Industry News

26/09/2011 - Credit card delinquencies are often cited as signals of consumer sentiment. When consumers are paying off their debts and incurring less, it means they are focusing the limited capital they have toward improving their financial situation. Generally, this means times are tough.

It seems counterintuitive, but consumer financial health usually pertains to weak market conditions and low consumer spending. Likewise, high debt - even above average default rates - indicates that the finance sector is making money. While this doesn't necessitate general economic health, there can't be a strong economy without a strong finance sector.

Last week, the trend toward weaker consumer spending continued, as Moody's reported a dip in its August Credit Card Index, reaching an all-time low in which only 3.04 percent of balances were more than 30 days past their due for the month. In a healthy economy, where consumers feel more comfortable using their credit cards, this figure would be much higher. In September 2009, for example, the index hit 11.49 percent.

"The figures reflect the measures credit card companies have taken since the height of the financial crisis," The Associated Press reports. "In addition to writing off bad loans, credit card companies have been working to improve their delinquency rates by tightening their lending standards."

Still, some companies continue to offer record offerings. In the second quarter, Citibank offered 308 million cards to consumers in North America. For the record, that's about equal to the entire population of the U.S.

What this means, the AP adds, is that consumers with poor credit are finding it a challenge to obtain a card, as these individuals pose higher risks and yield little profit.

"When you have a recession like the one we experienced, bankers are suspicious of who they lend to and prefer high quality borrowers," Laurence Kotlikoff, an economics professor at Boston University, told the Fiscal Times.

Earlier last week, Standard & Poor's and Experian reported a dip in consumer credit defaults in August, while defaults on first mortgages fell from 1.93 percent to 1.92 percent. The findings reflect the Federal Reserve Bank's continued focus on keeping interest rates low in order to spur home-buying and consumer spending. However, as rates have been low for some time, it remains to be seen whether interest rates are much of an incentive to consumers.