Late card payments fall in Feb. at top issuers

Major credit card companies said their customers' payment habits continued to improve in February.

The top six card issuers on Tuesday all reported lower rates of payments late by a month or more, a positive sign for the industry as it continues to recover from huge write-offs in 2009 and 2010.

Bank of America, Chase, Citibank, American Express, Capital One and Discover all submitted regulatory filings detailing lower rates of delinquent payments than in January, continuing a trend that began early last year.

The rates are expected to continue to drop, reflecting both a strong effort by consumers to make their payments on time and the removal of chronic late payers who have seen their credit cut off from the pool of card users.

"We almost without fail see steady improvement in the spring," said Jeff Hibbs, a credit industry analyst with Moody's Investors Service. He said credit card performance is returning to normal seasonal patterns seen before the economic crisis.

In a typical year, consumers would use tax returns to pay down credit card bills after running the balances up during the holidays. Two years ago, when late payments climbed during the spring, it was a clear sign something was wrong, he said.

Hibbs did not view data showing that February defaults rose slightly at three of the top six issuers as an indicator of trouble ahead.

The largest increase in defaults, or charge-offs, as they are called in the industry, was reported by Citibank. The bank said the rate at which it wrote off unpaid cards rose to 7.95 percent of balances on an annualized basis last month, up from 7.49 percent in January.

Yet even with that increase, Citi's charge-off rate is far below its peak of 12.14 percent in September 2009, and significantly lower than the double-digit rates it reported for most of last year.

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Similarly, the upticks reported by Chase and Discover were small, and did not lift their overall rates even close to the level they were at the height of the industry's problems.

Industry wide, the charge-off rate stood at 7.7 percent in the 2010 fourth quarter, according to the most recent data available from the Federal Reserve. Overall, defaults peaked at 10.97 percent of balances in 2010's second quarter. In the two years prior to the recession, it averaged 3.82 percent.

Hibbs said charge-offs are likely to resume falling, and should continue to drop through the end of the year.

However, he will be watching for a stall or reversal of the delinquency rate's downward trend.

If companies start reporting more problems for customers making on-time payments, that could be a sign that the charge-off rate has reached bottom and could resume climbing a bit, Hibbs said. That's because delinquencies are an indicator of future defaults — card companies usually write off accounts when they haven't received a payment in 180 days.