Less (Spending) Is More (Chargeoffs) For U.S. Credit Card ABS

Consumers are relying more on revolving credit at a time when chargeoffs for U.S. credit card ABS are likely to rebound up to historically observed levels, according to Fitch Ratings in the latest edition of ‘Credit Card Movers & Shakers’.

With economic growth moderating and expectations for contained inflation, the Federal Reserve declined to raise rates this month for the first time since June 2004. “Fitch expects contractual chargeoffs to rise towards historically observed levels of 5.5% – 6% to the extent that bankruptcy filings remain depressed,” said Cynthia Ullrich, Director, Fitch Ratings.

Consumers’ increased reliance on their credit cards may already be manifesting itself in the monthly payment rate, which fell 34 basis points (bps) to 17.63% and is 61 bps lower than this time last year. However, both prime (14 bps to 3.44%) and subprime (36 bps to 8.40%) chargeoffs continue to fall and lag behind last year’s rates.