans are trying to pay down their debt as the recession continues to claim jobs.
The share of U.S. credit card holders who are 90 or more days delinquent fell to 1.1 percent in the third quarter, down nearly 6 percent from the second quarter, according to a new report by TransUnion, one of the leading credit-reporting agencies.
Mississippi topped all states with a 13.4 percent quarterly drop in its delinquency rate.
The decline — along with a third-quarter slip in the savings rate — suggests "continued consumer efforts to keep debt to a minimum and debt repayment under control in the face of an already depressed labor market," said Ezra Becker, the director of consulting and strategy in TransUnion's financial services group. "Consumers recognize that their credit cards are their primary purchasing vehicles in this economy."
As evidence, the average debt among card borrowers fell to $5,612 in the third quarter, down nearly 2 percent from $5,719 in the preceding quarter.
The findings are based on data from nearly 27 million randomly sampled credit files that make up about 10 percent of U.S. consumers.
Alaska had the highest average card debt in the third quarter, at $7,699, while Iowa registered the lowest, at $4,225. Hawaii had the greatest quarterly increase, up nearly 5.5 percent.
Nevada's nearly 2 percent delinquency rate was the nation's highest, followed by Florida and Arizona at 1.47 percent and 1.35 percent, respectively. Falling real estate prices have hammered all three states.
Becker said the lower delinquency rate also probably reflected consumers' reaction to higher fees, charges and modified card terms imposed in advance of the Credit Card Accountability, Responsibility and Disclosure Act of 2009.
President Barack Obama signed the measure into law in May, but many of its toughest provisions — those that make it harder for issuers to increase rates and impose fees — are slated to take effect in February.
The new February restrictions include bans on arbitrary increases in interest rates, over-the-limit fees without cardholders' consent and payment deadlines that are set for early in the business day. The bill also requires that payments that are higher than the minimum go toward balances with the highest interest rates, and that penalty fees be reasonable and proportional to the violation.
Large card issuers already have begun raising interest rates, however, slashing credit lines and tightening credit standards to increase revenue and weed out risky customers before the restrictions take effect.
The holiday shopping season will go a long way toward revealing how consumers respond to these changes, Becker said.
"It is anticipated that the market will experience a different lending dynamic and a material shift in the use of credit cards and market share across the industry," he said. "This recession has taught the U.S. consumer many lessons: Shop around for the best deal, maximize the value of your spend and protect your day-to-day liquidity."
However, consumer advocates say that's becoming harder to do as the law's full implementation nears. In a joint filing with the Federal Reserve last week, a number of consumer groups charged that card issuers are scheming to avoid many of the new provisions.
"The ink hadn't even dried on the president's signature on the CARD Act when we began seeing runarounds by the credit card companies," says a written statement by Lauren Saunders, the managing attorney for the National Consumer Law Center.
The groups cited as an example a provision that blocks rate increases on existing balances unless the cardholder is more than 60 days late. In a statement, the groups claim that Citi, the world's largest provider of credit cards, is evading the rule by "purporting to charge a 29 percent annual percentage rate, but promising to refund 10 percent the next month if the customer pays on time. In effect, this allows a 10 percent retroactive rate hike if the consumer pays even one day late."
Citi spokesman Samuel Wang responded that most customers could "earn back a portion of the increase each month," while those who objected could opt out and pay off their balances over time at the current rate. "Eligible customers who do more business with us will have the most opportunity to reduce their rates," he added.
Earlier this month, the House of Representatives voted to make the major provisions of the act effective immediately because of reports that issuers were modifying terms in advance of the new law. An attempt by Senate Banking Committee Chairman Christopher Dodd, D-Conn., to freeze interest rates until the CARD Act's provisions take effect was killed last week by Republican Sen. Thad Cochran, R-Miss.
ON THE WEB
Consumer groups file comments critical of card issuers
TransUnion survey data on credit card delinquency rates
Federal Reserve public comment on credit card reforms
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